Crude oil prices plummeted Thursday after the OPEC indicated to raise output to bring down prices. Bearishness was exacerbated by weaker than expected US ISM non-manufacturing index which overshadowed the drop in the number of initial claims. The front-month contract for WTI crude oil fell to 102.36, the lowest level since April 23, before ending the day at 102.54, down -2.55%. Gold also slumped as driven by the selloff in the euro. The benchmark Comex contract fell for a third consecutive day to a 1-week low of 1634.8, down -1.16%.
The OPEC stated that the members are working to bring down oil prices which are too high at current levels. The members are not happy with prices at this level because there will be destruction as far as demand is concerned. Meanwhile, the IEA stated that the relatively high prices are not really the case and it does not encourage the emergency release of oil supplies to bring down prices. Yet, the intention of the OPEC has hurt sentiment of oil buyers who sent oil prices lower.
In the US, the non-manufacturing ISM index surprisingly fell to 53.5 in April from 53 a month ago. The market had anticipated a milder slip to 55.3. This upstaged the US initial jobless claims which fell to 365K in the week ended April 28 from 392K in the prior week. While the 4-week average was up +1K to 384K during the week, the continuous claims fell -53 to 3276K in the week ended April 21.
The ECB left the main refinancing rate unchanged at 1% in May despite slowdown in macroeconomic outlook. President Draghi stated that economic data received in the first 3 months of the year indicated tentative stabilization of economic activity at low levels. However, despite downside risks, a gradual recovery should follow later in the year. Unlike market expectations, the central bank did not hint any further stimulus in coming months during the meeting. Two issues reducing the likelihood of further stimulus are that policymakers needed more time to assess the impact on the LTROs and there are signs that the situation in the banking sector is improving. Moreover, given the Fed's unwillingness to guarantee an extension of operation twist, it appears the status quo will remain in coming months unless the market environment deteriorates abruptly.