US commercial crude inventories fell by 7.5m barrels, which was three times higher than expected, but the positive effect was offset by some OPEC producers lifting production cap. The International Energy Agency’s monthly report showed that the compliance dropped to 78% from 95% a month earlier, as gains in the form of a saved market share seem to justify all other losses.
Countries such as Nigeria, Libya and Saudi Arabia contributed much to the glut last month. Production increased by 720,000 barrels to 97.46 million barrels per day, 1.2 million barrels a day higher than the same period last year. While Libya and Nigeria, freed from quotas, are eager to load the rigs and refineries at full capacity, Saudi Arabia has switched to domestic demand, while promising to cut supplies to the foreign market. The rest of the countries seem to keep the level of production within their quota.
However, there were also glimpses of optimism in the report. World oil consumption will increase to 98M bpd according to the forecast – slightly higher than the current production. If OPEC manages to keep production at the current level or achieve larger reductions, and the rate of production in the US normalises, one can expect a transition to bullish sentiments in the oil market. In conditions of accelerating global economic growth, the forecast of consumption can be revised for the better.
With the rise of US stockpiles, prices once again fell. However, news spikes suggest that the market is saturated with optimism and that the accumulation of long positions can be disguised as a retreat following a decline. This version is indirectly confirmed by the CFTC data, showing that large speculators increased their bullish positions from 327.2K to 341.0K last week, despite negative news and analytical background. Fragile expectations for growth can be justified despite the lack of a positive change in the supply side of the market. On the demand side, the data on current account in China showing growth in imports and exports, as well as an increase in the trade balance, indicates that exports continue to outstrip imports, and industrial demand for energy resources will be likely to grow.
The US dollar fell after market participants did not hear anything new in Janet Yellen’s speech. The statement “the gradual approach to adjusting monetary policy is important” means that the Fed is puzzled why excessive strengthening of the labour market and other signs of economic growth leave inflation behind. The regulator hopes to get more information by delaying time and maintaining a degree of uncertainty to manoeuvre, but the markets have already largely passed the point of no return in anticipation of a third rate hike this year and a reduction in the balance sheet. Regarding the latter, Yellen noted that the process will begin quite soon. The dollar reacted with a decline, as more aggressive central banks in the Eurozone and England continued to lure buyers amid cautious Fed. US bonds advanced, while EURUSD remains stable at 1.14 with an approaching uptrend.
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