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Higher-than-expected Decline in Crude Inventory Boost Oil Prices Further Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed May 25 16 22:38 ET

Bigger-than-expected decline in US oil inventory lifted sentiment, sending energy prices and equities higher. The front-month WTI crude contract extended strength to a new 2016-high of 49.75 before ending the day at 49.56, up +1.93% while the Brent contract rose to as high as 49.96 before setline at 49.74, up +2.33%. Fuel prices were mixed with heating oil gaining +1.61% while gasoline slipping -0.77%. in the stock market, European shares rose solidly with the Stoxx600 index gaining for a second day as led by energy and financials. Wall Street also firmed with DJIA and S&P 500 indices adding +0.82% and +0.7% at close. USD's rally took a breather after rising to a 8-month high on Wednesday. GBP and CAD outperformed among the major currencies due, respectively, to polls suggesting a "remain" vote gained momentum in Brexit referendum and BOC's view that the negative impacts of the wildfires in Alberta should be temporary.

The DOE/EIA reported that total crude oil and petroleum products stocks slipped -0.9 mmb to 1367.84 mmb in the week ended May 19. Crude stockpile plunged -4.23 mmb (consensus: -2.45 mmb)to 537.07 mmb as inventory declined in 4 out of 5 PADDs. Cushing stock slipped -0.65 mmb to 67.62 mmb. Utilization rate dropped -0.8% to 89.7%. Gasoline inventory rose +2.04 mmb to 240.11 mmb as demand plunged -2.45% to 9.52M bpd. Production decreased -0.13% to 9.87M bpd while imports soared +35.02% to 0.93M bpd. Distillate inventory also dropped -1.28 mmb to 150.88 mmb although demand fell -5.5% to 4.09M bpd. Production dropped -2.29% to 4.66 bpd while imports jumped +271.15% to 0.19M bpd during the week.

BOC left its overnight night rate unchanged at 0.5% in May. Focus of the statement was on the impacts of wildfires in Alberta and US' economic growth outlook. Policymakers judged that massive wildfires in Alberta would drag Canada's economic growth to negative territory in 2Q16 and "fire-related destruction and the associated halt to oil production will cut about 1.25% off real GDP growth" in the quarter. However, the effect should be temporary as the economy is expected to "rebound in the third quarter, as oil production resumes and reconstruction begins". The central bank has turned more positive over US' outlook. Policymakers indicated that "despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016". Last month, they noted that "after a slow start to 2016, the US economy is expected to regain momentum, but with a lower profile and composition that is less favorable for Canadian exports". The central bank is expected to leave its policy rate unchanged for the rest of the year.

On the dataflow, US' goods trade deficit widened modestly to US$57.5B in April from the revised US$57.01B a month ago. Exports rose +2.4% m/m while imports gained +1.9% m/m. FHFA's home prices rose +5.7% y/y in 1Q16 and MBA's new purchase mortgage applications index rebounded 4.8% last week. Today, US' durable goods orders probably gained +0.3% m/m in April, easing from +0.8% previously. However, the reading excluding transportation added +0.1%, following a -0.2% contraction in March. Initial jobless claims probably slipped -3K to 275K in the week ended May 21.


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