The Crude Oil Rally is Threatened by Inventory Build

WTI futures are down more than 1% following the larger than expected build in crude oil inventories reported by the American Petroleum Institute on Tuesday evening. This comes on the heels of Tuesday report from the International Energy Agency that called into question future demand. The IEA’s monthly report, raised oil supply forecasts, and reduced their call on demand. Prices now appear to be heading toward testing the other end of a $54-$58 range. Traders now await the U.S. Department of Energy data, but the damage is likely done, and prices will probably remain on the defensive despite the results of the EIA inventory report.

The American Petroleum Institute (API) reported an unexpected build of 6.513 million barrels of United States crude oil inventories, versus expectation that inventories would draw down by 1.4 million barrels for the week ending November 10.  Additionally, gasoline inventories, according to the API, also saw a build this week, of 2.399 million barrels for the week ending November 10, against an expectation of a draw of 1.1 million barrels.

The sell off in global stock markets continued in Europe, after a weak session in Asia and following on from losses in the U.S. Forex moves added to risk aversion and in Europe the DAX underperformed amid a strong EUR while in Asia, Japanese indices led the way down and the Yen closed with a loss of -1.57% as the Yen appreciated. Robust labor market data out of the U.K. was shrugged off as was strong trade data out of the Eurozone.

UK Labor Data Shows Higher Wages

The UK labor data showed wages tick higher, which generated a brief buy-sterling reaction in markets. Average household income in the three months to September tick up to a rate of 2.2% year over year, with the prior-month’s figure revised upward, to 2.3% year over year from 2.2%. The ex-bonus figure came in at 2.2% year over year from an upwardly revised 2.2% year over year in the month prior. The rate of increase is still lagging behind inflation, however, although the metric is being watched closely by policymakers and markets alike following a BoE agents survey, published last week, that highlighted rising labor shortages and a consequential strengthening in the bargaining position of workers. Today’s data also showed unemployment rate remaining at a 40-year low of 4.3%.

Growth is moderating in Asia according to data from the world’s 3^rd largest economy. Japan’s GDP slowed to a 1.4% growth pace in Q3, nearly as expected following a revised 2.6% gain in Q2 which was +2.5%. Consumption spending fell 0.5% in Q3 amid poor weather conditions, after a revised 0.7% gain in Q2 which was +0.8%. Business spending rose 0.2% in Q3 after the 0.5% gain in Q2. Net exports added to GDP. This was the seventh consecutive quarter of GDP growth. The deflator grew 0.1%  in Q3 following the 0.4% drop in Q2 and 0.8% decline in Q1. There was a flat reading in Q4 of 2016 and a 0.1% dip in Q3 of 2016. Hence, this is the first expansion in the deflator since the 0.4% rise in Q2 of 2016. USD-JPY has slipped to 113.22 from 113.40 going into the report’s release.