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Crude Oil's Slump Exacerbated by Rising Inventory Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Feb 08 18 02:32 ET

World stock markets stabilized although the recovery appears lacking momentum. US dollar remained firm against major currencies with the DXY index closing above 90 for the first time since January 23. Treasury yields resumed strength after two days' of consolidation. The market has priced in a 90% chance of a Fed funds rate hike in March. Indeed, the stronger than expected employment report has led some to start speculating 4 rate hikes this year, though this has yet to be a consensus. Meanwhile, a US Senate bipartisan agreement to avert a government shutdown has also supported the greenback and yields. In the commodity sector, crude oil prices declined with the benchmark WTI and Brent contracts losing -2.52% and +2.02% respectively.

On oil inventory, the US Energy Information Administration (EIA) shows that total crude oil and petroleum products stocks increased +4.39 mmb to 1209.47 mmb in the week ended February 2. Crude oil inventory added +1.9 mmb to 420.25 mmb although stock decreased in 4 out of 5 PADDs. PADD 4 inventory jumped +4.82 mmb for the week. Cushing stock slipped -0.71 mmb to 36.31 mmb. Utilization rate rose +4.4% to 92.5%. Meanwhile, crude production increased +0.33M bpd to 10.25M bpd for the week. For refined oil products, gasoline inventory soared +3.41 mmb to 245.47 mmb although demand gained +0.73% to 9.11M bpd. Production jumped +5.41% to 10.9M bpd while imports soared +46.56% to 0.75M bpd during the week. Distillate inventory gained +2.85 mmb to 141.83 mmb as demand decreased +15.48% to 3.78M bpd. Production rose +11.19% to 5.13M bpd while imports plunged +46.4% to 0.31M bpd during the week.

Staying in the US, Senate leaders announced a bipartisan budget plan to fund the government for 2 years, including US$ 315B in additional funding. The debt ceiling is also raised until March next year. The Senate would vote on this plan today. On a separate note, New York Fed president and FOMC vice Chair William Dudley suggested that the recent correction in the stock market is not "a big story at all for central bankers". Meanwhile, Chicago Fed President Charles Evans (non-voter this year) noted that he has seen a "hint" of inflation pressures picking up, adding that "inflation picks up more assuredly, as many expect... then we still could easily raise rates another three or even four times in 2018 if that were necessary". Yet, he affirmed his view that it would be prudent to wait until mid-year for the next rate rise.

Released earlier today, RBNZ left the OCR unchanged at 1.75%. Owing to the downside surprise in 4Q17 inflation, policymakers revised lower their inflation forecast, mainly driven by tradeable inflation. Headline inflation is expected to reach +1.5% in 2018 (financial year), from November's estimate to +2%, and to +1.8% for 2019, from November's +2%. The central bank also adjusted its GDP growth forecasts. Growth is expected to reach +3.2% in 2018, down -0.6 percentage point from the previous estimate, followed by an upward revision on 2019 growth to +3.5%, from November's +3%. Both forecasts remain about RBNZ's trend growth if +3%. Meanwhile, the central bank now sees currency appreciation a less concern, as NDZUSD has retreated to a one-month low, and indicates that the positive impacts of fiscal stimulus (including KiwiBuild and the increase in minimum wages) have diminished. The overall monetary stance remains neutral with the first hike unlikely coming before the 2Q19.

Staying in Asia Pacific, China's trade surplus surprisingly narrowed significantly to US$ 20.3B in January, from US$ 54.7B a month ago. Today's focus is undoubtedly BOE's meeting. While it is widely anticipated that the Bank rate would stay unchanged at the meeting, following the first-in-a-decade hike last November, the focus has turned to the chance of another increase in May after Governor Mark Carney suggested last Thursday that IMF's forecast for UK's growth (2018: +1.5%) is a bit low. He also noted that the BOE would revise higher the GDP growth forecasts.

 

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