Crude oil struggles to hold onto short term gains

Thursday, December 10, 2015

Front month crude prices failed to halt the bear run yesterday as both Brent and WTI prices slipped for the fourth straight session after a late stage rally failed to take root. Both crude oil benchmarks had been trading sideways for most of the morning but spiked higher immediately after the release of EIA crude oil inventory data, with Brent adding 2.36% and WTI as much as 3.0% at one point in the day. The spike higher was triggered by a surprise drawdown in US crude stockpiles which snapped ten straight weeks of increasing inventories last week, much to the surprise of market participants who had expected a modest 730K build. Crude stocks fell by a chunky 3.5m barrels w/w with the increase at Cushing, OK coming in slightly lower than expected. However, the bullish mood was only temporary as both benchmarks quickly gave back these impulsive gains, sinking back towards recent lows before Brent and WTI stabilised around $40.50/bbl and $37.50/bbl respectively.

The dollar faced further headwinds ahead of next week’s FOMC rate decision as it experienced substantial selling pressure against a basket of major currencies yesterday. The dollar index has struggled to recover after sharply dropping over 2.4% immediately after the ECB meeting last week with tentative moves towards 98.780 coming under considerable pressure. Activity yesterday saw further selling as the index hit a fresh four week low towards 97.223 and while we have recovered some ground towards 97.680 early this morning we could see some additional volatility after the BoE decision as well as in the run up to next week’s FOMC meeting.   

UK investors will be eagerly anticipating the Bank of England interest rate decision today and while the consensus expectation is for rates to remain unchanged at 0.5%, market participants will be on the lookout for any phrasing or terminology that could offer any additional insight. While expectations for an interest rate rise in the UK have been pushed back several times, with the majority of analysts not expecting a rates rise until at least the second half of next year while some expect rates to remain at historic lows until 2017, investors will be awaiting the release of the BoE/GfK inflation 12 month outlook, due for release tomorrow.

The pound sterling advanced firmly against the dollar, gaining 1.2% yesterday after finding firm support towards 1.500 with early trade this morning holding onto these recent gains as a quiet morning is expected ahead of the MPC decision and minutes. The pound is currently trading around 1.5170 against the dollar and we expect additional volatility, especially on any changing inflation outlook.

US crude oil inventories post surprise decline

DOEASCRD Index DOE Total Change 2015 12 10 09 02 13

Rally in front month Brent futures is short lived

CO1 Comdty Generic 1St CO Fut 2015 12 10 09 05 57

Sterling gains ground against USD ahead of BOE decision

GBP Curncy British Pound Spot 2015 12 10 08 50 00

Events for today

0001

UK

Nov

RICS House Price Balance

1200

UK

Dec

BOE Bank Rate

1330

US

w/e

Initial Jobless Claims

1900

US

Nov

Monthly Budget Statement

Topics: US Fed, Crude oil, ECB, Brent, WTI, BoE, DXY, GBP
More from: Kash Kamal