Crude oil staged a big turnaround Tuesday rebounding from two days of big declines following OPEC’s decision last week to maintain production. Brent and WTI have bounced back over 3% on the day taking runs at $60.00 and $65.00 respectively. The rally was sparked appears to be EIA comments expecting US shale oil production to decline this summer, with a falling USD also providing some support. Today’s oil rally has also lit a fire under oil-sensitive currencies like CAD and NOK sending them to the top of the league for the day. We’ve seen rallies like this before lately and it seems equally possible that this one could also end in tears rather than cheers. Two reasons to suspect this rally could be short-lived are: 1) Declining US production has been more than offset by rising OPEC production. This morning Iraq indicated that it has ramped its production up to 4 mmbbl/d with plans to grow its market share even as it expects oil to remain in the $50-70 range for the next 2 years at least. 2) We’re at a seasonal low for drilling activity in North America. Exploration peaks in the winter, drops off in the spring and rebounds in the summer as many drill locations can only be accessed during certain times of the year. In the coming weeks we may see US exploration activity pick up again but it likely to remain short of previous highs. Oil markets have been acting like the US has become the swing producer and that cuts to US production would reduce global oversupply but comments out of OPEC countries indicate this isn’t that case. The global supply war continues full force with the US still losing ground, which may keep the upside for crude oil prices limited over the longer term as a higher price could encourage US producers to return to market. Late in the day a big drop in API inventories provided some justification for today’s big move upward. Oil may remain active over the next 24 hours with US inventories due late Wednesday morning. It has been a mixed day for global stocks with European indices trading lower while US indices managed to bounce back into positive territory in the afternoon. USD continues to retreat as trader await Thursday’s retail sales report to rekindle FOMC speculation. Ongoing negotiations about Greece continue to take much of the blame for sluggish European markets but this may also be because there hasn’t really been much else to talk about this week, and seasonal weakness. Indices in China and Japan sold off yesterday and could be in focus again today, while AUD and NZD have continued to stabilize. There are a couple of minor reports out of Japan but we could see traders position today ahead of tomorrow’s big announcements which include the RBNZ meeting, Australia employment and China retail sales. Corporate News There have been no major announcements after the US close today. Economic News Significant announcements released overnight include: US API crude oil inventories (6.7 mmbbls) vs (1.5 mmbbls) UK same store sales 0.0% vs street 1.2% UK trade balance (£1.2B) vs street (£2.6B) Eurozone GDP 1.0% as expected Greece industrial production 0.4% vs previous 5.0% Upcoming significant announcements include: 9:50 am AEST Japan machine orders street (1.4%) 9:50 am AEST Japan producer prices street (2.2%) TBA China new Yuan loans street 850B 7:45 am BST France industrial production street 1.0% 8:30 am BST Sweden industrial production street (2.0%) 9:00 am BST Norway consumer prices street 2.1% 9:00 am BST Italy industrial production street 1.0% 9:30 am BST UK industrial production street 0.6% 10:00 am BST Greece consumer prices street (1.0%) 10:30 am EDT US crude oil inventories street (1.4 mmbbls) 9:00 am NZST Thu RBNZ interest rate decision street 3.50% no change expected CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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