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Daily Agenda: Oil Markets Slide on Weak Demand Signals

IEA demand data weighs oil prices; U.K. inflation tamer than expected; German investor confidence ticks downward.

The monthly oil market report released today by the International Energy Agency brought more bad news for bullish commodity investors. Citing shaky Asian oil demand, the agency projects 100,000 barrels per day in demand for the remainder of 2016 and sharper cutbacks in estimates for 2017. In response, oil futures declined, with front-month delivery Brent grade contracts trading in London below $47.50 per barrel. The prospects of sustained low demand has oil investors on edge in advance of the unofficial OPEC summit to be held in Algiers later this month. The most recent estimates place OPEC production near record levels and despite a pullback in oil inventories reported by the Energy Information Administration last week, North American production remains robust. Despite signals that China and India imports remain strong, the supply glut weighing on oil prices continues to cast a shadow over financial markets. Recent data from multiple sources suggests that more than 100 U.S. oil and gas producers are facing the prospect of possible bankruptcy.

U.K. inflation weaker than forecast. Headline CPI, released by the Office for National Statistics in London, edged up 0.6 percent year-on-year in August, a slower pace than economists’ consensus estimates. The muted price moves suggest that Brexit-related currency swings have not impacted the cost of living as much as some analysts had feared. Producer prices were also weaker than consensus targets, at 0.1 percent expansion versus July.

German investor confidence on the wane. ZEW investor sentiment data released today indicated that investors in Germany, the largest economy in the European Union, remain cautious with the current situation index at 55.1 versus a prior 57.6. The September data follows the announcement by the European Central Bank last week that the current bond buying facility would not be expanded.

Unexpected strength in Chinese data. August economic indicators released early today by the National Bureau of Statistics were mostly stronger than consensus forecasts with August industrial production and retail sales growing at a more rapid clip than anticipated. Fixed investment cooled to an annualized 6.1 percent for the month, potentially suggesting that concerns over highly extended property markets may wane. Chinese equities sold off on the news as speculators lowered the odds of more PBOC stimulus in the near term. 

Wells Fargo chief to be grilled by Senate. Yesterday Wells Fargo & Company announced the suspension of some cross-selling programs within its retail banking division following a settlement with regulators over improper practices. Separately, the bank’s CEO John Stumpf has been asked to appear before a meeting of the Senate Banking Committee next week to answer questions relating to the scandal. The bank was accused by regulators at the Consumer Financial Protection Bureau of failing to properly manage incentives programs leading to erroneous charges and unwanted accounts for bank clients.

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