API Reports a Drawdown

Analisi Giornaliera - 09/12/2015

Oil Prices Remain Volatile After Whirlwind Session That Saw Benchmarks Hit Multi-Year Lows


API data released late during the Tuesday session saw the first reported drawdown in weeks with stockpiles falling by -1.900 million barrels in the latest reporting period. This comes on the heels of substantial losses in crude oil following the decision by the OPEC Cartel to let members decide on their own production levels.

Oil Volatility Still Abundant

As evidenced by the price action in both the WTI and Brent crude oil benchmarks, volatility shows no signs of lessening following last Friday’s OPEC decision as oversupply fears and inventory constraints are once again at the forefront of investor sentiment. The drawdown according to the American Petroleum Institute numbered at 1.900 million barrels, beating expectations of a 1.200 million barrel drop in inventories. However, today’s official number from the US Department of Energy could contrast with the drawdown with forecasts anticipating a gain of approximately 250,000 which stands at odds with the API numbers. More importantly, the Cushing inventory facility continues to fill as evidenced by another 614,000 barrels added to storage. After touching multi-year lows before the announcement, crude oil prices surged by nearly 5.00% within two hours before retracing part of the move and retreating modestly.


Euro Area Economy Expanding Steadily

Eurostat figures released on Tuesday confirmed growth in the Euro Area for the third quarter, reporting quarterly expansion of 0.30% and an annualized increase of 1.60%, meeting expectations. Despite exports having declined due to a general slowdown in global trade, private consumption and government spending were noted as largely supportive of growth metrics. Final household consumption rose by 0.40%, compared to the initial 0.30% recorded in the Euro Area whereas in the 28 European Union members, household consumption rose by 0.50% during the same period. Government spending was a major contributor to the gains, increasing by 0.60% while imports saw an uptick to 0.90% and exports expanded by 0.20%. These results are supportive of the monetary easing initiatives undertaken by the ECB to support regional growth. The Euro has continued to climb versus peers, rising back above 1.0900 against the US dollar.


Chinese Inflation Improves

China's consumer inflation managed to rebound modestly in November, while producer prices remained in-line with expectations, still firmly in contractionary territory as risks to the outlook mount. Consumer prices were flat in November at 0.00% whereas the annualized pace of CPI growth rose to 1.50% beating the anticipated expected value of 1.40% and even higher than prior month’s value of 1.30%. Unusually frigid weather conditions are said to have contributed to vegetable prices surging by 9.40% during the latest reporting period, adding to upward CPI momentum. Producer prices remained weak, falling at a -5.90% annualized pace in November, and marking the 45th consecutive month of contraction. Despite the rise in consumer prices, inflation remains weak, largely as a result of the sharp drop in commodity prices during the year as well as spare industrial capacity but also reflecting slow external demand for export oriented sectors of the economy.


Canadian Housing Starts

Statistics Canada released data showing that housing starts leapt higher to 211,900 units in November, up from 197,700 units in October. Urban starts increased by 7.70% with the highest increase being attributed to multi-unit urban dwellings which rose by 13.20% over the month. The values are consistent with the building permits figure from October, released on Tuesday as well, that soared to 9.10%, the first recorded increase in three months. The value surpassed estimates of 3.20% and showed a demonstrable rebound from the previous month’s contraction of -6.60%. Multi-unit permits increased by 35.40% fueling improvements in residential building permits to 15.50%. The state to show the highest rise was Alberta, marked by an increase of 53.00% or CAD$2.20 billion for October. The BoC has cut rates twice this year to help strengthen the economy which in turn led to easier borrowing for citizens and fueled continued losses in the Canadian dollar.


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