15 March 2021

Crude Oil Eases After Hitting 2-Year High

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News shaping
the markets today

     

What’s happening: Oil prices ended lower on Friday, a day after hitting its highest close in around two years.

What happened: Growing optimism around a faster recovery of the global economy and the OPEC+ (Organization of the Petroleum Exporting Countries and their allies) group’s decision to extend output cuts through April helped supported a rally in crude oil on Thursday.

Despite several analysts suggesting that prices reaching as high as $100 per barrel is “within sight,” oil did not breach the $70 per barrel mark on Thursday and closed the last day of the week lower.

Why it matters: Earlier this month, the OPEC+ group had announced plans to roll over their output cuts till April. Only Russia and Kazakhstan were permitted to raise their production levels by a small margin. Meanwhile, Saudi Arabia, the de-facto leader of the group, has voluntarily reduced its output by 1 million bpd (barrels per day) so far this year. At the cartel’s latest meeting, Saudi Arabia announced plans to extend its cuts through April.

While markets are bullish about an uptrend in oil demand, with the continued reopening of economies around the world, the cartel’s decision to extend product cuts made the oil bulls take a breather on Friday. The OPEC+ group indicated that the decision to rollover production cuts to April was to play it safe rather than reflective of an expectation of demand contraction ahead. “When you have this unpredictability and uncertainty, I think there are choices you could make. I belong to the school of being conservative and taking things in a more precautionary way,” Saudi energy minister Abdulaziz Bin Salman said.

The news of attacks on oil facilities in Saudi Arabia by Iran-backed Houthi rebels did not provide much support to oil prices last week. Instead, investors focused on the rise in crude inventories in the US. The EIA’s report showed an increase of 900,000 bpd in crude stockpiles to 10.9 million barrels in the week ending March 5.

WTI (West Texas Intermediate) crude for April delivery declined 0.6% to close at $65.61 per barrel on the NYMEX (New York Mercantile Exchange) on Friday. May Brent crude also slipped 0.6% to reach $69.22 per barrel on ICE Futures Europe, after recording its highest close since May 28, 2019 on Thursday.

For the week, WTI recorded a 0.7% loss, while the global benchmark Brent was down 0.2%, ending its seven-week winning streak.

Gasoline prices had surged sharply to a two-and-a-half year high on Thursday, fuelled by a decline in inventories. April gasoline added another 0.6% to close $2.15 a gallon on Friday, reaching its strongest level since July 2018.

What to watch: Crude prices could recover today from last week’s decline, backed by an improvement in the overall economic outlook. WTI crude futures rose by 1% during the Asian session.

Markets await the weekly API and EIA reports on crude inventories, due for release on Tuesday and Wednesday, respectively.

The Markets Today

     

Bitcoin will be in focus today, after the cryptocurrency climbed past the $61,000 mark for the first time.

Context: The world's most popular virtual currency spiked over the weekend to breach the $60,000 resistance level. With this, Bitcoin has gained more than 1,000% over the past year.

Details: Bitcoin, which has a market capitalisation of more than $1.1 trillion, has been on a sharp uptrend amid the coronavirus uncertainty. Market optimism was further boosted by US President Joe Biden signing the massive $1.9 trillion covid-19 rescue bill into law last week. The package includes handing out $1,400 in stimulus cheques to Americans.

The crypto space has recently found support from big institutional endorsements, with Elon Musk buying $1.5 billion worth of Bitcoins last month. Large financial enterprises also purchased bitcoin. For instance, Square bought bitcoins worth $170 million last month. Mastercard and Visa allowing merchants to accept payments in select cryptocurrencies and PayPal facilitating the purchase and sale of cryptocurrencies in the US have also lent support.

The largest cryptocurrency reached a whopping $61,742 over the weekend. Although the coin eased in early trading today, it remained above $60,000. With this, Bitcoin price has more than doubled since the beginning of 2021, when it was trading at around $29,000. The crypto king has added over $10,000 in a week.

What to watch: Bitcoin investors may look for further signs of an improvement in the economic outlook.

Other Markets: US indices closed mostly higher on Friday, with the Dow Jones index and S&P 500 up by 0.90% and 0.10%, respectively. The Nasdaq 100 bucked the trend, declining by 0.89%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany's wholesale prices, Turkey’s central government budget balance, South Africa's SACCI business confidence index, Brazil’s IBC-Br index of economic activity and Central Bank of Brazil’s focus market readout, Canada’s housing starts and manufacturing sales, India’s balance of trade as well as the US New York Empire State manufacturing index.

 

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