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Traders Dumped Oil as Russia Signaled It's Ready to Live With Prices at US$40/bbl Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Fri Jun 02 17 03:58 ET

Both crude oil benchmarks were pressured below US$50/bbl ahead of the US session on Friday. Energy prices climbed higher on early trading Thursday as US crude oil inventory recorded another week of decline. Gains were, however, paired later in the day as US production remained elevated and Russian oil minister indicated that the country can accept oil price as US$40/bbl. The front-month WTI crude oil contract initially rose to 49.17 before ending the day at 48.36, up +0.08%. Meanwhile, the Brent contract rose to 51.45 earlier in the day, before closing at 50.63, up +0.64%. Us dollar recovered modestly, while Wall Street and Treasuries climbed higher on encouraging dataflow. The focus today is undoubtedly the non-farm payrolls report.

On oil inventory, the DOE/EIA reported that total crude oil and petroleum products stocks declined -5.21 mmb to 1330.99 mmb in the week ended May 26. Crude oil inventory fell -6.43 mmb to 509.91 mmb with stocks dropping in 4 out of 5 PADDs. Cushing stock decreased -0.75 mmb to 64.82 mmb while utilization rate added +1.5% to 95%. For refined oil products, gasoline inventory dropped -2.86 mmb to 237.02 mmb as demand was up +1.22% to 9.82M bpd. Production increased +1.83% to 10.43M bpd while imports slipped -3.03% to 0.7M bpd during the week. Distillate inventory gained +0.39 mmb to 146.73 mmb as demand plunged -7.66% to 4.03M bpd. Production gained +0.56% to 5.23M bpd while imports added +3.936% to 0.11M bpd during the week. Despite the decline in crude oil inventory, US production jumped +0.02M bpd to 9.34M bpd, the most since August 2015. The DOE/EIA forecasts that US would grow by an average of +0.44M bpd in 2017 and another +0.65M bpd in 2018. US producers' ramp-up of investment as oil prices recover is offsetting the efforts by OPEC and non-OPEC producers to cut output. Meanwhile, Russian Economy Minister Maxim Oreshkin noted in an interview that the country is "ready to live forever with the oil price at US$40/bbl or below... All macroeconomic policy is now based on the assumption of the oil price of US$40/bbl". It has raised concerns that Russia may retreat from output out after the extended deal ends next year.

On the dataflow, ADP reported that US' private payrolls employment increased +253K last month, much stronger than consensus of +181K and April's +177K. On a separate note, the weekly initial jobless claims increased +13K to 248K in the week ended May 26. The market had antedated a lesser rise to 238K. The 4-week moving average added +2K to 238. The manufacturing ISM edged up +0.1 point to 54.9 in May. Looking into the details of the report, the production index dropped -1.6 points to 57.1, the new orders index rose +2 points to 59.5 and the employment index added +1.5 points to 53.1. Yet, the prices paid index dropped -8 points to 60.5. The focus today is US' official employment report for May. The market current expects a 185K increase in non-farm payrolls, down from a +211K addition a month ago. The strong ADP report might signal upside surprise for the data. The unemployment rate probably stayed unchanged at 4.4% in May, while the average hourly earnings might have increased +0.3% m/m in May, down from +0.3% in the prior month.


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