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Crude oil rises as China relaxes restrictions

 

Tuesday, December 20, 2022, 8.45am GMT

The news shaping the markets today

Ukraine’s capital Kyiv was hit by drone strikes, which caused “fairly serious” damage in the capital city, according to governor Oleksiy Kuleba. Despite the ongoing conflict, the US dollar index traded lower this morning.


The Bank of Japan held its key short-term interest rate at -0.1% at its latest meeting, lending support to the JPY/USD forex pair.


The People’s Bank of China maintained its key lending rates for the fourth month in a row at its December fixing, which sent the CNY/USD pair slightly lower in forex trading this morning.


Argentina’s trade surplus widened to $1,339 million in November, from $424 million in the year-ago month. However, the ARS/USD forex pair remained under pressure after the news.


Colombia’s economy grew by 4.6% year-over-year in October, versus a 4.4% expansion in the earlier month, sending the COP/USD pair higher in forex trading this morning.

 

What’s happening: Crude oil recorded gains on Monday amid recent developments in China.

What happened: China, the world’s biggest oil importer, continued to relax covid-19 restrictions, triggering hopes of higher energy demand.

However, concerns around a slowdown in the global economy limited the overall gains for crude oil.

Why it matters: Oil prices had jumped to a record high of $147 per barrel earlier during the year, following Russia’s invasion of Ukraine in February. However, prices have been on a downward trajectory since then, amid concerns over a slowdown in the global economy.

China decided to relax its zero covid policy, reopening regions with infections. The county is already witnessing the first of three projected covid-19 waves, following the relaxation of mobility restrictions China’s chief epidemiologist Wu Zunyou said on Monday.

Zunyou warned of increases in infections as people begin returning to their homes for the Lunar New Year holiday. The country has not reported any deaths related to covid-19 since December 7.

China also announced plans to increase domestic demand, boost consumption, and attain major economic projections next year at the annual Central Economic Work Conference. The country’s economy expanded just 3% during the first three quarters of 2022 and the growth rate is expected to remain around that much in the fourth quarter, versus the official target of approximately 5.5%.

Oil prices also received support from the US Energy Department’s announcement on Friday of plans to start repurchasing crude for the SPR (Strategic Petroleum Reserve), following historic releases from the reserve earlier this year.

WTI crude oil for January delivery gained 90 cents to close at $75.19 per barrel on Monday, while Brent crude for February delivery added 76 cents to $79.80 per barrel.

In other energy trading, wholesale gasoline for January delivery gained 5 cents to reach $2.18 a gallon, while January natural gas declined 75 cents to settle at $5.85 per 1,000 cubic feet.

What to watch: Traders await the release of the API’s (American Petroleum Institute) data on crude oil stockpiles on Tuesday. US crude oil inventories rose by 7.819 million barrels during the week ended December 9, compared to a decline of 6.426 million barrels in the prior week.

The markets today

European stocks will be in focus today ahead of a couple of economic reports

Context: European stocks closed mostly higher on Monday, after recording losses last week.

Details: Markets in Europe started the week on a positive note after recording losses last week, as hawkish comments from global central banks signalled further policy tightening next year.

The European Central Bank raised its key interest rate from 1.5% to 2% at its meeting last week and signalled further rate hikes in 2023. The Bank of England and the Swiss National Bank also announced rate hikes of 50 basis points, matching the US Fed’s decision in the prior week.

Investors assessed Germany’s IFO Business Climate report, which showed an improvement in business morale for the third month in a row in December. The Ifo Business Climate indicator for Germany improved to 88.6 in December, reaching the highest level since August.

Construction output in the Eurozone also climbed 2.2% year-over-year in October, the most since May. Wages and salaries in the bloc grew 2.1% from a year ago during the third quarter.

The Stoxx Europe 600 rose 0.27% to close at 425.87 on Monday, with oil and gas shares leading the gains.

The CAC 40 index added 0.32% to settle at 6,473.29, following a decline of around 4% over the past two weeks. Bank of France expects the country’s economic growth to decelerate to 0.3% in 2023, from an estimated 2.6% in 2022.

Germany’s DAX 30 gained 0.36% to 13,942.87, while the FTSE 100 rose 0.4% to 7,361.31 on Monday.

What are expectations: Investors await economic data on the Eurozone’s current account and consumer confidence indicator later today. Analysts project a current account deficit of €16 billion for October, following a surplus of €3.8 billion in the previous month. The consumer confidence indicator, which increased by 3.6 points to -23.9 in November, is expected to decline to -24.6 in December.

Other Markets: US indices closed lower on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.49%, 0.90% and 1.42%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 1.0608 and 1.0619 Positive
GBP/USD – 1.2152 and 1.2163 Positive
Copper – 3.7433 and 3.7701 Positive
Nasdaq 100  – 11045.60 and 11113.35 Positive
Nikkei 225 – 26029.50 and 27179.00 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0614, 0.05%) Dow ($32,823, -0.45%) Brent ($80.35, 0.7%)
GBP/USD (1.2149, 0.03%) S&P500 ($3,823, -0.59%) WTI ($75.71, 0.7%)
USD/JPY (133.71, -2.34%) Nasdaq ($11,114, -0.71%) Gold ($1,802, 0.3%)

What else to watch today

Germany’s producer price inflation, South Africa’s leading business cycle indicator, Turkey’s consumer confidence indicator, Indonesia’s value of loans, Italy’s current account, Mexico’s retail sales, Canada’s retail sales, US building permits, housing starts and Redbook index, Turkey’s government debt, China’s foreign direct investment, as well as Argentina’s current account.

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