Trade Deficit Improves, Import Prices Muted, Distillate Inventories Rise

- The Trade Deficit for May fell to -$55.3B versus estimates of -$57.0B and -$56.9B in April.
- The Import Price Index for June rose 1.0% versus estimates of a 1.0% increase and a 1.0% decline in May.
- Summary of Weekly Petroleum Data for the Week Ending July 8, 2005.
- The EIA reported crude inventories fell 3.9M barrels versus estimates of a 2.8M barrel decline. Gasoline inventories fell 2.6M barrels versus estimates of a 1.0M barrel decline. Distillate inventories rose 3.2M barrels versus estimates of a 2.0M barrel build.

BOTTOM LINE: The US trade deficit unexpectedly narrowed in May as imports of oil, other industrial materials and capital goods fell while exports hit an all-time record. The deficit with China widened to $15.8 billion, which is 29% of the entire US deficit. The numbers for April and May point to a narrower deficit in the second quarter, which should help add to 2Q GDP growth for the first time in 2 years.

Prices of imported goods other than petroleum declined .4% in June, the most in more than two years. This suggests US companies will struggle to raise prices due to foreign competition.

The continuing build in distillate inventories bodes well for my expectation of a substantial decline in crude prices before year-end.