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Crude oil burns brighter amid supply concerns

 

Tuesday, September 20, 2022, 8.45am GMT

The news shaping the markets today

Russia’s missiles landed close to the Pivdennoukrainsk Nuclear Power Plant in Ukraine’s Mykolaiv province. Despite the ongoing concerns, the safe-haven US dollar index traded slightly lower this morning.


The People’s Bank of China maintained its key rates for corporate and household loans at its recent fixing, lending support to the CNY/USD forex pair.


Japan’s annual inflation rate climbed to 3.0% in August, from 2.6% in the previous month. Despite this being the 12th straight month of a rise in consumer prices, the JPY/USD pair rose slightly in forex trading this morning.


The Colombian economy grew by 6.4% year-over-year in July, versus a revised 8.6% expansion in the prior month, lending support to the COP/USD forex pair.


US NAHB housing market index declined to 46 in September, versus market estimates of 47. Although this was the weakest figure since May 2020, the Dow Jones index closed higher by more than 197 points on Monday.

 

What’s happening: Crude oil spiked to settle higher on Monday, giving up losses made earlier in the session.

What happened: Although crude oil started the week on a cautious note, it ended Monday’s session slightly higher, as OPEC missed its output estimates.

However, concerns around a slowdown in global demand still weighed on investor sentiment and limited the overall gains.

Why it matters: Crude oil has been on an upturn this year, with Brent moving close to its record high of $147 per barrel, due to the reopening of the global economy and Russia’s ongoing war with Ukraine. However, concerns around a slowdown in economic growth have recently sent oil prices lower.

Oil came under further pressure amid weak demand projections, with the IEA (International Energy Agency) saying last week that it expected zero demand growth during the fourth quarter. WTI crude lost 1.9% and Brent fell 1.6% last week.

Global central banks are looking to raise interest rates further, in a bid to control inflation, with some traders expecting a 1 percentage point hike to be announced by the US Federal Reserve on Wednesday.

UK markets remained closed on Monday, for the funeral of Queen Elizabeth II, which limited overall trading volumes during European trading hours. Many traders also moved to the sidelines ahead of the Fed’s next interest rate announcement.

The US dollar remained close to a two-decade high. Strength in the greenback generally makes US dollar-denominated commodities, including oil, more expensive for foreign currency holders.

The OPEC+ (Organization of Petroleum Exporting Countries and allies) missed its oil production target by 3.583 million bpd (barrels per day) in August, according to an internal document. In July, the OPEC+ had fallen short of its target by 2.892 million bpd.

Brent crude for November gained 0.7% cents to settle at $92 per barrel on Monday, after trading as low as $88.50 earlier in the session. WTI for October added 62 cents, or 0.7%, to close at $85.73 per barrel on the NYMEX, after falling as low as $82.10 earlier in the session.

In another energy trading, October gasoline gained 2% to $2.4641 a gallon, while October natural gas fell by around 0.2% to $7.752 per million British thermal units on Monday.

What to watch: Traders will keep an eye on covid restrictions in China. The country has lifted its Chengdu lockdown after two weeks of restrictions. Any further easing of restrictions could provide some support to oil prices ahead. Interest rate decisions from several central banks around the world will also remain in focus.

Markets await the API’s (American Petroleum Institute) data on crude oil stockpiles. UC crude oil inventories had risen by 6.03 million barrels during the week ended September 9, compared to a gain of 3.65 million barrels in the previous period.

The markets today

European stocks will be in focus today ahead of the bloc’s current account data release

Context: Markets in Europe settled mixed on Monday, after recording losses last week.

Details: The pan-European Stoxx 600 index fell around 2.9% last week, as traders remained worried about the overall health of the economy. The continuous rise in inflation, along with the US Fed’s upcoming rate decision, also kept traders on edge during the session.

Markets in the UK were closed on Monday for the funeral of Queen Elizabeth II. The GBP/USD forex pair had dipped to a 37-year low last week, amid strength in the greenback and recession concerns.

The US Federal Reserve is all set to start its two-day policy meeting today, with traders projecting a rate hike of at least 75 basis points.

Investor sentiment was supported by a rise in Eurozone’s construction output by 1.5% year-over-year in July, following 1.3% growth a month ago.

The STOXX Europe 600 Index slipped around 0.09% to settle at 407.87 on Monday. Germany’s DAX 40 gained 0.49% to close at 12,803.24, while France’s CAC 40 lost 0.26% to settle at 6,061.59.

What to watch: Traders await the release of data on the Eurozone’s current account today. The common bloc is expected to report a current account deficit of €12.2 billion for July, following a surplus of €3.2 billion in the prior month.

Other Markets: US indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.64%, 0.69% and 0.77%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 143.06 and 143.24 Positive
AUD/USD – 0.6717 and 0.6731 Positive
WTI Crude Oil – 85.20 and 85.64 Positive
CAC 40 – 6067.44 and 6086.91 Positive
Dow Jones – 30977.09 and 31046.02 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0028, 0.03%) Dow ($31,169, 0.17%) Brent ($92.15, 0.2%)
GBP/USD (1.1429, -0.05%) S&P500 ($3,925, 0.19%) WTI ($85.90, 0.2%)
USD/JPY (143.16, -0.03%) Nasdaq ($12,052, 0.24%) Gold ($1,684, 0.4%)

What else to watch today

Germany’s producer price inflation, Switzerland’s balance of trade, South Africa’s leading business cycle indicator, Sweden’s interest rate decision, Czech Republic’s total external debt, Poland’s employment growth, industrial production, producer prices and corporate sector wages, Spain’s balance of trade, Taiwan’s export orders, Israel’s current account, Canada’s inflation rate, US building permits, housing starts and Redbook index, Turkey’s government debt, Brazil’s federal tax revenues, as well as Argentina’s GDP growth rate.

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