US Oil Inventory Fell Markedly; USD Plunged as Yellen Hinted Not Many Rate Hikes Needed

Posted July 13th, 2017 by LouisaHays6 and filed in General News

Crude oil prices recovered for three days in a row as US inventories fell significantly last week. The front-month WTI crude oil contract gained +1% to settle at 45.49 while the Brent contract added +0.46% to close at 47.74 for the day. Stock markets rallied in both the US and Europe. For the formers, optimism was driven by the not-so-hawkish comments by Fed Chair Yellen. Wall Street strengthened with the DJIA and S&P 500 indices gaining +0.6% and +0.7% respectively. European shares were driven higher by energy, construction, healthcare and mining shares. The broad Stoxx 600 index ended the day +1.6% higher. Also driven by Yellen’s testimony, US treasury prices rose, sending yields lower amidst diminished expectations for a rate hike in the near-term. US dollar extended weakness against Canadian dollar as the BOC rose the policy rate, by 25 bps to 0.75% for the first time in 7 years. USDCAD slumped to as low as 1.2684, a level not seen since June 2016, before settling at 1.2749, down -1.27%.

The DOE/EIA reported that total crude oil and petroleum products stocks declined -3.9 mmb to 1335 mmb in the week ended July 7. Crude oil inventory slumped -7.6 mmb to 495.4 mmb with stocks dropping in 2 out of 5 PADDs. Cushing stock decreased to 57.6 mmb from 59.51 mmb in the prior week, while utilization rate added +0.9% to 94.5%. For refined oil products, gasoline inventory fell -1.6 mmb to 235.7 mmb as demand was up +0.83% to 9.79M bpd. Production increased +1% to 10.47M bpd while imports plummeted -35.3% to 0.47M bpd during the week. Distillate inventory increased +3.2 mmb to 153.6 mmb as demand fell -10.74% to 3.86M bpd. Production soared +4.88% to 5.35M bpd while imports jumped +15.7 to 0.13M bpd during the week.

Fed Chair Janet Yellen’s testimony before the Congress signaled that the central bank appears to be less confident over the inflation outlook. Commenting at the Q&A session, her tone was more cautious than previously, noting that “temporary factors appear to be at work. It’s premature to reach the judgment that we’re not on the path to +2% inflation over the next couple of years. As we indicate in our statement, it’s something we’re watching very closely, considering risks around the inflation outlook”. She added that the Fed is “watching this very closely and stand ready to adjust our policy if it appears the inflation undershoot appears consistent”. On the rate hike schedule, Yellen suggested that “because the neutral rate is quite low by historical standards, the Fed funds rate would not have to rise all that much further to get to a neutral policy stance”. This reference is taken by the market as dovish, diminishing future rate hike expectations. Yellen would be testifying before the Senate today.

While the Fed appears to have turned less hawkish, increased the overnight rate target, for the first time in 7 years, to 0.75%, from the historical low of 0.5%. Policymakers acknowledged the improvement in macroeconomic data, noting that the central bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy had been improved. Although inflation has remained soft, BOC judged that it is temporary and would reach the target by the middle of 2018. On economic growth, the central bank forecast that real GDP would expand to +2.8% this year, +2% in 2018 and +1.6% in 2019.

Today, US PPI probably eased to +1.9% y/y in June from +2.4% a month ago. The core reading probably eased to +2% y/y in June from +2.1% in May. On the job data, initial jobless claims probably dropped -3K to 245K in the week ended July 8. In the Eurozone, the final reading of Germany’s inflation probably stayed unchanged at +1.6% y/y in June.

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US Oil Inventory Fell Markedly; USD Plunged as Yellen Hinted Not Many Rate Hikes Needed

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