06 April 2020

Crude Oil Starts Lower on OPEC+ Meeting Delay

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What’s happening: Crude oil prices declined in morning trade on Monday, after recording a record spike last week.

What happened: After reporting its best week in history, crude oil started the week on a lower note on concerns of oversupply. Investor sentiment was dampened by the OPEC+ (a group of the Organization of the Petroleum Exporting Countries and its allies) announcing a delay in its meeting, scheduled for today, raising fears of another hurdle in the much-needed production cuts.

Tensions began to escalate again between Russia and Saudi Arabia, although hopes are still pinned on a favourable outcome of the meeting.

Why it matters: Oil prices reported a strong rise last week as Riyadh called for an OPEC+ meeting, signalling some progress in possible production cuts by major oil-producing countries. The group’s previous meeting didn’t result in any deal, with Russia rejecting the production cut proposed by Saudi Arabia in a bid to control declining oil prices. This resulted in a price war between the two major oil producers, with both nations threatening to increase their supply.

President Donald Trump raised hopes of a resolution on Thursday, when he said he had spoken with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman regarding the slump in oil markets and both nations are likely to reduce their production by up to 15 million barrels.

The US President met with major oil executives of the country on Friday at the White House, pushing the oil giants to cooperate in production cuts, although no official agreement was announced after the meeting.

Investor worries returned late Friday when the OPEC+ announced a delay in its meeting scheduled for today. Expectations are for the meeting to take place on Thursday.

Despite the strong spike last week, WTI (West Texas Intermediate) crude was still down around 40% in the month due to lower demand caused by the COVID-19 outbreak and the oil price war between two major oil giants.

WTI (West Texas Intermediate) oil climbed 12% on Friday, adding gains to its biggest single-day rally of 24% the previous day. After falling as much as 7% earlier in the session, WTI crude was trading lower by 2.1% at $27.75 per barrel during the European session, while Brent crude slipped 1.3% to $33.66 per barrel.

What to watch: Markets will be looking out for any official announcements from the OPEC+ group regarding the exact date of the meeting. Investors are hoping for a resolution between Saudi Arabia and Russia to control the decline in oil prices.

The Markets Today

     

Investors will be focusing on US stocks today, with markets closing another volatile week.

Context: US stocks closed lower on Friday, following a strong rise in deaths from coronavirus in New York and investor concerns related to a hugely disappointing payrolls report. The White House offered a glimmer of hope, however, over the spread of COVID-19 stabilising.

Details: Wall Street recorded its third weekly drop in the last four weeks, with the Dow losing 2.7% last week. On Friday, New York Governor Andrew Cuomo reported 562 additional deaths in 24 hours to record the highest single day rise in the coronavirus death toll till date. Cuomo also noted that there were more than 100,000 confirmed cases in the state.

Meanwhile, economic data bore equally bad news. US payrolls dropped a massive 701,000 in March, with the unemployment rate spiking to 4.4%. Thursday’s report also showed a surge in jobless claims by a record 6.6 million in the latest week.

The Dow tumbled 361 points to close at 21,053 on Friday, while the S&P 500 fell 1.51% to 2,489 and the Nasdaq 100 slipped 1.53% to end at 7,373.

American Express, IBM and UnitedHealth were the worst performers in the Dow index, tumbling more than 3% each on Friday. However, Walmart bucked the trend to close 0.7% higher after reporting 20% growth in sales in March.

President Donald Trump offered some hope to investors during his Sunday news briefing, while also cautioning on the toughest days and weeks ahead for the country. He said, “The U.S. will reach a horrific point in terms of death, but it will be a point where things will start changing for the better.” Coronavirus cases in the US have exceeded 337,600, with around 9,640 deaths.

What to watch: US stock futures are pointing towards a higher start on Wall Street today. Investors are hoping for a decline in coronavirus deaths and cases so that the economy can get back on track. The US economic calendar is light today, with only consumer inflation expectations report for March scheduled to be announced.

Other Markets: European markets were trading higher at 9:00am GMT, with the FTSE 100, German 30 and French 40 up 3.2%, 4.2% and 3.5%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Mexico’s car production and auto exports, Russia’s total vehicle sales and inflation rate, Brazil’s car production and new vehicle registrations as well as US total vehicle sales.

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