Thursday, September 3, 2020

Crude Cools Off to Settle Near One-Month Low


News shaping
the markets today


What’s happening: Crude oil futures recorded sharp losses on Wednesday, with WTI prices closing at their lowest level in around a month.

What happened: Crude oil prices started the week on a positive note, with production disruption in the Gulf of Mexico due to Hurricane Laura resulting in a significant decline in output and supplies.

However, crude prices drifted lower yesterday on US dollar strength, data showing a decline in demand and expectations of production at the Gulf of Mexico making a strong recovery.

Why it matters: Although EIA and API reports showed supply declines, these were widely expected with the Hurricane Laura making landfall in the Gulf Coast region last week.

The EIA (Energy Information Administration) reported that US crude inventories dropped for the sixth consecutive week, down 9.4 million barrels in the week ending August 28. The API (American Petroleum Institute) also announced a decline of 6.4 million barrel in crude inventories. However, crude stocks at Cushing, Oklahoma, rose approximately 100,000 barrels last week.

With disruption in the Gulf region, total crude production in the US declined by 1.1 million barrels to 9.7 million barrels per day during the week. However, crude production in the Gulf of Mexico made a faster-than-expected recovery. According to the Bureau of Safety and Environmental Enforcement, around 19.9% of oil output has been shut in the Gulf of Mexico region, down significantly from 84% shut-ins last Thursday when Hurricane Laura arrived at the Gulf Coast.

Meanwhile, gasoline demand in the week eased to 8.78 million barrels per day, from 9.16 million a week earlier.

WTI (West Texas Intermediate) crude for October delivery dropped 2.9% to finish at $41.51 per barrel on the NYMEX (New York Mercantile Exchange), settling at the lowest level since August 7.

Brent crude for November also declined 2.5% to settle at $44.43 a barrel on ICE Futures Europe.

October gasoline prices fell around 1.9% to $1.202 a gallon, while October heating oil declined 3.4% to settle at $1.1885 a gallon on Wednesday. Prices for natural gas suffered losses for the third straight session, with the October contract easing 1.6% to close at $2.486 per million British thermal units.

What to watch: Markets will be keeping an eye on non-farm payrolls data scheduled for release on Friday, as a stronger jobs report will support a recovery in energy prices. However, with ADP releasing weaker-than-expected data on Wednesday, the NFP could surprise to the downside.

Investors also await the EIA’s weekly report on US supplies of natural gas. Analysts expect natural gas supplies to rise 34 billion cubic feet last week.

The Markets Today


European stocks will be in focus today, ahead of a basket of economic reports from the region.

Context: European stocks settled higher on Wednesday, driven by the strong performance on Wall Street, as investors shrugged off weak economic reports from the Eurozone.

Details: Weak economic reports from the Eurozone continued to expert pressure on the European Central Bank to take further steps to help the economy recover from the impact of the pandemic. Eurozone reported inflation numbers well below expectations, while unemployment rate in the region rose to 7.9% in July.

Germany’s retail sales numbers surprisingly dropped, down 0.9% in July, missing market expectations of a 0.5% rise.

Shares of Pernod Ricard gained more than 2% on Wednesday, despite the French spirits maker reporting a 13.7% decline in profits for the year ending June 30. The company also announced plans to take impairment charges of €1 billion for the year following the shutdown of restaurants and bars amid the pandemic.

The pan-European Stoxx 600 index settled higher by 1.6%, with most sectors closing in positive zone.

German DAX 30 gained 2.1%, while the French CAC 40 climbed 1.9% in the previous session.

What to watch: Markets await data on retail sales, services, and composite PMIs from the Eurozone. Industrial producer prices in the Eurozone, which rose 0.7% in June, are expected to increase 0.5% in July. Eurozone's retail sales, which grew by 5.7% in June, are expected to rise 1.5% in July. The IHS Markit Eurozone services PMI is expected to fall to 50.1 in August, from 54.7 in the earlier month, while composite PMI is expected to decline to 51.6, versus July’s reading of 54.9.

Markets will continue to assess the covid-19 numbers, with total cases approaching 26 million globally.

Other Markets: US indices trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.59%, 1.54% and 0.98%, respectively.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


Russia’s services PMI, Turkey's consumer price inflation, producer prices and gross foreign exchange reserves, South Africa’s Standard Bank PMI, Spain’s services PMI, Italy’s services PMI, France’s services PMI, composite PMI and retail sales, Germany’s services PMI and composite PMI, UK’s services PMI and composite PMI, Brazil's industrial production, services PMI and composite PMI, Canada’s balance of trade as well as the US Challenger job cuts, balance of trade, unit labor costs, labor productivity, initial jobless claims, services PMI, composite PMI and ISM non-manufacturing PMI.