A less hawkish-than-expected Fed, which sent US dollar lower, rescued energy prices from falling for a third consecutive week. The oil supply outlook has remained mixed in the near-term. The market continued to weigh OPEC's compliance against US ramp up in output. The front-month WTI crude oil contract settled at 48.78, recovering +0.6%, whist the Brent contract closed at 51.76, up +0.45%, for the week. Precious metals rose across the board. The benchmark Comex gold and silver contracts gained +2.42% and +2.94% respectively. The fact that FOMC had not indicated acceleration of rate hike path reduced the cost of holding the metals. PGMs also gained with the Nymex platinum and palladium contract soaring +0.68% and +4.26% respectively. US dollar weakened with the DXY index falling to a 5-week low of 100.3 at close last Friday.
FOMC voted 9-1 to raise the Fed funds target range, by +25 bps, to 0.75%-1.00%.Not only that the decision was unanimous, but the latest economic projections largely stayed unchanged from previously, despite the upbeat employment and inflation indicators of late. Temporary easing political risks in European also helped lift sentiment, supporting risk assets such as oil. Dutch PM Mark Rutte retained power and his pro-EU centre-right VVD remained the biggest party. While losing around 8 seats, Rutte's VVD party would be able to head up a new coalition. Meanwhile, some smaller pro-Europe have gained seats with centrist D66 and Green Left becoming the third and fourth largest parties, respectively. The next event under the spotlight is the French election scheduled in April and May. Taking place across two rounds, far right Le Penn is expected to win in the first round but lose in the second and final round, as polls suggested.
The key event that dragged down oil's recovery was doubt over OPEC's compliance. The latest OPEC report revealed that Saudi Arabia raised output, by +0.26M bpd, to over 10M bpd in February. This was in spite the Kingdom's pledge that it has cut output more than required. the market appeared unmoved by Saudi oil minister Khalid Al-Falih's comment that the output cut deal might extend it oil inventory remains "still above the five-year average, if the markets are still not confident in the outlook, if we don't see companies and investors feel good about the health of the global oil industry". Falih noted that OPEC and non-OPEC producers that agreed to cut aim at bringing "the industry back to a healthy situation". The next OPEC meeting is scheduled on May 25, by then the members would decide on whether to continue output cut. We expect the members would favor continuing the plan as they now focus on stability, instead of maintaining market share. However, the details of the output cut plan might change.
On natural gas, the EIA reported that US storage dropped -53 bcf to 2 242 bcf in the week ended March 10. Stocks were -236 bcf less than the same period last year and +395 bcf above the five-year average of 1 847 bcf. Total working gas storage stayed within the five-year historical range for the week. Separately, Baker Hughes estimated that that the number of gas rigs added +6 units to 157 in the week ended March 17. In terms of drilling types, directional rigs stayed unchanged at 61 units, horizontal rigs soared +19 units to 658 and vertical rigs added +2 units to 70. Together with the 14-unit increase in oil rigs, the total number of rigs gained +21 units to 789 for the week.