The Greenback uptrend eased on Thursday as bullish momentum developed earlier in the first half of the week failed to find support in key data releases. ADP report and ISM non-manufacturing PMI published on Wednesday fell short of expectations, although bull run in USD indicated expectations of a positive surprise. The number of jobs in the US in February rose by 117K according to ADP, which is less than 177K estimate. ISM index missed estimates as well with employment sub-index indicating a slight cooling in the pace of hiring. Recall that services sector employs more than 70% of the US labor force that’s why ISM employment survey data is a key for understanding pace and direction of US recovery. If Friday payrolls report misses estimate as well, the contribution of eco data in USD strength will greatly diminish, leaving USD vulnerable to concerns of money supply expansion due to upcoming fiscal stimulus.

There are signs of USD strength on Thursday thanks to bearish mood in US equity futures and European shares. Given the S&P 500's plans to test 3800 today, USD is likely to extend intraday advance today.

Oil market with little effort digested EIA weekly release on commercial oil stockpiles in the United States. In the week ending February 26, crude oil inventories surged 21.5 million barrels - the highest growth in several years. When the market is in a state of contango (oil futures curve is upward sloping), oil prices often drop on the rise in inventories since inventories are hedged by selling more futures what means less demand pressures in the future. However, current situation is somewhat different: inventories rose mainly because refinery utilization dropped to the lowest level in several decades. During the reporting week, refineries were working almost at half-full capacity - utilization fell to 56%, the lowest level since the 1980s:

At the same time, oil production in the United States extends recovery - in the reporting week, it increased by 500 thousand bbl/d.

An additional point on the report, which neutralized the increase in inventories - a significant decrease in refined petroleum products. Gasoline stocks fell by 13.6 million barrels (forecast -2.3 million), distillates - by 9.7 million barrels. This is partly the result of reduced refinery utilization rates, but the dynamics also speaks of strong fuel demand, which is positive leading indicator for the market.

Oil prices were offered additional support after Reuters reported that OPEC will extend current output curbs until April. In case this outcome becomes reality, prices will likely suffer a strong upside shock, as probability of this event is low based on recent rumors and demand data. In my opinion, if OPEC extends current output settings, this should fuel prolonged price recovery, justifying short-term bets on oil growth.

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