Crude Oil and US GDP Data

By FX Empire Analyst - Barry Norman
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Inspired by Europe, a bullish rally is taking place this morning in the Asian equity market. Most Asian equities are trading with gains of more than one percent, driven by optimism in Europe. Crude oil futures are continuing its positive trend above $89.60/bbl in electronic platform.

Industrial profit of China is below -2.2 percent, which indicates a slowing economic activities. Thus, speculation of monetary easing in second largest oil consuming nation may support positive trend in oil prices.

Increasing deflationary pressure in Japan is making Bank of Japan more likely to go for further easing. Optimism that central banks of major nations may offer additional stimulus will help support the oil trend. From German, the consumer price index is expected to increase, which may support gain in euro, hence on oil prices.

However, the global market is waiting for the world’s largest oil consuming nation’s GDP data which is expected to come down further. The US will release 2nd quarter data later today.

At the top of the list of factors that could influence the global market tone is US GDP growth for Q2.  That’s because this will significantly factor into Federal Reserve policy expectations particularly insofar as the prospects for QE3 are concerned.  Consensus now sits at 1.4% q/q annualized growth in Q2.

The distribution of viewpoints is fairly wide, from a low of 0.8% to a high estimate of 1.9% and a standard deviation of 0.3%.  A one-handled Q2 growth figure would be a fairly damning indictment of the sustainability of the US recovery in the wake of tepid 1.9% growth in Q1 over the prior quarter, especially considering that growth was so narrowly based. Contraction in major economic activities may lead to slowdown in growth.

Thus, oil prices are expected to take negative cues out of it. Other than this, personal consumption is also expected to fall in second quarter. Weaker economic condition in largest oil consuming nation may limit the gain in oil futures prices on concern of lower demand.  

This morning gas futures prices are trading below $3.080/mmbtu with a marginal loss of near 0.15 percent in Globex electronic platform. Today, we may expect gas prices to continue the positive trend on the back of increase in consumption in US. As per US Energy department, storage level has been injected by 26 BCF lower than prior week. Demand has been increased by 1.16 percent, mostly contributed by Power sector consumption in the last week. Total supply has fallen by 1.2percent in the last week as rig counts have declined continuously. However, as per National Hurricane Center, there is no sign of tropical cyclone in North Atlantic region which may limit the gain in gas prices. Although AccuWeather continues to forecast higher than average temperatures which will support the increased demand as mentioned above.

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