Brent Oil, an international benchmark for the price of crude, fell by approximately 5% yesterday following the weekly US inventory data. The drop in oil is weighing on sentiment elsewhere with the FTSE 100 lower by more than 40 points whilst the pound is fairly mixed and remains near its recent lows.
Nine consecutive builds for US stockpiles
The sharp drop seen in the oil price was caused by the DOE data showing a ninth weekly build in a row. The increase of 8.2m barrels was far higher than the consensus expectation, and the prior reading suggests that the supply glut responsible for major declines in the oil price in recent years is far from over. The pact between OPEC and non-OPEC countries to curb production appears to be having a limited impact on reducing supply in a saturated market and with the current agreement set to be reviewed in a few months time, there is plenty to suggest that an extension could be on the cards with the existing measures clearly not providing enough support to prop up the market.
Oil majors weigh on the FTSE
Given the dramatic drop in the price of crude oil it is unsurprising that oil stocks are amongst the worst performing on the leading UK stock index. Royal Dutch Shell (LON:RDSa) and BP (LON:BP) are both off by around 2% as investors are growing increasingly worried that the rise seen in oil prices over the past 12 months is potentially a false dawn rather than the beginning of a sustained recovery. Commodity stocks in general are lower with BHP Billiton (LON:BLT), Anglo American (LON:AAL) and Glencore (LON:GLEN) all languishing near the foot of the FTSE 100.As far as gainers are concerned, Aviva (LON:AV) leads the way with a rise of more than 6% after the insurer unveiled plans to return capital to shareholders having strengthened its balance sheet.
ECB meeting to dictate the next move
The main economic event of the day is the ECB rate decision and press conference at 12:45pm and 1:30pm respectively. Expectations for any announcement of an alteration in the current mix of monetary policy are low but nonetheless this has the potential to be a major market mover. Given the recent uptick in Eurozone inflation data there is some expectation that president Draghi will revise higher the central bank's forecasts in a move that could be deemed as hawkish. Since announcing an extension to the quantitative easing program in December the Euro hasn’t moved a great deal, whilst stock markets on the continent have rallied higher. The extension was viewed in some quarters as a form of tapering given that the monthly asset purchases fell to 60bn euros from 80bn prior, and with an elevated level of shorts in the single currency there is a growing possibility that the market could be more susceptible to a hawkish shock than a dovish one.