Rising global demand will pull oil out of bears grip

TVC:USOIL   CFD на нефть марки WTI
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Commercial inventories in the US storage hubs 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 which realized low effect of teaming up when there is a participant out of the team’s control. The IEA's monthly report showed that the compliance dropped to 78% against 95% a month earlier, as the gain in the form of a saved market share seems to justify all other losses.

The 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 large reductions, and the rate of production in the US normalizes, one can expect a transition to bullish sentiments in the oil markets. In conditions of accelerating global economic growth - the forecast of consumption can be revised for the better.

Rising on the US upbeat stockpiles data prices again went into decline. However, news spikes suggests that the market is saturated with optimism and the accumulation of long positions can be disguised as retreat after declines. This version is indirectly confirmed by the CFTC data - large speculators increased bullish positions from 327.2K to 341.0K in the week ended on July 7, despite negative news and analytical background. Fragile expectations for growth can be very justified despite the lack of a positive changes 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 grow.

The US dollar rushed down after market participants did not hear anything new in the speech of the Fed’s chair Janet Yellen . The runaround "the gradual approach to adjusting monetary policy is important" means that the Fed is puzzled why excessive strengthening of the labor market and signs of economic growth leave inflation behind the growth of economic indicators. The regulator hopes to get more information by delaying time and maintaining a degree of uncertainty for maneuver, 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 of assets. Regarding the latter, Yellen noted that the process will begin quite soon. The dollar reacted with the decline, as more aggressive central banks in the Eurozone and England continued to lure buyers amid cautious Fed. US bonds advanced , EURUSD remains stable at 1.14 with an approaching wave of growth.

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This analysis is provided as general market commentary and does not constitute investment advice.


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