Brent futures recover Tuesday's losses but outlook still uncertain

Thursday, February 18, 2016

Front month Brent futures rebounded yesterday, offering additional stability to global equity markets which in recent weeks have been highly correlated with crude oil futures. The global benchmark recovered Tuesday’s losses as front month contracts closed over 7% higher, at $34.50/bbl as investors welcomed signals that Saudi Arabia and Russia were willing to cap production. Investors had been taken aback on Tuesday as hype before the meeting between the Saudi and Russian oil ministers offered up the expectation of a production cut, however, the market was sorely disappointed that only a cap had been agreed to and even then only if certain conditions were met. Price gains would have to offset any loss of income from production cuts and with a world awash with oil we may struggle to see the sort of price gains needed to justify output cuts. Front month Brent futures are trading around $35.75/bbl early on this morning, testing support around yesterday’s highs early on as the market finds its feet.

Chinese inflation data came in broadly in line with expectations as data for January released overnight saw consumer price growth quicken, increasing 1.8% y/y from last month’s reading of 1.6% y/y. The consensus view among analysts polled by Bloomberg had been for a 1.9% y/y increase in consumer prices buy given the choppy market conditions throughout January policymakers have done well to stabilise market conditions. Producer prices continued to decline, falling 5.3% y/y, however, this was less than the -5.9% y/y figure seen in December which had persisted since August of last year and offers some modicum of encouragement for the year ahead.

Today’s release of the eurozone monetary policy meeting account and eurozone December current account data will provide some interesting insights and data points for investors. It seems confusion reigns supreme at the moment on whether Mr Draghi will push ahead with more QE or push for additional cuts to interest rates. One things for sure though, he’s adamant that the central bank will do “whatever it takes” to stimulate growth, but given the recent market volatility and confusion regarding central bank policy around the world it seems that even Mr Draghi is unsure about what’s needed. This afternoon we’ll also welcome the release of initial weekly jobless claims, Philly Fed business outlook and EIA crude oil inventory data, plenty to keep investors busy and we’ll be watching crude oil prices as well as the wider commodities complex for any signs of increased risk appetite.  

Front month Brent futures come under pressure 

CO1 Comdty Generic 1St CO Fut 2016 02 18 08 19 33

Chinese inflation data shows sign of improvement in January

CHEFTYOY Index China PPI Yoy 2016 02 18 08 18 59

Events for today

0130

CN

Jan

CPI

0130

CN

Jan

PPI

0900

EZ

Dec

ECB Current Account

1230

EZ

Jan

Monetary Policy Meeting Account

1330

US

Jan

Philly Fed Business Outlook

1330

US

w/e

Initial Jobless Claims

1445

US

w/e

Bloomberg Consumer Comfort

1530

US

w/e

EIA Crude Stocks

Topics: Crude oil, ECB, Brent
More from: Kash Kamal