Originally published by Rivkin Securities
Oil prices dropped sharply on Thursday after OPEC and non-OPEC producers agreed to extended the current production cuts of 1.8 million barrels per day for nine months to help rebalance a supply glut. This seems like a clear case of buy the rumour, sell the fact, which was touted to be the reaction unless producers unexpectedly deepened the level of cuts. Clearly some in the market had hoped for such a surprise judging by the sharp reaction shown on the first chart below with both WTI and Brent crude oil closing -4.79% and -4.86% lower respectively.
Producers are aiming to reduce the current global stockpiles back to the five year average, which according to the International Energy Agency in a February report was 330 million barrels above the average. Now this event is out of the way the market will go back to focusing on U.S. crude inventories and production, which have pulled back recently but sit just below record levels. Also in focus will be compliance with production cuts, overall OPEC compliance sat at record levels around 99% while non-OPEC members have lagged with around 64% compliance.
In the UK the pound weakened -0.26% against the US dollar and -0.17% against the euro as a YouGov poll showed the lead for PM Theresa May’s Conservatives over Labour narrowed to just 5 points from 9 previously. Also weighing on the Pound was a lower than anticipated GDP reading for Q1, with the economy expanding at +0.2% over the first three months compared with an estimate for +0.3% after having grown at +0.7% in the final quarter of 2016. UK bond yields declined with both the two and 10-year yield down -1 and -3.5 basis points respectively and both the FTSE 100 and FTSE 250 were relatively flat, edging up +0.04% and +0.09% respectively.
The US Dollar Index was relatively flat, down just -0.05% overnight as the advance goods trade deficit was slightly larger than forecast at –US$67.6 billion compared with –US$65.1 billion previously and forecasts for –US$64.5 billion. That didn’t stop US equity markets posting new all-time highs with both the S&P500 and Nasdaq100 closing +0.44% and +0.84% higher respectively. Tonight we’ll get a look at the second estimate for Q1 GDP with expectations for an upwards revision to +0.9% from +0.7% initially. We’ll also get durable goods orders data and the University of Michigan confidence survey.
Locally the S&P/ASX 200 index closed +0.36% higher however we can expect a flat start to trade this morning with ASX SPI200 futures down -3 points in overnight trading.
Chart 1 – WTI (Blue) & Brent (Purple) Crude Oil
