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Crude Oil Prices Gain for Second Day; Sterling Firms on Strong Production Data Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Oct 10 17 05:50 ET

Crude oil prices recovered for a second consecutive day on Tuesday, as buoyed by comments from OPEC officials that the output cut deal could be extended until end-2018. OPEC Secretary-General Mohammad Barkindo suggested over the weekend that consultations were under way for an extension of the agreement beyond March 2018. He added that more oil producers may join the pact at next month's meeting. Indeed, the cartel is keen on using verbal tricks to monitor oil prices. We doubt if the OPEC members who have been exempted from previous cuts (e.g. Iran, Libya and Nigeria) would join this time. Currently trading 49.8, the front-month WTI crude oil contract is re-approaching US$50/bbl, after gaining +0.59% in the prior day. The Brent contract has continued hovering around US$55-56/bbl. Gasoline price recovered mildly after plunging to a 3-month low on Monday. An EIA report suggested that household gasoline expenditure probably stays below US$2 000 this year (2.4% of household income, compared with the 2008-peak at US$ 2 715 (4% of household income).

In the FX market, British pound has remained firm in European session today, after being the best performer amongst the majors on Monday. One of the reasons is the strong dataflow. UK's industrial production grew +0.2% m/m in August, in line with expectations but mildly weaker than the upwardly revised +0.3% growth a month ago. From a year ago, IP growth accelerated to +1.6% from the upwardly revised +1.1% in July. The market had antedated a weaker expansion of +0.9%. Manufacturing production rose +0.4% m/m in August, unchanged from July's data which was revised slightly lower. On year-over-year basis, the reading improved to +2.8% in August, beating expectations of +1.9% and July's +2.7%. UK's construction output jumped +0.6% m/m in August, after contracting -1% in the prior month. The country's visible trade deficit widened to -14.2B pound in August, from -12.8B pound in the prior month. The market has anticipated it to narrow to 11.2B pound.

Another reason is bargain-hunting as the currency slumped to lowest level in a month against the greenback last week. We remained bearish over the pound's outlook. The incumbent Conservative Party is losing support due to the poor leadership of PM Theresa May. It was reported that about 30 Tories MPs have agreed to sign a letter demanding her to quit. We do not this would materialize, though, amidst the lack to a charismatic successor within the Conservative Party and the high risk of bringing about a Labor government in case of a snap election. However, political turmoil should continue to cause volatility in the pound. Moreover, the uncertainty of Brexit and weak economic developments should be limiting the pound's strength.

For the rest of the day, Canada's housing starts probably dropped to 210K in September, from 223.2K a month ago. Moreover, building permits might have contracted -1% m/m in August, after declining -3.5% in the prior month.


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