Oil Weakens Ahead of U.S. Stockpile Data, Investors Await Fresh Cues

The price of oil slid lower during European trading hours on Wednesday, hitting a two-week low as market participants seek for fresh cues on U.S. stockpiles of crude and refined products.

The U.S. Energy Information Administration is scheduled to release its weekly report on oil stockpiles at 10:30 AM ET amid anticipations for an increase of 921,000 barrels.

At 04:29 ET, Brent crude oil futures were valued at $48 per barrel; 37 cents lower from its previous close, while the U.S. WTI crude futures declined 21 cents to $46.14 per barrel.

Oil prices had increased by more than 20 percent since the start of August on expectations that the oil producers are discussing potential effective solutions on the supply glut, setting prices on course for their biggest monthly gains since April.

Analysts, however, mentioned that the focus had moved to physical market fundamentals, which remained unstable.

“The market is getting tired of those headlines,” Olivier Jakob, managing director of Petromatrix said, pertaining to the potential oil production cut.

“Fundamentally, there is not a lot to support oil because the stocks are still at very high levels,” he continued.

On Wednesday, Khalid al-Falih, the energy minister of Saudi Arabia said that the country does not have a specific target figure for its oil output and its production will be determined by the demands of its consumers.

The further increase on oil stockpiles could limit any surge in prices. According to the data released by the American Petroleum Institute on Tuesday, the U.S. crude stocks had increased by 942,000 barrel to 525.2 million barrels in the week to August 26.

Another factor that affects the further weakening of crude is the further strengthening of the U.S. currency. It is known in the financial markets that a stronger dollar makes dollar-denominated assets, such as crude, more expensive for holders of other currencies. The U.S. dollar index, which measures the dollar’s strength against other major currencies, reached 96.143 on Tuesday, its strongest since August 9.

“The pullback in commodity prices is likely to continue in the short term, with a stronger U.S. dollar and weaker fundamentals,” ANZ mentioned in a note.

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Bank of England Leaves Rate Unchanged

The Bank of England (BoE) is poised to cut rates for the first time since 2009, as Britain’s economy begun to wobble amid recession after votes on leaving the European Union.

While the BoE surprised financial experts by leaving interest rates unchanged last three weeks, the central bank said that policymakers will have their support in any further action in August as the post-referendum uncertainty dragged down the economy.

Thus, growth sees gradual movement, and an eyed industry survey on Wednesday suggests that Britain’s economy begun to shrink at the rapid pace since the last time the BoE cut interest rates.

Several analysts are now expecting the BoE to cut interest rates by at least a quarter percentage point on Thursday to a session-low of 0.25 percent, and it is widely anticipated that its multi-billion program of government bond purchases could resume.

"There is enough evidence on the negative shock to the economy that some easing is justified," Investec economist Philip Shaw said, though he viewed the scale of the slowdown as too unclear for the BoE to buy bonds on top of a rate cut.

An economist at BoE Andy Haldane said he agreed to respond to a slowing growth by using "a sledgehammer to crack a nut", but another economist Kristin Forbes mentioned supporting the rate cut has insufficient evidence.

Given that most businesses and consumer surveys suggests a down trend, it is too early for any definite official data on how results have been weighed down by June 23’s Brexit vote.  

It is likely that the Bank of Japan (BOJ) and the Reserve Bank of Australia will proceed with a rate cut once the BoE cut its Bank Rate to the lowest level in its 322-year history, which both banks have undertaken unusual stimulus last week.

Among the main central banks globally, only the U.S. Federal Reserve has been considering a tighter policy for this year.

However, analysts and former top officials at BoE are in doubts about how positive a rate cut or several quantitative easing will do, considering official interest rates and government borrowing costs are already settling at a near session lows.

European Stocks Higher Ahead Rate Cut Decision

European stocks were broadly higher during the course of Thursday’s session as market players digest financial earnings and are closely watching on the upcoming rate decision of BoE, widely expecting a rate cut to a record low.

The pan-European STOXX 600 rose about 0.42 percent with all major stock exchange turned into positive. Meanwhile, investors are making their hopes up for BoE to cut rates for the first time since 2009 to spur the Britain’s economy, which has struggled since the U.K. voted to leave the European Union.   

However, some investors are also expecting the BoE to resume its quantitative easing program, buying government bonds. Despite an easing measure, questions were raised as to how it will make any difference.  

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Bank of England Leaves Rate Unchanged

The Bank of England (BoE) is poised to cut rates for the first time since 2009, as Britain’s economy begun to wobble amid recession after votes on leaving the European Union.

While the BoE surprised financial experts by leaving interest rates unchanged last three weeks, the central bank said that policymakers will have their support in any further action in August as the post-referendum uncertainty dragged down the economy.

Thus, growth sees gradual movement, and an eyed industry survey on Wednesday suggests that Britain’s economy begun to shrink at the rapid pace since the last time the BoE cut interest rates.

Several analysts are now expecting the BoE to cut interest rates by at least a quarter percentage point on Thursday to a session-low of 0.25 percent, and it is widely anticipated that its multi-billion program of government bond purchases could resume.

"There is enough evidence on the negative shock to the economy that some easing is justified," Investec economist Philip Shaw said, though he viewed the scale of the slowdown as too unclear for the BoE to buy bonds on top of a rate cut.

An economist at BoE Andy Haldane said he agreed to respond to a slowing growth by using "a sledgehammer to crack a nut", but another economist Kristin Forbes mentioned supporting the rate cut has insufficient evidence.

Given that most businesses and consumer surveys suggests a down trend, it is too early for any definite official data on how results have been weighed down by June 23’s Brexit vote.  

It is likely that the Bank of Japan (BOJ) and the Reserve Bank of Australia will proceed with a rate cut once the BoE cut its Bank Rate to the lowest level in its 322-year history, which both banks have undertaken unusual stimulus last week.

Among the main central banks globally, only the U.S. Federal Reserve has been considering a tighter policy for this year.

However, analysts and former top officials at BoE are in doubts about how positive a rate cut or several quantitative easing will do, considering official interest rates and government borrowing costs are already settling at a near session lows.

European Stocks Higher Ahead Rate Cut Decision

European stocks were broadly higher during the course of Thursday’s session as market players digest financial earnings and are closely watching on the upcoming rate decision of BoE, widely expecting a rate cut to a record low.

The pan-European STOXX 600 rose about 0.42 percent with all major stock exchange turned into positive. Meanwhile, investors are making their hopes up for BoE to cut rates for the first time since 2009 to spur the Britain’s economy, which has struggled since the U.K. voted to leave the European Union.   

However, some investors are also expecting the BoE to resume its quantitative easing program, buying government bonds. Despite an easing measure, questions were raised as to how it will make any difference.  

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Dollar Falls Fresh 5-week Lows Against Other Major Rivals

The dollar settled at a fresh five-week lows against a basket of other major currencies amid Tuesday’s session, followed by Japan’s stimulus measures announced and as expectations on the U.S. rate hike started to ease.  

USD/JPY has seen a 0.64% decline to changed hands at 101.76, suggesting its lowest level on the record.

The strong yen came in after the cabinet of Japan’s Prime Minister Shinzo Abe released statement of a fresh stimulus package, citing part of their initiative to help lift the economy.

The package holds about ¥13.5 trillion in fiscal measures, while the direct spending is expected to reach ¥7.5 trillion, suggesting most of it will settle in the next two years.

Subsequently, the greenback continued to struggle after data posted a 1.2% U.S. growth rate in an annual basis, posting below a 2.6% estimate.

According to the Institute for Supply Management, the index of manufacturing activity has seen a 52.6 decline last month from an earlier drop of 53.2 in June. Analysts, therefore, anticipated a downbeat index to 53.0 in July.    

Given that disappointing data, expectations begun easing for an unexpected rate hike from the Federal Reserve.

Meanwhile, EUR/USD added 0.30% to a five-week high of 1.1196.

The pound also edge higher, with GBP/USD climbed 0.50% and settled at 1.3243, while USD/CHF tumbled 0.25% to 0.9661 at the close.

Market players ignored reports from research firm Markit and the Chartered Institute of Purchasing & Supply, citing their U.K. construction purchasing manager’s index dropped to 45.9 in July from the last month’s reading of 46.0.

Analysts expected the index to decline by about 43.8 in the previous month.

The Australian and New Zealand dollars strengthened, with AUD/USD up by about 0.48% at 0.7574 and with NZD/USD rallying to 0.64% to end the session at 0.7217.

The Aussie regained from earlier losses after the Reserve Bank of Australia cut its benchmark interest rate from 1.75% to a fresh record-low of 1.50% relative to expectations.

Building approvals tumbled 2.9% in June, compared to an estimated gain of 0.5%, according to the Australian Bureau of Statistics.

In other news, Australia’s trade deficit shows a broadly wider A$3.195 billion in June from revised A$2.418 billion in May. Thus, analysts anticipate the trade deficit to show below A$2.000 billion in June.  

Further, USD/CAD dipped 0.34% to end the session at 1.3070.

The U.S. dollar index, which gauges the dollar’s strength against a basket of other major rivals, fell 0.40% at 95.37 at the close, suggesting its lowest level on the record.

U.S. Data Undermines Fed’s Rate Hike

The dollar hovered almost three-week lows amid Tuesday’s session after U.S. economic data turned into negative, undermining the unexpected Federal Reserve rate hike while the Australian dollar digests the possibility of a policy easing within the day.

The dollar index against a basket of other major rivals remained steady at 95.758, dropping as low as 95.384 in the previous week after showing its lowest level in three months.

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