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Soaring Gasoline and Distillate Stockpiles, and Crude Oil Production, Signals Demand Receding Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Dec 07 17 00:18 ET

Surprising US stock-builds weighed on oil prices, sending the front-month WTI and Brent crude oil contracts down, by -2.88% and -2.61%, respectively. For refined oil products, the Nymex heating oil and RBOB gasoline contracts plunged -2.75% and -3.35% for the day. In the FX market, Canadian dollar was the worst performer against US dollar, amongst other major currencies. USDCAD jumped to a 3-day high of 1.2807 before ending the day at 1.276%, up +0.65%. BOC maintained a cautious tone at the meeting despite strong employment data and upward revisions in GDP growth. British pound was the second weakest as previous hopes that a deal over the Irish border would be agreed upon ahead of the EU summit next week are threatened. Wall Street struggled was the decline in energy stocks was partially offset by gains in the tech sector. The DJIA and S&P 500 indices slipped -0.16% and -0.01% for the day. Treasuries fell, sending yields higher. US yield curve flattened further as 2-year yields slipped -2 points to 1.806% while 10-year yields were down -3 points to 2.328%.

BOC

BOC left the policy rate unchanged at 1% in December. While acknowledging the strength in the employment situation, after the November unemployment rate falling to a decade low of 5.9, it warned of the slack in the labor market. While upgrading GDP growth forecast, it noted that it does not necessarily imply a narrower output gap, as the revisions were driven by previous national accounts and the "revisions also imply a higher level of potential output". While admitting the policy rate would have to increase over time, it reiterated caution over any monetary decision. All in all, the central bank attempted to deliver a neutral to dovish message, so as not to cripple the recovery path – a lesson learnt after two consecutive rate hikes in July and September.

Oil Inventory

The US Energy Information Administration (EIA) shows that total crude oil and petroleum products stocks dropped -2.52 mmb to 1249.61 mmb in the week ended December 1. Crude oil inventory plunged -5.61 mmb to 448.1 mmb as stock declined in 3 out of 5 PADDs. PADD 2 inventory fell -3.42 mmb for the week whilst Cushing stock slipped -2.75 mmb to 55.56 mmb. Utilization rate gained +1.2% to 93.8%. Meanwhile, crude production climbed further higher to 9.71M bpd for the week. For refined oil products, gasoline inventory soared +6.79 mmb, doubling last week's addition, to 220.88 mmb although demand added +1.96% to 8.9M bpd. Production dropped -4.54% to 9.76M bpd while imports fell -7.22% to 0.49M bpd during the week. Distillate inventory increased +1.67 mmb to 129.45 mmb as demand fell -3.74% to 3.74M bpd. Production gained +2.23% to 5.4M bpd while imports jumped +20.83% to 0.15M bpd during the week.

Dataflow

The ADP estimated that US employment increased +190K in November, weaker than consensus of +191K and October's +235K.This might imply that US nonfarm payrolls might have increased less than +200K last month. Separately, nonfarm productivity stayed unchanged at +3% growth in 3Q17, while unit labor cost slipped -0.2%, revised lower from +0.5% estimated previously, in the third quarter. in the Eurozone, retail PMI added +2.3 points to 52.4 in November. Germany's factory orders grew +0.5% m/m in October, compared with consensus of a -0.2% decline and September's +1.2% expansion. Released earlier today, Australia's trade surplus narrowed to AUD 0.11B in October, missing expectations of AUD 1.41B and September's downwardly revised AUD 1.6B. Aussie has remained under pressure since the disappointing GDP growth report due Wednesday. The economy expanded +0.6% q/q in 3Q17, missing consensus of +0.7% and the upwardly revised +0.9% growth in the second quarter.

For the day ahead, US initial jobless claims probably increased to 241K in the week ended December 2, from 238K a week ago. In Europe, Swiss FX reserve might have increased to 745B franc in November, from 742B franc in the prior month. Separately, Swiss unemployment probably increased to 3.1% in November from 3% in the prior month.

 

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