09 June 2020

Crude Oil Slides Despite OPEC Production Cuts

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News shaping
the markets today

     

What’s happening: Crude oil dropped on Monday despite the OPEC (Organization of the Petroleum Exporting Countries) and its allies reaching a deal to extend production cuts.

What happened: Oil started to recover on hopes of improving demand due to a faster-than-expected rebound in the global economy from the damage caused by the pandemic.

Although Mexico opted out of the agreement to curb output, the OPEC+ agreed on Saturday to cut production by 9.6 million bpd (barrels per day) through the end of July. Despite the weekend meeting bringing in some positive news for the oil bulls, commodity market index trading was shaken by disappointing news from top Arabian Gulf producers.

Why it matters: In April, the OPEC+ decided to lower production by 9.7 million bpd till June. The group had also decided to taper off the cuts after June to reach 7.7 million bpd in production cuts by December.

Given continued softness in demand globally, the OPEC+ announced plans over the weekend to continue with its aggressive cuts till July. The group also announced tougher measures to prevent its members from cheating on their existing quotas and producing more. The cartel announced plans to review its cuts on a monthly basis, with the compliance monitoring committee scheduled to meet next on June 18.

Despite the agreement to extend cuts, Gulf OPEC producers including Saudi Arabia, the UAE and Kuwait said they were no longer willing to continue with their voluntary reductions of 1.18 million bpd beyond June.

After rising as high as $40.44 per barrel earlier in the session, WTI (West Texas Intermediate) crude for July delivery plummeted 3.4% to end at $38.19 per barrel on the NYMEX (New York Mercantile Exchange). The WTI contract had gained 11.4% last week.

After a weekly rise of 11.8%, August Brent oil declined 3.6% on Monday to settle at $40.80 per barrel on ICE Futures Europe, triggering increased CFD oil trading.

Despite this downturn in oil prices, gains made by oil-related stocks boosted stock index futures. Oil companies indicated an improvement in the supply-demand balance. Chesapeake Energy’s stock jumped more than 180% and trading in its stock needed to be halted several times. Shares of BP gained over 2% after the company announced plans to cut 10,000 jobs.

July natural gas rose 0.4% to settle at $1.789 per million British thermal units, while July gasoline slipped 1.5% to $1.195 a gallon.

Crude oil rose by 1.2% to $38.63 per barrel during the Asian session this morning.

What to watch: Traders will keep an eye on news of economies around the world continuing to reopen and growth in the global economy to boost the demand for oil. Concerns remain, however, around the non-compliance of output cut quotas by some countries increases the supply of oil. Investors also await the American Petroleum Institute’s report on crude oil stockpiles.

The Markets Today

     

European stock indices trading will be in focus today, ahead of various economic reports scheduled to be released through the day.

Context: European stocks closed mostly lower on Monday, after ending last week on a much stronger note. Investors continued to keep an eye on the reopening of economies after months of lockdowns.

Details: After rising more than 7% last week, the pan-European Stoxx 600 index slipped 0.32% on Monday, giving back some of last week’s gains. Technology-related stocks declined the most, while banking shares bucked the trend by rising around 1.6%.

Germany’s industrial production declined by 17.9% in April, after an 8.9% decline in March.

Shares of AstraZeneca dipped around 3% on Monday, on news of the British drug maker approaching Gilead Sciences over a potential merger.

The German 30 fell 0.22%, while French CAC 40 posted a loss of 0.43%. London’s FTSE 100 slipped 0.18%. US and Asian stock index futures closed higher on Monday after the US released stronger-than-expected jobs data on Friday

What to watch: Traders await two important economic reports from the Eurozone - employment change and GDP growth. The number of employed in the region is expected to drop 0.2% in the first quarter, while GDP is projected to shrink 3.2%.

Covid-19 continues to remain in focus, with total cases around the world surging past the 7 million mark. The UK has confirmed over 288,830 cases so far, while the number of positive cases in Spain stands at 241,710.

Other Markets: US indices trading closed higher on Monday, with the Dow Jones index, S&P 500 and the Nasdaq 100 up by 1.7%, 1.2% and 1.13%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s balance of trade and current account, France’s balance of trade and current account, South Africa's unemployment rate, number of unemployed persons and SACCI business confidence index, Mexico’s inflation rate as well as the US NFIB small business optimism index, Redbook index, wholesale inventories, job openings and IBD/TIPP economic optimism index.

 

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