04 February 2021

Crude Near 1-Year High as US Stockpiles Decline

Tags

News shaping
the markets today

     

What’s happening: Crude oil prices rose on Wednesday, settling close to one-year high levels.

What happened: Prospects of another stimulus lifting energy demand along with a modest decline in weekly crude inventories provided support to oil prices on Wednesday.

The OPEC+ (Organization of the Petroleum Exporting Countries and their allies) also met on Wednesday but did not announce any changes to the current output level.

Why it matters: In January, Saudi Arabia had agreed to lower its crude output by 1 million bpd (barrels per day) to offset the increase in output from Russia and Kazakhstan. Since April 2020, the OPEC+ group has cut production by a cumulative 2.1 billion barrels.

Following the meeting yesterday, the group announced that Saudi Arabia will continue to make the voluntary supply cuts till March.

“Saudi Arabia, the de facto leader of the group has taken the reins and committed to reducing their own output significantly enough to bolster the entire global market,” Sevens Report Research’s Tyler Richey said in a note.

Investors are waiting for the US stimulus package to be finalised and implemented, which is expected to support an economic recovery. A group of Republican senators countered the US President Joe Biden’s proposed $1.9 trillion covid-19 rescue package with a proposal of around $600 billion. Although the proposed package is significantly lower, market sentiment was lifted by the progress in talks.

Meanwhile, the EIA (Energy Information Administration) reported a decline of 1 million barrels in US crude inventories for the week ended January 29. Although the decline was lower than the consensus estimate of 2.4 million barrels, it helped lift sentiment.

The EIA’s report also showed a decline in crude inventories at the Cushing, Oklahoma hub by 1.5 million barrels last week. This followed the API’s (American Petroleum Institute) report released late Tuesday, which showed a decline in crude inventories of 4.3 million barrels.

WTI (West Texas Intermediate) crude for March delivery climbed 93 cents to settle at $55.69 per barrel on the NYMEX (New York Mercantile Exchange), while April Brent crude added $1 to reach $58.46 per barrel on ICE Futures Europe.

March gasoline also climbed 3.26 cents to close at $1.6486 a gallon, while March heating oil gained 1.59 cents to reach $1.6905 a gallon on Wednesday.

What to watch: Markets will keep an eye on stimulus talks in the US, which could provide support to oil prices in the near term. Investors also await EIA’s data on natural gas stockpiles, which is projected to decline by 192 billion cubic feet in the recent week.

Crude oil prices rose by 0.9% to $56.18 per barrel during the Asian session this morning.

The Markets Today

     

British stocks will be in focus today ahead of the Bank of England’s interest rate decision.

Context: UK stocks closed slightly lower on Wednesday, giving back their early gains, despite favourable earnings reports and covid-19 vaccine developments.

Details: Equity markets around the world closed mostly higher on Wednesday on prospects of the US finalising the $1.9 trillion covid-19 relief bill proposed by US President Joe Biden and a quicker rollout of vaccines.

GlaxoSmithKline also announced a deal with German biotech firm CureVac to develop vaccines for various covid-19 variants.

On the economic data front, Britain’s IHS Markit/CIPS composite PMI was revised higher to 41.2 for January from a preliminary reading of 40.6. However, the latest reading was still way below December’s reading of 50.4. January’s final reading signalled the highest contraction in the country’s private sector activity since May last year. The UK’s services PMI also fell to 39.5 in January, from 49.4 in December.

Shares of the world’s second-biggest mobile operator, Vodafone, climbed around 6% on Wednesday after the company recorded organic service revenue growth for the third quarter, exceeding expectations.

The blue-chip FTSE 100 index declined 0.14% to settle at 6,507.82 on Wednesday, after trading in positive territory earlier during the session. The FTSE 250 index added 0.3%.

What to watch: Markets will keep an eye on the interest rate decision from the Bank of England. The bank is widely expected to maintain interest rate at a record low of 0.1% at its meeting. However, any updates on the central bank’s bond-buying program will impact the market.

Investors also await economic data on new car registrations and construction PMI from the UK. The IHS Markit/CIPS UK construction PMI is projected to decline to 52.9 in January, from 54.6 in December.

Rising covid-19 cases remain a top concern for markets, with total infections exceeding 3.8 million in Britain.

Other Markets: US indices closed mostly higher on Wednesday, with the Dow Jones index and S&P 500 up by 0.12% and 0.10%, respectively. However, the Nasdaq 100 moved lower by 0.4% in the previous session.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Eurozone’s construction PMI, retail trade and ECB economic bulletin, France’s construction PMI and retail sales, Germany’s construction PMI , Italy’s construction PMI, Turkey’s gross foreign exchange reserves, Mexico’s manufacturing confidence index, Brazil’s car production and new vehicle registrations, Russia’s business confidence as well as the US Challenger job cuts, unit labour costs, nonfarm business sector labour productivity, initial jobless claims and factory orders.

 

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.