The Determination of Bank Interest Rate Margins – Is There a Role for Macroprudential Policy?

Economic

Summary:

Bank interest margins – the difference between the rates on bank assets and liabilities have an important effect on the economy.

We assess in detail and over an extensive sample of banks the effect of macroprudential policies on banks’ margins, and the interaction of macroprudential and monetary policies in the determination of such margins. We also consider both short- and long-run impacts of macroprudential policies on the margin. We contend that the relative neglect in the literature of these effects on the margin is surprising, given their potential relevance to authorities in evaluating risks to financial stability and in the overall assessment of the stance of macroeconomic policy. We have employed an extensive dataset of up to 3,723 banks from 35 advanced countries over the extensive period 1990-2018, with typically around 35,000 observations and control variables similar to those in the existing literature. The results can be summarized as follows:

First, certain macroprudential policies do have an impact on banks’ net interest margins. The main effect is a negative impact on the margin in the short run from demand-based policies, namely loan-to-value limits and debt-service-to-income limits, and also supply-loan based policies such as controls on credit growth, foreign currency lending and loan to deposit ratios. These policies are aimed to constrain banks’ portfolio decisions in the interests of reducing lending and risk, and hence a negative effect on the margin is not surprising. In contrast, we find no short-run effects from capital-based policies and a positive one from general policies. We contend that these policies are primarily aimed at ensuring that banks can cope in the event of a systemic crisis by build-up of resilience, not at altering portfolio decisions on earning assets and hence should have more limited impact on interest margins.

Second, we find no long-run effects for the summary measures of policy, apart from a weak negative effect from loan-supply targeted policies, although some are found for individual instruments. This is suggestive of countervailing action by banks against any short-run impact on margins from macroprudential policy.

Third, there are significant interactions with monetary policy, as shown when the action and stance of macroprudential policy is leveraged in combination with the stance of monetary policy as shown by the level of the interest rate. Short-run positive interaction effects are detected for a number of summary and individual macroprudential policies, so that negative effects on the margin from macroprudential policies can be offset in many cases at higher levels of interest rates. Some long-term interaction effects are detectable for individual macroprudential instruments, implying a considerable difference in effects on the margins depending on the stance of monetary policy.

We contend that the robustness checks underpin the validity of the baseline results. We suggest that the most important contributions of this study are the significant differential effects on the margin of different types of macroprudential policies, the different short- and long-run effects of macroprudential policies on the bank interest margin, and the significant monetary/macroprudential policy interactions. These have not been widely tested in the literature to date.

These results have important implications for policymakers seeking to assess the overall policy stance, not least when monetary policies are tightened to reduce inflationary pressures and macroprudential policies are tightened to reduce credit growth. For example, if both monetary and loan supply/demand focused macroprudential policies are tightened together, banks will initially have less net interest income from which to accumulate capital, with consequent risks to financial stability. On the other hand, these effects are mitigated if resilience-targeted forms of macroprudential policy such as capital and liquidity regulations are tightened along with monetary policy. In the long term, stringent monetary policies will tend to expand the margin while there is no offsetting effect from macroprudential polices except weakly in the case of loan-supply based policies. Loose monetary policies will however narrow the margin in the long run with risks to financial stability, especially if it leads banks to raise risk-taking to maintain profitability. More generally, since the effect of different macroprudential policy on margins varies across levels of interest rates, choice of macroprudential policy instruments needs to take this into account.

The results are also relevant for bank management, as they highlight the short-run challenge to profitability from a tightening of macroprudential policy, especially if it is combined with loose monetary policy. There may be an incentive to expand non-interest activity so that related income can compensate from loss of net interest income. While raising fee income may be risk neutral, other forms of non-interest income such as profits from portfolio trading may raise bank risk. On the other hand, the results suggest that in the longer term managers should be able to compensate for the initial impact of macroprudential policy on margins, which may, however, entail a shift to a higher-risk portfolio.

Further research could seek to investigate interest rate and macroprudential effects on margins in emerging market economies. This would however require a different specification for margin determination since such countries tend to lack long-term bond markets. It could also undertake further tests on advanced country banks, such as whether effects differ depending on bank size and capitalisation, by type of bank (retail or universal) and according to sub-periods. There could also be further work on macroprudential and monetary policy effects on other components of overall profitability, including provisions, noninterest expenses and noninterest income.

The advent of macroprudential policy alongside monetary policy raises the issue whether macroprudential policy has an additional effect on bank interest rate margins to that of monetary policy, and if so, whether it accentuates or offsets the interest rate effect. In light of this, we estimate combined effects of macroprudential policies and monetary policies on bank interest margins for up to 3,723 banks from 35 advanced countries over 1990-2018. In the short run, tightening of both types of policy tends to narrow the margin, while in the long run, monetary policy typically widens the margin while effects of macroprudential policies are mostly zero or positive, suggestive of countervailing action by banks. There are also significant interactions between macroprudential and monetary policy for several macroprudential policies; a tighter monetary stance is widely found to offset the negative effect of macroprudential policies on margins while a loose monetary policy leaves the negative effects intact, with potential consequences for financial stability. These results are of considerable relevance to policymakers, regulators and bank managers, not least when monetary policies are tight to reduce inflationary pressures.

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ING

Economic

The growth slowdown was mainly due to weather related one-off issue

The Japanese economy grew by 0.2% QoQ sa in the third quarter of the year, decelerating from a revised 0.5% growth in the second quarter and in line with market consensus. In terms of the annualised growth rate, this grew 0.9% QoQ (seasonally adjusted annual rate), coming in a bit higher than the market consensus of 0.7%.

Weather-related problems, such as typhoons and a mega-earthquake alert, severely disrupted economic activity in August. The slowdown in GDP was therefore expected. We see the early signs of a recovery in the monthly activity data and therefore expect GDP to reaccelerate in the current quarter.

Private consumption growth was surprisingly strong, rising 0.9% QoQ sa (vs a revised 0.7% in the second quarter and 0.2% market consensus). This is all the more surprising given that bad weather may have dampened some activity and sentiment. The robust growth is likely due to solid wage growth and a temporary income tax cut. Business spending contracted -0.2% (in line with market consensus) after a 0.9% growth in the previous quarter. As core machinery orders appear to be bottoming out, we expect investment to recover in the current quarter.

Meanwhile, net exports made a negative contribution (-0.4ppt) to overall growth, as imports (2.1%) grew faster than exports (0.4%). We believe that exports were hit by the typhoons and should therefore improve. However, the recent depreciation of the JPY may push up imports further; net exports could remain a drag on current growth, but to a lesser extent.

Private consumption rose robustly in 3Q24

Source: CEIC

BoJ watch

We don't think the Bank of Japan will be too concerned about the temporary slowdown and will pay more attention to the fact that private consumption has grown for a second consecutive quarter. Inflation remains above 2%, while private consumption is firming up, suggesting that the virtuous cycle between wage growth and consumption is materialising.

In our view, the BoJ is likely to take a closer look at yen movements. The yen has depreciated by almost 4.5% against the dollar over the past month, raising the possibility of higher import costs and a subsequent overshooting of inflation. As for the Bank of Japan raising interest rates, we believe it is only a matter of time and that this should materialise in either December or January. We see a slightly higher probability of a December hike than a January hike, as we expect the JPY depreciation to continue for a while and for upcoming inflation data to provide more evidence of growing inflationary pressures. If this is confirmed, the Bank of Japan is likely to hike 25bp in December.

We expect the BoJ's target rate to reach 1% by end of 2025

Source: CEIC, ING estimates

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Brookings Institution

Economic

The last few years have seen a surge in infrastructure investment across the country. Together, the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) are pumping more than $1 trillion in federal funding across a variety of transportation, water, energy, and broadband projects, among other climate-focused improvements. This spike in funding has come with an enormous opportunity and challenge: hiring, training, and retaining a generation of talent to advance these projects across transportation departments, water utilities, and other state and local entities.

With almost 17 million workers currently constructing, operating, and maintaining the country’s infrastructure (and the potential for 1.5 million new jobs annually), there are many shoes to fill. Connecting more and different workers to careers in the infrastructure space—including younger individuals, women, people of color, and others historically overlooked or excluded—also has the potential to expand quality career pathways, which can offer higher pay, pose lower formal educational barriers to entry, and present additional benefits compared to other jobs nationally.

Despite this opportunity, many state and local leaders are struggling to harness federal funding in ways that address both project needs and workforce development needs. Infrastructure owners and operators do not always coordinate with education and training providers, for instance, and the latter do not always understand how projects are funded, staffed, or ultimately executed. Yet a new collaborative strategy is emerging in different regions to help bridge these gaps: “infrastructure academies,” which serve as place-based destinations where employers and other workforce development partners collaborate to support prospective workers entering infrastructure careers, with an eye toward driving greater economic equity.

Building off a 2018 Brookings report that profiled the newly launched DC Infrastructure Academy, this piece aims to further contextualize and demystify what these academies are attempting to do by focusing on a new example in Austin, Texas. The details matter for how these academies are structured, who is involved in their creation, and the extent to which they are even addressing these workforce gaps. But Austin’s infrastructure academy is not just an ad hoc experiment; through its ongoing design and implementation, it can help inform how other regional leaders may consider launching similar approaches.

What are infrastructure academies?

Preparing workers for infrastructure careers relies on a combination of efforts among public and private employers, workforce development boards, educational institutions, labor groups, community-based organizations, and other entities. Work-based learning opportunities, including apprenticeships and internships, are especially important for many workers in the skilled trades, who tend to develop knowledge and experience on the job. For example, workers interested in pursuing a career as a water treatment operator may rely on classroom instruction at a community college, receive on-the-job training at a water utility, and gain supportive services (e.g., transportation to a worksite) from a nonprofit group as they earn needed credentials and grow their competencies over time.

Navigating such educational and training pathways can pose barriers to entry for prospective infrastructure workers. The siloed planning, lack of communication, and limited community outreach among infrastructure employers can also perpetuate hiring and training difficulties. However, the emergence of sector strategies—coordinated plans and programming among employers and workforce intermediaries to target specific industry needs—is helping these gaps. And when combined with other place-based strategies (including local hire and apprenticeship utilization requirements), leaders are addressing their infrastructure workforce needs head-on.

Infrastructure academies embody both sector and place-based strategies by serving as a single destination for workers, employers, and educators to drive more coordinated infrastructure workforce development. At a basic level, they aim to introduce more students and job seekers to infrastructure careers through targeted coursework and applied learning opportunities. Although their specific design and reach vary, these academies can be located in one physical building, where prospective workers—particularly the out-of-work and other disadvantaged individuals—can quickly access training and supportive services.

The DC Infrastructure Academy (DCIA) represents one of the first examples of this type of effort. Launched in 2018, DCIA is overseen by Washington, D.C.’s Department of Employment Services (DOES) and housed in a previously vacant elementary school in the city’s historically disadvantaged Ward 8 (and it will soon be relocated in a new, expanded facility). While DOES helps run DCIA, a variety of employers support training and potential job placement, including Pepco, Washington Gas, and DC Water. So far, DCIA has helped train more than 4,600 residents (and counting) for infrastructure careers, pulling talent across many different demographics.

Examining the Austin Infrastructure Academy

Austin is now blazing forward with its own infrastructure academy. Workforce Solutions Capital Area (WFSCA)—the workforce development board serving Austin and Travis County—has spearheaded this effort alongside other planning activities, including a labor and demand forecast for the mobility and infrastructure sector. That forecast, combined with conversations among regional leaders, has centered infrastructure as a key area of growth and opportunity for residents. Austin’s mobility and infrastructure sector already employs over 222,000 workers—the area’s second-largest sector, ahead of both health care and advanced manufacturing—and is projected to add 10,000 new jobs annually through 2040. The fact that most of these workers (60%) are earning above the region’s prevailing wage ($22 per hour) is attractive too.

While still in the design phase, the Austin Infrastructure Academy aims to serve as “a central hub to integrate recruitment, comprehensive and unified training, and wraparound service support” for workers entering infrastructure careers, with a particular focus on economic equity. This includes aligning training programs with in-demand skills (e.g., for transit operators, mechanics, and engineers); helping facilitate job placement; and evaluating outcomes and performance over time. WFSCA is the academy’s administrator, but multiple other partners have been involved, including project sponsors, industry associations, community-based organizations, and training providers. Texas Mutual Insurance Company and Google.org made significant early financial contributions to support the Academy’s design. Another key partner, Austin Community College, will dedicate space for the Academy on their new campus in Southeast Travis County. Additionally, the Austin City Council has already greenlit funding for this effort, and Austin Community College is already supporting access to the Academy’s services at its Riverside Campus—speaking to the evolving number of activities involved in the Academy’s conception and implementation.

How Local Leaders in Austin and Beyond are Using ‘Infrastructure Academies’ to Address their Workforce Needs_1

Indeed, WFSCA and other leaders have embarked on several steps to both launch and sustain the Academy. Starting in spring 2023, they launched a sector partnership and leadership council to coordinate planning, in addition to conducting additional research and holding roundtable discussions with employers such as JE Dunn and AECOM. In the following months, they held additional meetings, developed more strategies, and visited other regions—including Washington, D.C. and Phoenix—that are testing similar approaches. These activities led to City Council approval and seed funding for the Academy at a council meeting in October 2024. The sector partnership is now ramping up outreach and engagement with more employers and educational partners.

In this way, the Academy’s mission isn’t just about the here and now, such as filling immediate hiring needs or other short-term positions tied to the IIJA and IRA. Instead, it seeks to strengthen regional collaboration and experimentation over time among workforce development leaders, employers, educational institutions, and other stakeholders in service of a long-term talent pipeline.

Learning from Austin: Expanding innovative infrastructure workforce development across other regions

Although still evolving in real time, the Austin Infrastructure Academy is emblematic of how the region is redefining partnerships, as well as the value proposition that workforce boards are bringing to the table during the current infrastructure moment and beyond. There is a need for durable, place-based sector strategies across the country, and examples like that of Austin are setting the stage for this work to happen over time.

As many regions, including Austin, are still navigating new federal infrastructure funding opportunities, the time is ripe to continue testing stronger collaborations among employers, educators, and other workforce development leaders to support more equitable, quality career pathways. But leaders in these regions often do not know where to start, despite the reams of information and federal technical guidance that have come out over the last couple years. In Austin’s case, a few essential steps have made such collaborations and experiments possible:

Proactive local leadership:

The commitment of local leaders, such as Austin Mayor Kirk Watson and Travis County Judge Andy Brown, set the stage for greater collaboration and created a sense of urgency to advance this work. Their voices amplified these efforts across the region, signaling to all partners the need to unite and get this done. Moreover, the city’s financial contributions were instrumental—without this support, the initiative would still be just an idea.

An emphasis on sector partnerships:

Consistent and robust employer engagement is crucial for developing effective workforce strategies. Workforce development boards are uniquely situated in communities to establish and manage industry sector partnerships within an academy-like setting. By actively involving employers, workforce development boards can tailor training programs to meet the specific skills needed for the jobs those employers are hiring for. This collaboration also enables boards to expand programs in areas where industries face critical talent shortages.

Sustained public workforce funding:

Consistent public funding is essential to turning an imagined academy into reality. Building a talent pipeline is not a 12-month project; sustained public funding is a long-term commitment to growing future workers from within the community. For example, to meet the demands and fulfill the promise of these major infrastructure investments, Austin must train an additional 4,000 individuals in this sector annually. So it is leveraging the entire mobility and infrastructure training ecosystem, which includes 52 providers across the region. While the Austin Infrastructure Academy will have a physical location, its primary role will be to serve as a hub—creating multiple training pathways that can guide participants toward other providers within the ecosystem. With sustainable funding for training, capacity-building, and support services, it can deliver on that promise.

Looking ahead

The emergence of infrastructure academies such as the one being developed in Austin represents a powerful shift toward place-based, collaborative workforce development strategies. These academies are not just about addressing the immediate hiring needs tied to unprecedented federal infrastructure investments—they are about creating long-term solutions that strengthen regional economies and create equitable, high-quality career pathways. By focusing on proactive local leadership, sustained public funding, and industry sector partnerships, Austin’s model can serve as a guide for other regions looking to seize similar opportunities.

To stay updated on all economic events of today, please check out our Economic calendar

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Justin

Forex

Economic

Markets

Markets tried to extend the Trump trade yesterday after higher US October producer price inflation and solid (low) weekly jobless claims. They sparked a reaction higher in the dollar and lower in US Treasuries. However those moves didn’t go far and even started a modest correction move on this month’s one-way traffic. Enter Fed Chair Powell. After European close he spoke on the economic outlook at a Dallas Fed event. He labelled the recent performance of the US economy as “remarkably good” in an echo to last week’s press conference following the Fed’s 25 bps rate cut. While he shied away from commenting on US politics, he did admit that the economy is not sending any signals that they need to be in a hurry to lower rates. These comments first of all indicate that the Fed embraces the recent market repricing on a landing zone for the policy rate next year (3.75%-4%; clearly above neutral). Secondly Powell seems to be closer to already pausing the interest rate cycle lower.

While we stick to the view that we’ll see another 25 bps rate cut in December, it won’t take much to hold in January. US money markets are already contemplating the possibility of a skip at the final meeting of this year with a 25 bps rate cut only 60% discounted. Earlier on the day, dovish Fed governor Kugler said that the Fed must focus on both inflation and jobs goals. “If any risks arise that stall progress or reaccelerate inflation, it would be appropriate to pause our policy rate cuts,” she said. “But if the labor market slows down suddenly, it would be appropriate to continue to gradually reduce the policy rate.” Kugler’s comments seem to be skewing to the upside inflation risks (stubborn housing inflation and high inflation in certain goods and services) which obviously carries some weight given her more dovish status.

Daily US yield changes eventually ranged between +5.9 bps (2-yr) and -4.9 bps (30-yr). This flattening move contrasts with the bull steepening in Europe where German yields shed 6.4 bps (5-yr) to 0.9 bps (30-yr). EUR/USD closed at a new YTD low (1.0530) after testing the 1.05 mark during the day. The range bottom and 2023 low stands at 1.0448. Today’s US retail sales have the potential to trigger a test if they showcase more strength. We think risks are becoming asymmetric though. If it weren’t for Powell’s intervention, the dollar and US Treasuries would have already corrected on the strong trend. It’s our preferred scenario going into the weekend.

News & Views

The Central Bank of Mexico yesterday cut its policy rate by 25 bps to 10.25%. Annual headline inflation rebounded to 4.76% in October while core inflation continued decreasing to 3.80% .The central bank forecasts headline and core inflation to converge to the 3% inflation target (with a tolerance band of +/- 1.0%) by the end of next year and stay there in 2026. Upside risks to this scenario remain. Looking ahead, the board expects that the inflationary environment will allow further reference rate adjustments, supported by expectations of ongoing weakness in the economy. The Mexican peso (MXN) since Q2 is on a downward trajectory against the dollar with recent political events in the US confirming this trend. USD/MXN currently trades at 20.48, compared to a low of 16.26 early April.

Japanese growth slowed from 0.5% Q/Q in Q2 to 0.2% Q/Q in Q3 (0.9% Q/Qa). The outcome was marginally stronger than expected (0.7% Q/Qa). The details show a mixed picture. Private consumption printed much stronger than expected at 0.9% Q/Q (from 0.7% in Q2 and 0.2% expected). On the negative side, capital spending was weak at -0.2% Q/Q (from 0.9% in Q2). Net exports also unexpectedly contributed negatively (-0.4%) to Q3 growth. In the previous quarter this negative contribution was only -0.1%. From a monetary policy point of view, the solid performance of domestic demand probably is the more important factor for the BOJ to gradually continue policy normalization. Recent weaking of the yen also points in the same direction. Markets are now looking forward to a speech and press conference of BOJ governor Ueda next Monday. Analysts currently are divided whether a next step should already take place in December or only come at the January meeting. USD/JPY tentatively extends its gain trading north of 156, to be compared to sub 140 levels mid-September.

Source: ACTIONFOREX

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FOREX.com

Economic

Cryptocurrency

This year, analysts and investors have widely set Bitcoin’s target at 100k, a level that has remained in sight since the January 2024 bull run took prices to a record 73,800. Bitcoin’s current trajectory has continued to surpass expectations, especially after the US elections in November. However, caution arises around possible reversal volatility near 100k.

Current market trends are closely tied to expectations for Trump’s policy agenda, with momentum likely to recharge through the Christmas holidays and into early 2025. Notably, Trump’s policies could undergo adjustments if they conflict with legal requirements or economic sustainability.

Market focus has now shifted toward Trump’s agenda rather than Fed rate or inflation expectations, with inflation risks persisting into 2025 as potential tariff and tax policies under Trump could impact Fed rate control and overall inflation.

Technical Analysis: Quantifying Uncertainties

BTCUSD: Weekly Time Frame – Log Scale

Following Bitcoin’s trend from a weekly time frame and Elliott Wave perspective, the fifth wave is currently in play, with the trendline connecting the 2021 peaks acting as a potential target and resistance level. The RSI has also returned to overbought territory.

The boundaries of the parallel channels formed since 2021 serve as potential support zones for pullbacks, starting with the mid-channel between the 73,000 and 69,000 range. A decisive close below 66,000 could pull the trend further toward the lower boundary of the upper channel near the 50,000-mark.

Bitcoin Forecast: Is the Rally Losing its Steam?_2

From the upside, using the Fibonacci retracement tool from the November 2021 high of 69,000 to the November 2022 low of 15,480, the uptrend since 2022 respects retracement ratios at 0.272 (31,000), the golden 0.618 (73,790), and 1 (69,000), with the 1.618 target slightly above 100k near 102,000.

Significant volatility may occur around the 100k mark, given its psychological impact and potential for profit-taking.

If sustainable deregulation is achieved during Trump’s term, cryptocurrencies could see an increased share in investor portfolios by 2025.

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Owen Li

Economic

The Japanese yen is in positive territory today, putting the brakes on a four-day skid. In the European session, USD/JPY is trading at 155.54 down 0.45% on the day.

Japan GDP climbs 0.9%

Japan’s economy expanded by 0.9% in the third quarter, below the revised 2.2% gain in Q2 but above the market estimate of 0.7%. Quarterly, GDP rose 0.2%, lower than the 0.5% gain in Q2 and matching expectations.

The GDP numbers were not sparkling but point to a second straight quarter of growth. August economic activity was dampened due to a “megaquake” alert and a fierce typhoon which caused widespread destruction and disruption.

Private consumption, which comprises more than half of the country’s GDP showed strong growth of 3.6% y/y, despite the weather issues. This is an encouraging sign for the Bank of Japan, which wants to see inflation rise to demand and consumption. The BoJ has been vague about the timing of a rate hike but the markets are looking at December or January as likely dates. The yen has been wobbly and is down 2.3% in November. If the yen’s downswing continues, the BoJ could decide to hike rates at the Dec. 19 meeting.

The US wraps up the week with retail sales for October and the markets are expecting a slight gain. Retails sales eased to 1.7% y/y in September, which was an 8-month low. The forecast for October is 1.9%. Monthly, retail sales are expected to inch up to 0.4% from 0.3%. Consumer spending has been generally strong and consumer confidence should improve now that the uncertainty over the US election is over.

USD/JPY Technical

USD/JPY has pushed below support at 1.5601 and is testing 1.5560. The next support line is 1.5493;

1.5668 and 1.5709 are the next resistance lines.

Source: ACTIONFOREX

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ING

Commodity

Economic

Energy - European gas surges, US gas falls

Most of the action in energy was in the natural gas markets yesterday. In Europe, TTF settled almost 6% higher on the day and traded to its highest level since November last year. This was on the back of concerns that some Russian pipeline flows to Europe could be disrupted. The Austrian energy company OMV has said that it intends to stop paying Gazprom for imports in order to recoup EUR230m in damages it was awarded in an arbitration, which raises the prospects that Gazprom will cut flows if it doesn’t receive payment. Payments are usually due by the 20th of every month, so the market is likely to be on edge at least until then. OMV has said that potentially 5TWh per month of supply is at risk, which is roughly 500mcm (or less than 20mcm/day). Forecasts for colder weather next week have only provided further support to prices.

The European gas market surged higher yesterday. In the US, Henry Hub came under pressure, settling more than 67.6% lower on the day. This was after the EIA weekly natural gas storage report showed that gas storage increased by 42 Bcf, compared to expectations for a 39 Bcf increase. It was also well above the five-year average increase of 29 Bcf.

Oil prices managed to eke out a relatively small gain yesterday despite a bearish outlook in the IEA’s latest oil market report. A large US gasoline draw would have likely provided some support to the market. However, Brent is still on course to settle lower on the week.

The EIA weekly US inventory report showed that US commercial crude oil inventories increased by 2.09m barrels over the last week, quite different to the 777k barrel draw the API reported the previous day. However, the market was more focused on the 4.41m barrel decline in gasoline inventories, leaving stocks at just below 207m barrels – the lowest level for this time of year since 2014. The large draw was driven by a 555k b/d increase over the week in gasoline implied demand. No surprise that the large draw saw the RBOB gasoline crack spike higher. Distillate stocks also declined over the week, falling by 1.39m barrels.

The IEA painted a bearish outlook in its latest monthly oil market report. The agency expects that the global oil market will see a sizeable surplus of more than 1m b/d even if OPEC+ decides not to unwind its 2.2m b/d of additional voluntary cuts as currently planned. The IEA expects non-OPEC+ producers to increase supply by around 1.5m b/d in 2025, offsetting the almost 1m b/d of demand growth expected. Our balance currently shows that the market will see a small surplus over 2025 if OPEC+ cuts are extended. However, much will also depend on compliance, given a handful of members have continuously produced above their target levels.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by 429kt over the last week to 6.35mt. The increase was predominantly driven by gasoil, where stocks increased by 376kt to 2.42mt. Middle distillate stocks in Europe are at comfortable levels as we head deeper into the winter months. In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 605k barrels over the week to 42.11m barrels. Light and middle distillate stocks increased by 207k barrels and 72k barrels respectively, while residue stocks increased by 326k barrels.

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