05 March 2021

Crude Oil Hits One-Year High on OPEC+ Decision

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What’s happening: Crude oil climbed to the highest in over a year on Thursday, after the OPEC and its allies announced their oil production plans for April.

What happened: Following their meeting on Thursday, the OPEC+ said they will maintain their crude output in April.

Saudi Arabia, the top crude exporter, also announced plans to extend its voluntary production cuts of one million bpd (barrels per day) into next month.

Why it matters: Crude prices have rebounded sharply to pre-pandemic levels, driven by massive output cuts by the OPEC+ and the rollout of covid-19 vaccines.

During the initial phase of the pandemic, OPEC+ agreed to lower oil output by a record 9.7 million bpd, after a steep decline in oil prices to record lows. The cuts were eased to 7.2 million bpd in January.

As per the latest decision, Russia and Kazakhstan have been permitted to increase their output by 130,000 bpd and 20,000 bpd, respectively.

In addition to extending the country’s voluntary one million bpd output cuts for another month, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said the cuts would be eased gradually.

“The message OPEC is sending the market is that they’re quite willing to see oil prices run hot and ultimately, go a long way in reducing the inventory overhang built last year because of COVID-19,” said Bart Melek, head of commodity strategies at TD Securities.

Meanwhile, the US reported a record rise of over 21 million barrels in crude oil inventories in the latest week. However, gasoline stockpiles declined by a record level in 30 years following the closure of refineries due to the Texas freeze.

Futures of Brent crude, the global oil benchmark, jumped $2.67 to $66.74 per barrel on Thursday, after hitting its highest price since January 2020 of $67.75 per barrel.

WTI (West Texas Intermediate) crude spiked 4.2% to settle at $63.83 per barrel, climbing to its peak in more than a year of $64.86 during the session.

What to watch: Before Thursday’s meeting, OPEC Secretary General Mohammed Barkindo recommended taking a cautious approach as the covid-19 crisis still represents downside risk to the global economy. Investors are likely to continue monitoring vaccine distribution in various countries and the recovery in different economies.

Traders await the Baker Hughes report on the number of crude oil rigs in the US, which climbed to 306 in the week ended February 12, from 287 in the prior week.

The Markets Today

     

US stocks will be in focus today, ahead of the all-important NFP (nonfarm payrolls) data.

Context: US equities recorded sharp losses on Thursday, following remarks from Federal Reserve Chairman Jerome Powell.

Details: Powell failed to reassure markets of the Federal Reserve’s ability to keep a check on inflation. The Fed chief said that the reopening of the US economy might lift inflation, but that would be temporary and would not cause a material change to the long-term inflation projections. The central bank maintains a 2% inflation target, which is considered the ideal rate for a balance between maximising employment and ensuring price stability.

US Treasury yields, which had recently eased after climbing initially this year, continued the uptrend and rose above the 1.5% level, following Powell’s remarks. The benchmark 10-year yield had jumped to a high of 1.6% last week, causing a massive selloff in US stocks. Yields had eased through this week, before rising again on Thursday. The gain in yields represented market expectations of Powell announcing changes in the Fed’s asset purchase program.

Bond yields also responded to the Labor Department’s upbeat data on weekly jobless claims, with first time filings for jobless claims falling to 745,000 in the week ended February 27, better than the estimate of 750,000.

The rising yields exerted pressure on US stocks on Thursday. Investors also responded to the delay in the Senate’s discussions around the massive $1.9 trillion covid-19 rescue package, which was passed by the US House of Representatives on Saturday.

The Nasdaq 100 slipped 1.7% to settle at 12,464.00 on Thursday. The tech-laden index is on course to recording its third consecutive week in the red, the longest weekly losing streak since September. The Dow Jones index lost around 346 points to close at 30,924.14, while the S&P 500 settled down 0.58% at 3,743.75.

What to watch: Markets will keep an eye on the US NFP report. The country’s economy is expected to add 182,000 jobs in February, following a 49,000 gain in January. The unemployment rate is projected to remain unchanged at 6.3%.

Traders also await other reports from the US, including balance of trade, consumer credit and budget plan for fiscal 2022. Rising covid-19 cases remain a top concern for markets, with total infections climbing past 28.8 million in the US.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, German DAX 30 and STOXX 600 down by 0.37%, 0.17% and 0.37%, respectively. The French 40 bucked the trend, rising 0.01%.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s factory orders, France’s balance of trade and current account, UK’s house prices, Italy's retail trade, Russia’s total vehicle sales, foreign exchange reserves, consumer price inflation and corporate profits, India’s foreign exchange reserves, Spain's consumer confidence indicator, Brazil’s industrial production, car production and new vehicle registrations, Mexico's car output, auto exports and gross fixed investment, Turkey’s treasury cash balance, as well as Canada’s Ivey Purchasing Manager's Index.

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