Oil pulls back after brief rally

To support prices, OPEC and other producers, including Russia, are cutting output by almost 1.8 million barrels per day (bpd) in the first half of 2017. (Reuters)
Updated 16 February 2017
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Oil pulls back after brief rally

NEW YORK: Oil turned negative Wednesday, as falling gasoline futures weighed down crude prices on concerns that oversupply in the US would limit the effect of the Organization of the Petroleum Exporting Countries’ (OPEC) record compliance with its supply-cut accord.
US crude stocks rose 9.5 million barrels last week, the US Energy Information Administration (EIA) said, nearly three times more than forecast, but confirming a trade group’s report late Tuesday of a larger-than-expected build.
US crude inventories hit a peak at 518.12 million barrels, while gasoline stocks also touched a record, rising 2.8 million barrels to 259.1 million barrels, according to the EIA.
Gasoline futures fell 0.66 cents a gallon, or 0.45 percent, by 11:35 a.m. ET (1635 GMT).
“Gasoline is playing a leading role in trade action,” said Tony Headrick, energy market analyst at CHS Hedging. “With the excess supply of gasoline, particularly on the East Coast, that is substantial.”
Brent crude futures fell 30 cents to $55.67 a barrel. US crude futures dipped 26 cents to $52.94 a barrel.
“The US witnessed yet another week of higher-than-expected stock builds; nonetheless, the build was less than last week’s, which helped prices recoup some of the earlier losses,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
“A build in gasoline stock is in tandem with seasonal norms and further builds are expected in the coming weeks as demand for the fuel remains low.”
To support prices, OPEC and other producers, including Russia, are cutting output by almost 1.8 million barrels per day (bpd) in the first half of 2017.
Although OPEC has made a strong start in complying with the cuts, rising US stocks and a revival of US oil output have limited the price rise.
OPEC in January delivered record compliance of over 90 percent with its output curbs, according to estimates from the International Energy Agency (IEA) and figures collected by OPEC’s headquarters.
Within OPEC, adherence is mixed. Top exporter Saudi Arabia, keen to make the deal work, said it cut output by more than the amount called for by the agreement.
BMI Research, in a report, said a compliance rate of just 40 percent by Iraq, OPEC’s second-biggest producer, “could prove problematic to group cohesion.”
Russia and the other non-OPEC producers have so far delivered smaller cutbacks. The oil minister of Oman, one of the participating non-OPEC countries, said he expected compliance to improve.


Another surprise fall in UK inflation muddies Bank of England rates message

Updated 4 min 30 sec ago
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Another surprise fall in UK inflation muddies Bank of England rates message

LONDON: British inflation fell unexpectedly in April, according to figures on Wednesday that added to doubts about when the Bank of England will raise interest rates again and pushed sterling to its lowest level against the dollar this year.
Consumer price inflation cooled to 2.4 percent last month, its weakest increase since March 2017, and down from 2.5 percent this March.
The figure was below economists’ average expectation in a Reuters poll for it to hold steady at 2.5 percent and represented the second surprise fall in a row after a drop in March’s figures. “It’s a conundrum for the Bank of England which has struggled to read the direction of price changes recently,” Ed Monk, associate director for personal investing at fund manager Fidelity International, said.
“With inflation trending lower, it only makes it harder for the Bank of England to raise rates.” Investors were now pricing in a one-in-three chance of a BoE rate hike in August — the next time it updates its forecasts on the economy — down from 50/50 before Tuesday’s data.
High inflation, caused by the pound’s drop after the 2016 Brexit vote, squeezed British consumers through last year, and although it has receded from its December peak of 3.1 percent, the BoE is keeping a close eye on price pressures.
PIPELINE PRESSURE
Wednesday’s data pointed to some signs of inflation pressure still in the pipeline. Prices of goods leaving British factories increased at a faster rate than expected last month. And while consumer price inflation cooled again, the timing of the Easter holidays and their impact on air fare prices was a big contributor.
On Tuesday Bank of England Governor Mark Carney cited a new sugar tax on soft drinks, as well as higher utility bills and petrol prices, as reasons why inflation “probably tips up a bit” in the coming months before resuming a decline. The ONS said soft drink prices increased sharply over the last couple of months but the overall impact on inflation was minimal.
The latest data on prices in British factories, which eventually feed through onto the high street, were stronger than anticipated. Manufacturers increased the prices they charged by 2.7 percent year-on-year, matching March’s increase. Economists had expected a fall to 2.3 percent. Among manufacturers, the cost of raw materials — many of them imported such as oil — was 5.3 percent higher than in April 2017, up sharply from an increase of 4.4 percent in March and suggesting a long run of weakening price growth has ended.
A surprise drop in consumer price inflation in March, along weak economic growth figures for early 2018, had called into question whether the BoE would raise interest rates more than once before the end of the year.
Earlier this month it refrained from an interest rate hike that had at one point been widely expected. The BoE’s latest forecasts show inflation dropping to 2.1 percent in a year’s time, and returning to its 2.0 percent target a year later — but only if interest rates rise by 25 basis points about three times over three years.
The latest Reuters poll of economists suggests the BoE is most likely to raise interest rates at its August meeting.