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WTI Crude Breaches US$ 62/bbl In Asia, Making Fresh 3-Year High Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Jan 04 18 01:43 ET

Decline in US inventory offered a boost to oil prices. The front-month WTI crude oil contract rallied to a 3-year high of 61.97 before settling at 60.28, up +2.09%. The Brent contract also rose to as high as 68.03 before ending the day at 67.84, up +1.91%. Fuel prices also strengthened despite stock-builds last week. Precious metals remained firm with gold price gaining for a 9th consecutive day. The strength was, however, tamed by USD's rebound. The greenback recovered, after weeks' decline sending the asset to oversold territory. It was also supported by heightened hopes of a rate hike in March. The market has priced in a 68% chance of rate hike in March, up from 63% last week and 53% a month ago.

The industry-sponsored API estimated that US crude oil inventory fell -4.99 mmb in the week ended December 29. This has brought the total withdrawal to over 63 mmb last year. For refined oil products, gasoline stockpile increased +1.87 mmb while distillate rose +4.27 mmb. The EIA report today would probably shows a -5.15 mmb decline in crude inventory. Gasoline and distillate stockpiles might have increased +2.18 mmb and +0.48 mmb respectively.

Released on Wednesday, the FOMC minutes for the December meeting revealed that policymakers were optimistic about the path of economic expansion, partly driven by the government's tax reform plan. Prior to the passage of final version of the tax plan, the minutes suggested that members believed that the tax reduction would somehow boost both capital and household spending. The magnitude of the boost remains uncertain, though. The December rate hike of +25 bps was data-dependent but a key factor was the vibrant employment market. The members agreed that economic activity had been "rising at a solid rate" and that "the labor market had continued to strengthen". They acknowledged that, "averaging through fluctuations associated with the recent hurricanes", the number of jobs grew solidly and the unemployment rate continued to fall. The Summary of Economic Projections revealed that three members revised lower their estimates for the longer-run unemployment rate. While wage growth was still "modest", a few members forecast it to accelerate as the job market tightened further. Many members expected that the tightening labor market would lead to higher inflation in the medium- term, but some continued to judge that core inflation would persistently stay below the 2% target. The rate hike in December was not unanimous as Chicago Fed President Charles Evans dissented.

Concerning the recent flattening of the Treasury yield curve, the FOMC minutes noted that the phenomenon was "not unusual by historical standards" and possibly reflected the lower estimates of the neutral rate and lower term premiums. Yet, there were some members showing concerns about the possible future inversion of the yield curve which might be a sign of an economic slowdown.

On the dataflow, the ISM manufacturing index gained +1.5 points to 59.7, beating consensus of a flat reading of 58.2. The prices paid index jumped +4.5 points to 69, compared with an expected drop to 64.5. For the day ahead, the ADP estimate probably shows an +190K increase in US payrolls in December, together with Challenger's report on job reduction for last month. Separately, initial jobless claims probably rose +244K in the week ended December 30, following a +245K addition in the previous week.

 

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