16 July 2020

Crude Oil Gets Hotter Even as OPEC Eases Output Cuts

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News shaping
the markets today

     

What’s happening: Crude oil prices spiked to their highest settlement in over four months on Wednesday.

What happened: Despite the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) committee reaching an agreement to ease production cuts from next month, crude oil reached 4-month highs as sentiments were buoyed by US crude supplies declining at the fastest pace so far this year.

Amid rising demand for oil with some economies reopening, the OPEC+ announced plans to ease production cuts to 7.7 million barrels per day. The group said, however, that the decision may be revisited in case extended lockdowns hampered the demand for oil.

Why it matters: The EIA (Energy Information Administration) said on Wednesday that crude inventories in the US had declined by 7.5 million barrels in the week ending July 10, after a 5.7 million barrels rise in the prior week. Analysts were expecting a decline of only 2.1 million barrels.

On Tuesday, the API (American Petroleum Institute) had reported an inventory draw of around 8.322 million barrels, suggesting higher demand from the world’s largest economy.

Gasoline inventories also fell 3.1 million barrels last week, following a drop of 4.8 million barrels in the prior week. Distillate fuel inventories declined by 453,000 barrels in the latest week.

During the Joint Ministerial Monitoring Committee meeting, the OPEC+ group agreed to ease production cuts to 7.7 million bpd (barrels per day) starting August, versus the current rate of 9.7 million bpd.

The committee also mentioned that the countries that had not fully complied with the output cuts in May and June will be required to compensate for their higher production.

WTI (West Texas Intermediate) crude for August delivery gained 2.3% to close at $41.20 a barrel on the NYMEX (New York Mercantile Exchange), marking the highest settlement since March 6.

September Brent crude rose 2.2% to $43.79 per barrel on ICE Futures Europe.

What to watch: With covid-19 cases surging in various parts of the world, investors are keenly following news of any increase in oil demand and indications by the OPEC of members adhering to the agreed production cuts. Crude oil prices could remain under pressure today after reaching a 4-month high in the previous session. Crude oil futures traded down 0.9% to $40.83 per barrel in the European session.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of the ADP employment report from the country.

Context: The loonie traded around the 1.35 level against the greenback on Wednesday, after the Bank of Canada left its benchmark interest rate unchanged at its latest meeting.

Details: The Canadian dollar had been on a downtrend versus other major commodity currencies earlier in the session but regained momentum after the country’s central bank announced to hold its benchmark interest rate. The Bank of Canada also announced plans to continue with its quantitative easing program.

Since the spread of coronavirus in March, the Bank of Canada has lowered its benchmark interest rate by 150 bps to a record low of 0.25%, while announcing over C$170 billion in direct aid to provide some support to the economy.

The country recorded its strongest ever rise of 10.7% in manufacturing sales to C$40.2 billion in May, versus a revised 27.9% decline in the prior month. Analysts were expecting a 9.5% increase in manufacturing sales.

The USD/CAD pair closed the previous session at $1.3511 and was trading slightly higher by 0.01% at $1.3513 during the European session.

What to watch: Investors await data from Canada’s ADP employment report. Private businesses in the country hired back 20,840,000 people in May, after cutting 22,670,000 jobs in April.

Markets also continue to assess the coronavirus numbers, with overall cases surpassing the 13.5 million mark globally.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 0.5%, 0.8% and 0.8%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

China’s foreign direct investment as well as the US retail sales, Philadelphia Fed manufacturing index, initial jobless claims, retail sales, NAHB housing market index, business inventories and the EIA’s natural gas stockpiles.

 

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