Australia’s economic growth from January to March 2025 shows a GDP increase of +0.2% quarter-on-quarter. This is lower than the expected +0.4% and declined from +0.6% in the previous quarter. Year-on-year growth stands at +1.3%, matching last year’s rate but falling short of the forecasted +1.5%. The GDP Chain Price Index indicates a drop in inflation to +0.5% from +1.4%. Final consumption rose by +0.2%, down from +0.5%, and per capita GDP growth decreased to -0.2%, compared to +0.1% previously. There is also a reported decline in productivity of 1%.

Household Savings And Government Spending

The household saving rate increased to 5.2% from 3.9%. Government spending saw its largest drop since 2017, affecting overall growth. In response to this data, yields are falling, suggesting potential rate cuts by the Reserve Bank of Australia. The Australian dollar had a minimal reaction to these economic figures, with only slight fluctuations. This recent GDP report shows a weaker domestic momentum in early 2025. The quarterly growth of 0.2% is below expectations and continues the slowdown from late 2024. Analysts expected higher figures, so this underperformance might lead to reevaluations of central bank predictions. Yearly output rose by 1.3%, but this is a stagnation when compared to the previous reading, indicating limited demand growth. One noteworthy point is that inflation is decreasing quickly, as seen in the GDP Chain Price Index which fell to 0.5%. This is the second consecutive quarter of slowing price growth, potentially supporting arguments for future rate changes by the Reserve Bank. Spending trends in both public and household sectors show significant changes. Final consumption, usually a key part of GDP, only grew by 0.2%—half of last quarter’s growth. This decline in consumer spending likely reflects growing caution amid economic uncertainty. However, the household saving rate increased to 5.2%, suggesting that people are holding onto their funds, possibly due to worries about lower income growth or uncertain returns on investments. A notable detail in the report is the sharp 1% drop in productivity, continuing a trend of weakness in output per labor input. This decrease is linked to the decline in per capita GDP, which fell by 0.2%. Although overall output is still growing, the person-to-person growth isn’t keeping pace.

Government Spending And Market Reactions

Government spending, often a stabilizing factor when households reduce spending, fell at its fastest rate since 2017. This timing is problematic; with private demand already waning, the public sector’s decrease adds more strain on total output. When government cuts occur alongside low productivity and subdued consumption, the downward pressure on the economy increases. So far, market reactions have been minimal. While yields showed some movement, hinting at possible future rate cuts, the currency response was low. Typically, significant shifts in FX happen when economic data comes in like this, but today was different. Perhaps traders already priced in this information or are waiting for clearer policy signals. For those involved in managing interest rates or inflation strategies, the main point is that today’s data has implications for future meetings rather than just the numbers themselves. The economy isn’t fully stalled, but growth appears slower than anticipated at the start of the year. Investors should adjust their expectations for lower terminal rates and consider softer productivity factors when pricing risk around income-linked assets. We think the data highlights that, while growth is still slightly positive, ongoing issues with productivity and per capita measures suggest a cautious approach is needed. Tight monetary policies in this context could lead to overreactions. We will closely monitor employment signals in the upcoming reports. Timing is crucial—more than just signals. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) is the central bank and sets the daily midpoint for the yuan’s exchange rate. It uses a managed floating exchange rate system, which allows the yuan to vary within a +/- 2% band around a set central rate. The last recorded exchange rate for the yuan was 7.1878. The PBOC also introduced 214.9 billion yuan into the financial system through 7-day reverse repos, with an interest rate of 1.40%. On the same day, 215.5 billion yuan were scheduled to mature. This means there was a small net drain of 0.6 billion yuan. This mild liquidity reduction shows that the PBOC aims to maintain stability. The small difference between matured repos and new injections reflects careful management rather than a major change in policy. Zhou and the central bank team seem to signal continuity by keeping the 7-day reverse repo rate at 1.40%. This suggests they do not plan to speed up easing despite challenging trade and manufacturing conditions. The midpoint fix, set earlier, is important for predicting exchange rate movements. With the yuan closing at 7.1878, it serves as a key point for pricing options and near-term futures. The +/- 2% band remains, providing some flexibility, but any significant move towards the edges needs attention. Even slight tightening indicates we shouldn’t expect a surge of new liquidity soon. This could keep overnight repo and interbank borrowing rates steady or slightly rising, depending on local business demand. From our perspective, a balance between liquidity inputs and maturing operations means that even small net changes carry weight. It’s about the underlying message: Li is indicating we’re not changing course just yet. Daily rate fixes and short-term operations are crucial as they impact volatility models and inform policy responses. If they remain stable, without widening spreads or signs of hurried actions, it suggests little chance of a change in direction. Consequently, we can expect short-dated FX option volatilities to stay steady unless there are clear signs of changing liquidity plans or cross-border flows. Traders managing interest rate differences may adopt rangebound strategies for now. When we consider the shift in premiums, these are better signals for potential currency changes than the spot rate alone. Since the central bank adjusts liquidity with precision—like nudging rather than jerking a lever—it’s understandable that stability prevails. Managing repo volumes this precisely often conveys a calm message: everything is going as planned with no rush or disruption. Keep an eye on the term structure and local funding demand, especially after tax periods, as these will impact future positioning. Lastly, be aware that when funding is just tight enough to deter speculative actions but not enough to cause significant issues, it creates a boundary worth monitoring closely.

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Federal Reserve Bank of Atlanta President Raphael Bostic will speak on Wednesday, June 4, at a monetary policy event. The event will take place at 12:30 GMT (08:30 US Eastern time) at the Federal Reserve Bank of Atlanta. Bostic will give both welcome and closing remarks at the Fed Listens event, titled “How Monetary Policy and Macroeconomic Conditions Affect Individuals and Businesses.”

Monetary Policy Outlook

Bostic recently discussed the current monetary policy and indicated that no changes are expected. He stressed that “patience” is essential right now. His comments suggest a desire to keep monetary policy steady for now. By emphasizing “patience,” he signals a preference to observe economic conditions before making adjustments to interest rates. The lack of expected changes indicates that key decision-makers believe inflation and employment figures are stable enough to remain the same. This steady approach affects our strategy for directional exposure. When a central bank leader repeatedly expresses a hands-off stance, especially before a macro-focused event, it’s significant. These discussions typically reinforce existing guidance instead of introducing major changes. The title of this event indicates that personal economic resilience and business sentiment will be key topics, rather than immediate adjustments to monetary policy. Timing is also important. As this event happens midweek and ahead of critical economic data later in the month, there could be some market reactions if Bostic’s tone changes. However, given his consistent communication style, any shift from the expected message would likely require significant changes in economic indicators, which we haven’t seen yet.

Market Strategies and Implications

This suggests we should continue focusing on pricing volatility rather than making strong directional bets. With no expected rate changes, contracts tied to short-term policy decisions might stay within a narrow range, limiting breakout chances. We can still find value in instruments related to medium-term uncertainties or through strategies that take advantage of temporary price fluctuations. Bostic’s role at both the beginning and end of the event indicates he wants to guide perceptions, suggesting the message will remain close to current policy. Paying attention to slight changes in his tone, especially regarding confidence in future guidance, could aid in formulating short-term strategies. But until we see new inflation data or job market updates, the prevailing scenarios will likely lean towards maintaining the existing pricing. From our perspective, a careful approach with controlled risk is better than making bold directional moves. The current environment calls for caution over aggression. While headlines may fluctuate during the event, it’s expected that they will reaffirm current pricing trends rather than disrupt them. Create your live VT Markets account and start trading now.

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Japan’s Services PMI for May 2025 was recorded at 51.0, an increase from the preliminary estimate of 50.8 but a decrease from April’s 52.4. The Composite PMI rose slightly to 50.2 from the preliminary 49.8, but still dropped compared to April’s 51.2. The manufacturing PMI for May 2025 was finalized at 49.4, up from April’s 48.7, but it still shows a contraction. The service sector’s growth has slowed due to a decline in demand, marking the weakest new business growth since November. Employment growth in the services sector was the lowest since December 2023. Business sentiment improved compared to earlier this year, but it remains low relative to the post-pandemic standards. High input costs are continuing to drive inflation, keeping pressure on prices. Stagnation in manufacturing and rising costs have nearly stopped private sector growth, leading to a decrease in the composite PMI to 50.2. Current figures indicate that Japan’s broader economy is cooling. Services may still be growing, but at a slower pace, and the drop from April suggests that demand is weakening more than expected. Service providers are facing dwindling client orders, with fresh orders growing at their slowest rate in six months. This likely reflects consumer caution, possibly due to ongoing pressure from rising prices. In manufacturing, the outlook is not very encouraging either. Although the finalized figure rose from April, the sector is still in contraction. A PMI below the 50.0 mark, even slightly, shows that factories are experiencing reduced output and demand. This indicates a clear stagnation in industrial activity. On the employment side, the situation is also weak. Hiring in services has slowed. Although job creation hasn’t decreased outright, the current data is the lowest since late 2023, signaling a lack of confidence in future orders and revenue. Companies often reduce hiring when they feel uncertain about future activity levels. This makes the slight improvement in sentiment hard to interpret; while businesses hope for stronger conditions, they aren’t increasing their workforce accordingly. Inflation is a significant factor holding back modest progress. High input costs, influenced by regional supply issues and energy prices, show little sign of decreasing anytime soon. These costs are being passed on where possible, likely reducing discretionary demand in services. This leaves only a slight increase in the composite index, which is just above 50, primarily due to slowing service growth, not any positive impact from industry. For those monitoring short-term interest rates or currency fluctuations, these readings help set expectations for potential monetary policy changes. The central bank is unlikely to act quickly while growth is slow and inflation persists. This situation often leads to cautious trading activity. Demand for protection against downside risks may increase, reflected in short-dated option skews, and implied volatility could rise, especially with risk-linked yen pairs. We should consider that weak business conditions in both services and manufacturing might affect pricing expectations. This could influence the forward rates market with slightly stronger views on rate path extensions, despite inflation concerns. Overall, it’s wise not to react hastily to these developments. While PMI figures are below seasonal averages, they don’t indicate a severe downturn. Strategically positioning for the next cycle requires careful risk assessment, especially as liquidity may become tighter into mid-summer.

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Iran is exploring a nuclear deal with the U.S. that focuses on a regional uranium enrichment group. For this deal to work, the enrichment must take place inside Iran. Experts urge caution about being too hopeful regarding the deal’s potential. If the agreement succeeds, it may boost Iranian oil supply, negatively affecting oil prices.

Uranium Enrichment Conditions

The latest draft of the proposed nuclear deal indicates that Tehran might agree to international oversight of its uranium enrichment, as long as the activities occur in Iran. This demand ensures that Iran maintains control, a longstanding issue in past negotiations. Analysts remain cautious, as previous similar attempts have faltered at crucial points. If discussions progress and a framework becomes clearer, energy markets could start to anticipate longer-term scenarios. This could mean more Iranian crude entering the market, putting downward pressure on benchmark oil prices, even before actual shipments begin. This situation ties supply directly to geopolitical factors, impacting more than just the energy sector. Last week, Mehdi outlined Tehran’s expectations, emphasizing a desire for control and economic relief. The main motivation for Iran is financial. Lifting some current restrictions could unlock new revenue streams, leading to increased supply that markets hadn’t considered just a month ago. We have started to see some forward contracts reflecting this potential. There’s been a rise in put option activity on Brent for later this year, along with a decrease in implied volatility over the past few sessions. This kind of activity often occurs ahead of confirmation events. Traders are not betting on immediate changes but are positioning for a medium-term shift that would lower price expectations through winter.

Negotiation Dynamics

Jafari, a key negotiator in initial discussions, spoke mid-week about possible breakthroughs but mentioned several conditions. His comments were purposeful, indicating groundwork is being carefully laid. This caused a momentary market adjustment, evident in the steepening of the back end of the curve around March contracts. It suggests a slight change in positioning—still not a complete trend reversal, but movement is occurring. Given this context, we need to focus on scenario-based tracking. We should prepare for a softer oil market in early 2025 and keep fewer high-beta energy positions for shorter periods. What made sense before for longer-dated calls in energy-exposed assets now requires more flexible rotations into sectors less affected by headlines. Analysis of options data shows increased hedging interest in commodity-sensitive stocks, particularly with weekly expirations over monthly ones, likely due to greater event risk. This doesn’t indicate a full retreat from the reflation trade, but there are clear signs of caution. Companies that depend on tight spreads in energy markets may need to reconsider margin expectations. With policy and political timelines remaining uncertain, it’s wise to maintain flexible hedging strategies. This may involve using options ladders and calendar spreads to prepare for potential shifts when any official news emerges. We’re already seeing significant volume being directed towards September and November maturities, especially in gasoil and distillates. In this scenario, timing is more crucial than simply having a directional conviction. If a deal gains momentum and barrels return to the market faster than anticipated, volatility might not just persist—it could spike briefly before stabilizing. Being early will not yield the same rewards as in the past if the policy trigger happens mid-cycle. Create your live VT Markets account and start trading now.

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The Bank of Canada is set to keep its key interest rate at 2.75% this week. Out of 13 economists surveyed by the Wall Street Journal, 11 believe there will be no change. Even though unemployment is rising and domestic demand is falling, the GDP growth in Q1 was better than expected. This was driven by spending to avoid tariffs, showing some economic stability. Officials are paying attention to core inflation, which reached 3.15% in April, exceeding the Bank’s 2% target and showing its fastest rise in almost a year. The U.S. has also increased tariffs on steel and aluminum, important Canadian exports, which adds caution to inflation forecasts. While a rate cut is unlikely this week, most economists think there may be cuts later this year if conditions remain poor. Any potential changes in policy could start in July. The official announcement will come at 09:45 AM Eastern Time, followed by a news conference with Bank of Canada Governor Macklem at 10:30 AM. The earlier context suggests that interest rates may pause despite some weak indicators like unemployment and soft consumer demand. However, the strong GDP figure, driven more by stockpiling than real growth, softens the view of weakness. Prices, especially those that the Bank monitors closely, are still high. The rise in April indicates that inflation isn’t decreasing as quickly as some may want. Traders should see the gap between weakened demand and steady inflation as a key point. Policymakers are keeping a close eye on underlying price changes when considering any adjustments. This means their responses will rely on data rather than being swayed by general sentiment or seasonal changes. The mention of one-time tariff-avoidance spending suggests that the Q1 growth may not indicate a lasting recovery but rather a temporary effect from inventory changes. Bond markets likely view this week’s meeting more as a fine-tuning than a major shift, with the Governor’s comments after the meeting possibly giving clearer signals. Market participants should adjust short-term prices based on any hints about future rate cuts. We expect a tone that balances weak domestic spending with persistent inflation. Macklem’s comments about 45 minutes after the rate decision may provide additional insight, especially if his guidance changes. He will aim to shape future expectations while keeping options open. Traders will focus on subtle language—any indications of changes in focus will be significant. Since many expect rate cuts later in the year, dates after July are becoming more important. Current forward guidance is uncertain, but by mid-summer, it will be clearer if inflation is decreasing enough for looser policy. For now, traders should reassess rate expectations after carefully reviewing both the written statement and the news conference. Keep an eye out for mentions of domestic consumption as a weakness and whether this concern overshadows risks from external shocks. Underlying volatility, especially in short-term plays, could benefit from a wider range of tolerance. If inflation metrics remain steady into the June reports, the likelihood of a change increases. The economic situation—a mix of weak demand and high prices—limits the ability for significant cuts or large increases. Markets can expect careful steps assessed over time. Macro exposures may respond more to language than to actual moves, so positioning should be reconsidered if it’s too heavily weighted in one direction. Any change in communication style could matter more than a small adjustment in the overnight rate.

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The Australian S&P Global Services PMI Final for May 2025 was reported at 50.6. This is slightly higher than the preliminary estimate of 50.5 but lower than the previous month’s reading of 51.0. The Composite PMI was 50.5, down from 51.0 last month and just below the early estimate of 50.6. These numbers suggest that growth in Australia’s service sector is slowing down. This slowdown is associated with a smaller increase in new business amid worsening external conditions. Confidence among service firms has dropped to a six-month low, while manufacturers are feeling more optimistic. The labor market remains tight, with hiring still ongoing. However, easing inflation may allow for lower interest rates to encourage growth. Output price inflation has decreased to its lowest level since late 2020, and there is less charge inflation in the goods sector. This indicates that Australia’s CPI outlook may be improving. Earlier this week, the Australian S&P Global Manufacturing PMI Final for May 2025 showed a figure of 51.0, down from 51.7 in the previous month. Overall, the combined PMI readings from May suggest a slowdown, especially in the services sector. The small increase in the final Services PMI compared to the flash estimate does not hide the softness appearing in key areas. Service businesses are struggling with reduced momentum due to declining external demand, which is unlikely to improve quickly. Jackson noted that confidence among service providers has hit a six-month low, contrasting with the continued cautious optimism in manufacturing. This disparity between the sectors could influence short-term expectations for economic activity, especially since forward-looking indicators do not show consistent strength. We also observe changes below the surface. The continued decline in output price inflation is significant, now at its lowest since late 2020. This suggests that demand pressure is easing, particularly in services, which may reduce corporate pricing power. If this trend continues, it increases the likelihood that monetary authorities will focus on growth in the second half of the year, especially if trimmed CPI readings continue over several quarters. While job growth remains steady, the overall slowdown in top-line figures and cooling price data may help us evaluate risk premiums in upcoming sessions. Traders might start to reconsider their exposure based on expectations for more aggressive tightening, and instead, consider the possibility of a softer stance in late-year positions. Given the latest signals and our short-term forecasts, it makes sense to adjust expectations based on new business and confidence indicators, especially in the services sector. We also noted Patel’s earlier comments about the slight downward revision in the manufacturing PMI, which suggests that the domestic economy is not fully compensating for weak foreign orders. Current trends do not yet indicate a contraction, but the loss of momentum should encourage a flexible approach, especially in local currency pairs. In this context, it’s not a good time for strong convictions in trading; rather, it’s better to make rotational shifts that acknowledge narrowing spreads and consider where passive strategies might fall short. The dip in the composite figure aligns with our understanding from PMI internals: a gentle signal that different sectors are not functioning smoothly together.

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UBS analysts warn that trade wars are still a challenge for the US dollar. They believe some of the US’s trade partners may delay agreements with a possible Trump administration, in hopes of getting better deals. These delays could lead to higher tariffs, making the outlook for the dollar more uncertain. UBS also notes that the Federal Reserve has few chances to raise interest rates, which usually strengthens the dollar.

Expected Economic Impact of Tariffs

Upcoming data may show how tariffs impact the economy, leading markets to predict rate cuts, according to UBS. As a result, they anticipate a weaker long-term outlook for the US dollar. UBS has highlighted several factors that could negatively affect the dollar’s future strength. They focus on how protective trade tensions and postponed negotiations from key trade partners, combined with an unstable policy environment in Washington, may cause the dollar to lose value over time. Additionally, the Fed has limited options for raising rates due to slow domestic growth and a predicted decrease in inflation. From our view, this scenario creates a complex situation for asset pricing. The usual link between optimism about interest rates and dollar appreciation has weakened. If traders believe that trade slowdowns will impact future consumer price index (CPI) numbers—or job reports—then expectations for rate cuts may keep adjusting downward.

Trade-Related Slowdowns and Future Rate Probabilities

Currently, there’s a shrinking chance for further dollar strength in the near future. This may lead traders to focus on relative value trades instead of directly investing in USD. Some may start shifting into positions that benefit from lower rate expectations in the US, particularly in EURUSD or AUDUSD, where foreign central banks are close to their low points. As for tariffs, their effect on prices and output may take a few more reports to become clear. However, traders don’t need to wait for that. We’ve seen that option prices for September and October indicate a growing premium on the risk of a weaker dollar, especially evident in the skew between DXY and S&P put options compared to calls. Powell’s comments after the upcoming key data releases will likely receive intense scrutiny. Any hints regarding softening inflation or slowing trade demand could lead to expectations for quicker rate cuts. This period is particularly fragile, as the positioning is uneven. Reports indicate that institutional investments in the dollar haven’t significantly decreased yet. This means that any negative news could trigger a shift in allocations, amplifying the impact in an unexpected way. What’s likely to follow is a time of increased uncertainty. Traders who look at monthly data for insights should focus more on variations within job reports or monthly CPI sub-indexes that show whether tariffs are directly harming consumption or weakening confidence. This uncertainty often favors gamma strategies over simple delta strategies. Appropriately structured strategies close to expiration can capture decent intraday price fluctuations as the dollar reacts to changing rate expectations and risk aversion in global markets. We are closely observing how volatility markets assess potential political outcomes from now until November. The dollar’s next significant move will depend not only on the Fed’s choices but also on how much global players believe the US will stabilize or harden its stance on trade. This perceived direction is already influencing options pricing earlier than in previous cycles. Create your live VT Markets account and start trading now.

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Doubling steel tariffs is likely to result in job losses in U.S. manufacturing. While employment in the steel industry may go up, other manufacturing sectors could experience bigger job cuts. A Federal Reserve study found that steel tariffs from 2018 to 2019 raised production costs significantly. The jobs saved in steel manufacturing were outnumbered by losses in the wider manufacturing sector. There are worries that doubling the tariffs could have a worse effect than before. Higher steel tariffs, along with additional tariffs, could further worsen the situation. Previous research showed that even though a specific industry might seem to gain at first, the entire industrial base ends up paying the price. Increased steel tariffs will raise costs for many businesses, not just a few. This affects industries that depend on steel for day-to-day production, such as automotive and equipment assembly. When raw material costs rise, profits shrink, especially for exporters who find it hard to raise prices for international buyers. The Federal Reserve’s research was clear: more jobs were lost than saved. When a company faces higher steel prices, it has two choices: increase its prices, hoping customers will accept the change, or cut jobs and reduce operations. Most companies choose the second option. As we discuss this new round of proposed tariffs, it’s crucial to understand the real stakes involved. This concern isn’t just theoretical; it’s based on historical data patterns. Manufacturing companies don’t just hire less; they often change supply chains, lower domestic orders, or postpone investments. This halts business growth and creates a cycle that slows down production. For those monitoring pricing trends, it’s not only about tariffs anymore; we need to consider how they interact with other upcoming policies. Any move toward protectionism, especially with broader commodity tariffs, can create instability. One policy can influence another, leading to unexpected consequences. Over the next few weeks, it will be important to see how pricing risks affect input costs and industrial volumes. We’ve already noticed downgraded earnings in sectors focused on cost efficiency. Going forward, risks may increase, especially where operations heavily rely on inputs with thin profit margins. Those involved in constructed credit or sensitive to industrial defaults should consider adjusting their risk management strategies. Even minor changes in raw material prices can disturb the balance when profit margins are minimal. Traditional hedging methods, especially those based on 2018 conditions, may become ineffective. There’s also a chance of disruptions in industrial futures markets, as demand forecasts could differ sharply from current orders. That’s where risks and pricing opportunities may arise. Remember, significant shifts in policy can lead to short-term price movements that stray from long-term stability. Although early earnings reports may still reflect older pricing deals, we should expect that long-term volatility—especially in third and fourth-quarter options—might start showing new patterns. We’re keeping an eye on these changes, particularly just before month-end when institutional rebalancing occurs. Adjusting to these changes requires careful strategy, especially regarding spreads. The possibility of escalation—both in tariffs and trade responses—now seems greater. This could challenge previously held pricing assumptions. Historically, when supply and labor dynamics change in one area, similar effects often spread rapidly to related sectors. Stay attentive to supply-demand balances in raw materials. Look out for any unusual widening in calendar spreads, especially among mid-tier manufacturers. Small disruptions in supply chains can lead to quick price adjustments, which often signal that markets are reacting faster than sentiment would indicate. Finally, remain vigilant because sudden tariff changes usually come with announcements, not leaks. This means having backup plans in conditional spreads could be more beneficial than making broad bets. We’re not in a wait-and-see phase; we need to react and be ready.

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A private survey by the American Petroleum Institute (API) found a larger drop in crude oil inventory than expected. Analysts predicted a decrease of 1 million barrels, alongside an increase of 1 million barrels in distillates and 0.6 million barrels in gasoline stocks. This survey gathers data from various oil storage facilities and companies. The official government report from the US Energy Information Administration (EIA), which is more reliable, is due on Wednesday.

EIA Versus API Reporting

The EIA report compiles data from the Department of Energy and other agencies. While the API report focuses on total crude oil storage, the EIA report includes data on refinery inputs, outputs, and different grades of crude oil. These reports differ in depth and accuracy; the EIA report offers a clearer picture of the oil market. Both provide valuable information on the current state and trends of the oil industry, helping analysts and market participants make informed decisions. When you look at these stockpile figures, there’s a noticeable difference between what was expected and what actually happened with oil volumes. The private report highlighted a more significant drop in crude than predicted, while distillates and gasoline exceeded forecasts. Changes in inventory often indicate shifts in demand or supply, which can affect prices. A larger-than-expected drop in crude stock usually points to stronger demand or slower supply. This aligns with recent market trends suggesting increased refining activity, especially as summer driving approaches in the Northern Hemisphere. If demand is being underestimated or if there is an unreported supply disruption, recent price levels may not reflect this reality, potentially increasing volatility. Official data typically elicits more structured responses due to its reliability and deeper insights into refined products and regional imbalances. Traders often wait for this information to validate or contest initial readings, meaning reactions to private figures may change based on government data.

Impact of Discrepancies

In the past, significant differences between the two reports have led to position adjustments, particularly when speculative bets are high. Given the changes in distillates and gasoline, this week might prompt fresh positioning in crack spreads and fuel derivatives, especially related to summer transport trends or minor export flows. The evidence suggests a need for re-pricing of deliverable contracts and roll strategies. Any gap between expectations and confirmed data could drive activity in near-term futures, especially if refining margins change. This may lead traders to shift towards more defensive contracts to hedge against volatility between product inventories and crude. Watch the refinery utilization rates—if they are higher than expected, it could indicate proactive product generation in response to export demands or regional shortages. There’s been notable refiner interest along the Gulf Coast and rising demand from parts of Southeast Asia. This could create a more globally linked price impulse, especially with high shipping rates. For now, we recommend using the current volatility to reassess risk. Market participants might prefer spreading risk across various product grades or delivery times, which could widen calendar spreads if discrepancies are confirmed on Wednesday. This may also shift focus to storage economics and regional backwardation, which are important for near-term hedging and arbitrage strategies. We anticipate position adjustments by mid-week. If energy futures react sharply, it signals a good time to refine exposure or reconsider strategies based on outdated trends. Create your live VT Markets account and start trading now.

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