31 May 2021

Crude Oil Posts Weekly Gain Amid Demand Outlook

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News shaping
the markets today

     

What’s happening: US crude oil closed lower on Friday, but notched gains for the week.

What happened: Upbeat economic reports from the US and optimism around a rebound in global demand for oil outweighed concerns over increased supply from Iran, to send crude prices higher last week.

However, oil trading recorded a volatile session on Friday, with WTI (West Texas Intermediate) prices settling lower after five straight sessions of gains.

Why it matters: Crude oil settled lower on Friday, a day after recording its strongest close since 2018.

Market sentiment was lifted by the release of strong economic reports from the US, showing improvements in the labour market, consumer sentiment and housing market, boosting confidence in a faster recovery in oil demand.

“The growth in the U.S. is expected to overwhelm the drag of weakness (in oil demand) in India and Southeast Asia,” said IHS Markit analyst Marshall Steeves.

The continuous recovery from covid-19 in the US has already boosted the demand for oil. Weekly data from the EIA (Energy Information Administration), released last week, showed a decline in America’s crude oil, gasoline, and distillate supplies. Meanwhile, Baker Hughes reported a rise in the number of active US drilling rigs for the fourth consecutive week.

Investors became even more optimistic after news of a decline in covid-19 cases in India, which is the third largest importer of oil in the world.

WTI crude for July delivery slipped 0.8% to close at $66.32 per barrel on the NYMEX (New York Mercantile Exchange) on Friday, after recording gains for five consecutive sessions. Crude prices gained 1% on Thursday, to mark the highest closing price since October 29, 2018.

July Brent crude rose 0.2% to settle at $69.63 per barrel on ICE Futures Europe, recording its highest settlement since March 11, 2021.

WTI crude gained 4.3% for the week, while Brent prices recorded a weekly gain of 4.8%.

Among other energy commodities, July natural gas rose around 1% to close at $2.99 per million British thermal units, ending the week 0.3% higher. June gasoline fell 0.5% to $2.14 a gallon on Friday, adding around 3.5% for the week.

What to watch: Markets await the outcome of the OPEC+ (Organization of the Petroleum Exporting Countries and their allies) meeting scheduled for Tuesday. The group will shed more light on the condition of the oil market and announce its decision on output levels.

An existing OPEC+ deal calls for a step-by-step rise in production levels, which started in May and will continue through July. However, some commodity experts expect the OPEC+ group to change its easing plans based on the potential rise in Iranian production, with negotiations underway between the US and Iran.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of economic reports from the country.

Context: The CAD/USD forex pair traded slightly lower on Friday, following a choppy session for crude oil.

Details: With the US report showing consumer inflation rising in April, the Canadian dollar recorded its highest weekly gains since 2016. Investors gave up positions in the greenback on news of US inflation rising above the Federal Reserve’s target of 2%.

However, data from the US Commodity Futures Trading Commission showed a decline in bullish positions in the loonie for the first time in the past six weeks.

The price of crude oil, one of Canada’s major exports, also declined on Friday. Markets now look towards the Bank of Canada, which is expected to lower its bond purchases in July, as several provinces ease their covid-19 restrictions.

The CAD/USD forex pair traded around 0.1% lower to reach 1.2075 on Friday. The loonie also recorded a loss of a little less than 0.1% for the week, after recording gains for eight consecutive weeks.

What to watch: Investors await economic reports on current account and producer prices from Canada today. The country’s current account deficit, which shrank by C$3.2 billion to C$7.3 billion in the fourth quarter, is expected to widen to C$8 billion in the first quarter. Analysts expect the industrial product price index to rise 1.7% in April, following a 1.6% rise in the previous month.

Canada’s GDP report for the first quarter is also scheduled for release on Tuesday, with analysts projecting 7% growth.

Covid-19 remains one of the top concerns for the market, with total cases climbing past 170.1 million worldwide.

Other Markets: European trading indices closed higher on Friday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.04%, 0.74%, 0.75% and 0.57%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa's private sector credit, money supply M3, balance of trade and SACCI business confidence index, Spain’s consumer price index and current account, Turkey’s GDP growth rate and consumer price index, Eurozone’s loans to households, loans to non-financial corporations and M3 money supply, Italy’s inflation rate, Brazil's central government budget value and central bank focus market readout, India’s Infrastructure output, central government budget value and GDP growth rate, Germany's consumer price inflation rate, Russia’s money supply M2 and gross domestic product, Saudi Arabia’s money supply M3 and value of loans.

 

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