Crude oil rises as US inventories decline

Today’s headlines

What’s happening: Crude oil traded higher this morning after recording losses in the previous session.

What happened: The latest industry data signalled a bigger-than-expected decline in US crude inventories, lending support to oil prices.

However, gains were limited as investors continued monitoring the latest geopolitical developments.

Why it matters: Prospect of a peace deal between Russia and Ukraine and higher output from the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) have been exerting pressure on crude prices and sent oil to around three-month lows last week.

US President Donald Trump met with Ukraine’s President Volodymyr Zelensky and European leaders to discuss ending the ongoing war and announced that he had spoken with Russia’s President Vladimir Putin following the meeting. Trump also said that plans for a meeting between Putin and Zelensky were underway.

Investors are monitoring the peace talks, as these could ease sanctions on Russian crude supply, which would lower oil prices.

The American Petroleum Institute said on Tuesday that US crude inventories contracted by 2.4 million barrels last week, following a gain of 1.5 million barrels in the previous week. The decline was more than market expectations of 1.2 million barrels, signalling upbeat demand.

Brent crude prices fell 1.2% to close at $65.79 per barrel on Tuesday, while WTI crude oil tumbled 1.7% to settle at $62.35 per barrel.

Oil prices rebounded this morning, with Brent crude adding 0.2% to $65.90 per barrel and WTI crude gaining 0.3% to $62.54 per barrel.

What to watch: Investors will continue assessing the latest developments related to the Russia-Ukraine peace talks.

Data on EIA (Energy Information Administration) crude oil stockpiles (1830 UAE Time), gasoline inventories (1830 UAE Time) and distillate stocks (1830 UAE Time) will also remain in focus today. Crude oil inventories in the US climbed by 3.037 million barrels in the week ended August 8, compared to market estimates of a 0.8 million decline. Stockpiles of gasoline declined by 0.792 million barrels in the week, while distillate stocks in the US rose by 0.714 million barrels.

The markets today

The Japanese yen in focus today ahead of some major economic reports

Context: The JPY/USD forex pair rose this morning, extending gains from the previous session.

Details: The Japanese yen traded higher this morning despite disappointing trade figures. Exports declined 2.6% year-over-year in July, recording the steepest plunge in more than four years as US tariffs impacted overseas demand. Imports also contracted 7.5% in July, recording the fourth decline this year but came in better than market estimates of a 10.4% decline.

Another data released on Wednesday showed Japan’s core machinery orders surged in June, after falling for two months. Japan’s core machinery orders, excluding volatile items including ships and electric power, rose 3% to ¥941.2 billion in June, compared to market estimates of a 1% decline.

On the policy front, investors still remain divided over the Bank of Japan’s upcoming policy stance following mixed comments from officials.

Strength in the US dollar weighed on the JPY/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose 0.2% to 98.42 this morning.

The JPY/USD pair rose 0.1% to 147.57 this morning, while Japan’s Nikkei 225 fell 1.58% to trade at 42,858.33.

What to watch: Investors await the release of data on S&P Global manufacturing PMI (0430 UAE Time), S&P Global services PMI (0430 UAE Time) and S&P Global composite PMI (0430 UAE Time) from Japan on Thursday. The S&P Global manufacturing PMI, which rose to 48.9 in July, is expected to improve further to 49 in August. Services PMI is projected to decline to 52.8 in August, from 53.6 in July. Analysts expect the composite PMI to edge lower to 51.4 in August, from 51.6 in July.

Markets will also continue monitoring ongoing talks between the US and Russia related to the war in Ukraine.

Other Markets: European indices closed higher on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.34%, 0.45%, 1.21% and 0.69%, respectively.

The news shaping the markets

France’s President Emmanuel Macron warned of further sanctions on Russia if peace talks fail. The news sent the RUB/USD pair lower in forex trading this morning.

Colombia’s trade deficit rose to $1.378 billion in June, versus a year-ago gap of $0.838 billion. Imports climbing faster than exports exerted pressure on the COP/USD forex pair.

The People’s Bank of China kept key lending rates unchanged at the August meeting, which sent the CNY/USD pair slightly lower in forex trading this morning.

Canada’s annual inflation rate eased to 1.7% in July, from 1.9% in the previous month. However, core CPI remaining at 3% in July exerted pressure on the CAD/USD forex pair.

Hong Kong’s unemployment rate surged to 3.7% in the quarter ending July, from 3.5% in the previous quarter, which sent the HKD/USD pair lower in forex trading this morning.

What else to watch today

South Africa’s inflation rate (1200 UAE Time), Eurozone’s inflation rate (1300 UAE Time) and labour cost index (1300 UAE Time), Italy’s current account (1300 UAE Time), Germany’s 30-year Bund auction (1330 UAE Time), US MBA mortgage applications (1500 UAE Time), 17-week Bill auction (1930 UAE Time), 20-year Bond auction (2100 UAE Time) and FOMC minutes (2200 UAE Time), India’s M3 money supply (1530 UAE Time), Canada’s new housing price index (1630 UAE Time) and 5-year Bond auction (200 UAE Time), Russia’s PPI (2000 UAE Time), as well as Argentina’s balance of trade (2300 UAE Time) and economic activity (2300 UAE Time).