Oil prices lower, Chinese inflation accelerates in May

Summary:

• Oil prices trade lower this morning following the API release as well as updated forecasts from the EIA
• Chinese equities lose momentum on Wednesday, CPI increases in May as expected
• Trump warns there will be no deal with China unless it is a great deal

Oil prices lose steam

Oil prices are losing steam this morning being down 1.7% and 1.8% for Brent and WTI respectively. This could be a result of lingering concerns with regard to global economic growth over the coming quarters as well as the latest API release pointing to a heavy pick-up in US inventories over the past week. The release showed crude stocks jumped 4.8 mb while gasoline stocks increased 0.8 mb - both figures turned out above market expectations. This has set a bar before the governmental release (due on Wednesday) quite high. On the other hand, we also were offered quite a positive information for oil buyers from the EIA. The US agency revised down its production growth for crude oil for this and the following year. It currently expects US crude output will rise 1.36 mbpd (down by 140 kbpd compared to the previous estimate) to 12.32 mpd this year, and by 94 kbpd in 2020 (down by 1 kbpd), reaching its fresh high in the vicinity of 13.5 mbpd at the end of the next year. It also said that US output would rise largely due to onshore growth from fracking and horizontal drilling. Another positive information for bulls in this market could be revelations from UAE energy minister we got overnight. Al-Mazroui said that OPEC members were close to reaching an agreement on extending production cuts. Hence, one may expect that the current deal will be extended at least until the end of the year.

Brent prices are coming back to declines after a failed attempt to bounce back. The important demand area could be localized at around $58 per barrel. Going forward, the further performance of crude oil may depend not only on global economic growth but also on a decision if OPEC and non-OPEC countries decide to extend production cuts further. Nevertheless, one may suppose that the latter could have been already priced in, hence there could be no too much space left for buyers here. Source: xStation5

Chinese inflation accelerates on rising food prices

China’s equity indices are down on Wednesday partly on the back of the latest comment from US President Donald Trump who said that there would be no deal with China unless it was a great deal. This was another reason to claim that any US-China trade agreement will be remarkably hard to make any time soon. As a consequence, Shanghai Composite is down 0.6% while Hang Seng is falling 1.3%. On top of that, we also got the inflation data for May which produced a 2.7% YoY increase in case of consumer prices, up from 2.5% YoY and in line with expectations. The details showed that food prices were up 7.7% YoY, contributing to 1.48 percentage points to the annual CPI growth. Looking even deeper one may notice that pork prices jumped 18.2%, vegetable prices rose 13.3% while fruit prices rose as much as 26.7%. China-based analysts suggest that while fruit prices should subside in summer when supply increased, the same cannot be said about pork price being fulled by African Swine Fever. Keep in mind that the latest inflation increase has been driven by supply factors being out of control of monetary policy, therefore it is unlikely the PBoC will step in by tightening policy in the nearest future. At the same time, PPI slowed down to 0.6% from 0.9% in annual terms, matching the median estimate. On the one hand it is a positive information as it acts toward higher margins, on the other hand it suggests sluggish activity among manufacturers.

After attempting to break above 10580 points, the price has come back to falls. The closest support could be found nearby 10230 points. Source: xStation5

In the other news:

• New Zealand’s card retail spending fell 0.5% MoM in May

• Japanese core machinery orders shot up 5.2% MoM in April, the median estimate had called for a 0.8% MoM decline

• French private sector payrolls grew 0.5% QoQ in the first quarter