A second consecutive day of decline signals that the recent rally in crude oil prices might have lost momentum. Besides a disappointing report showing the first US crude inventory increase in 8 weeks, the market was unimpressed by the news of Saudi Arabia's output cut. The front-month WTI crude oil contract fell to as low as 50.71 before settling at 50.82, down -2.19%, while the Brent crude contract ended the day at 53.64, down -2.37%. Precious metals firmed with the Comex gold contract climbing +0.06% and the silver contract up +1.04%. Weakness in energy prices hurt US equities, sending DJIA and S&P 500 indices -0.52% and -0.16%, respectively, lower.
The industry-sponsored API estimated that US crude oil inventory rose +1.5 mmb in the week ended January 6. Cushing stocks, however, dropped -0.19 mmb. For refined oil products, gasoline and distillate stockpiles rose +1.7 mmb and +5.5 mmb respectively. The DOE/EIA report today probably shows a a+1.16 mmb increase in crude oil inventory. Gasoline and distillate stockpiles might have gained +1.64 mmb and +0.9 mmb respectively.
Reuters cited an unverified source that Saudi Arabia informed some of its Asian customers that it would curb crude supplies slightly from contracted volumes in February. However, no details of the reduction and the countries involved were offered. Not only were traders not convinced by such report, they were concerned that the proposed output cut might not be able to offset the surplus over the past 2 years. As mentioned yesterday, Iraq, OPEC's second largest producer, planned to raise crude exports from its southern port of Basra to a record high of 3.641M bpd next month, up from a then-record of 3.51M bpd in December. Extremely cold weather is curbing output in Russia, a non-OPEC producer that has agreed to cut production. It was reported that temperature of as low -60 degrees Celsius has shut down production facilities in the country, suspending production of around -0.1M bpd in the first few days of January. More disruptions are expected.
On the dataflow, US' NFIB small business optimism index jumped 7.4 points to 105.8 in December, marking the highest reading since December 2004. The gain was mainly driven by improving economic outlook, with the corresponding index soaring +38 points to 50, the best reading since March 2002. Separately, the BLS JOLTS suggested that the hiring and quits rates, at 3.6% and 2.1% respectively, remained steady in November. Canada's housing starts jumped +10.75 to 207K in December, from a year ago, the reading surged +21.1%.
A number of activity data would be released in the UK. Industrial production probably grew +0.9% m/m in November, after contracting -1.3% a month ago, while manufacturing production gained +0.5%, following a -0.9% decline in October. Construction output added +0.3% m/m in November, after dropping -0.6% previously. Separately, visible trade deficit might have expanded to 11.2B pound in November, from 9.7B pound in the prior month. BOE governor Mark Carney is scheduled to testify before the Treasury Select Committee today.