EIA fails to boost crude due to OPEC-US Gridlock, NFP misses

2017年7月7日

Crude oil dismissed the EIA report on commercial reserves, which showed a decline of 6.3M barrels with a forecast of -2.2M barrels. Prices lost more than 2.5% on Friday, as Russia ruled out the possibility of further production cuts, while the general strategy of the American oil industry's struggle for market share remains offensive. Oil prices in this case will be the main tool in the search for equilibrium in which production in the US will stabilize and the markets will be able to move to the search for catalysts for growth, freeing themselves into bearish sentiments. The previous report of Baker Hughes, which showed a reduction in rig count for the first time since January, may signal that prices have almost reached the bottom in which further growth in US production may not be profitable. Investors are likely to shift their focus from supply to demand, acting on news of the recovery of the global economy (and hence global demand) and bullish comments from CB representatives on the reduction of monetary stimulus. ECB President Mario Draghi's speech at the ECB forum worked this way, allowing prices to win back some of the losses.

The US currency declined after the release of the NFP report. The US economy added 222K jobs with a forecast of 178K, but the growth of wages disappointed the markets with same effect on the Fed. Last month, wage growth was revised for the worse (0.1%), in July the growth was 0.2% with a forecast of 0.3%. Unemployment rose from 4.3% to 4.4%, which gives an additional argument to the Fed's "doves" to start reducing the asset balance only in December. Weakness of the report suggests that the dollar lost all major growth drivers and will now start to decline against the euro, while the ECB officials feel much more confident in their bullish projections. The target for the EURUSD pair is 1.15 - 1.16 for next week.

Statistics on manufacturing production in the UK disappointed, undermining the hopes that the weak pound will make UK goods more competitive, which in turn will increase the production orders in the country. The trade deficit in the country increased, indicating a decrease in exports, production growth was only 0.4% in May, with a forecast of 0.9%. This gives even more reason to the "hawks" from the Bank of England to believe that the economy needs to raise rates, since exports seem unable to compensate for the negative effects of developing inflation. However, the pound is likely to test the support level of 1.27 - 1.2750 first, and then turn to growth before the meeting of the Bank of England in August.