25 May 2021

Crude Oil Surges on Potential Snag in Iran Deal

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News shaping
the markets today

     

What’s happening: Crude oil prices gained sharply on Monday, amid a potential snag in US talks with Iran.

What happened: Oil prices lost around 3% last week, after Iran’s President said the US was ready to lift sanctions on the commodity.

However, an official announcement from Iran has once again raised doubts about the revival of the Iran nuclear deal.

Why it matters: Upbeat economic reports on manufacturing and services PMI from the US and Europe last week lifted the outlook for crude oil demand. Various countries easing covid-led restrictions also improved market sentiment.

Moreover, crude oil found support ahead of the summer driving season in the US and Europe, and a steady economic rebound in China.

In the Asia-Pacific region, the daily number of new covid-19 cases have been dropping over the past few weeks, especially in India and Japan, which are some of the world biggest oil importers.

Markets have been worried, however, about a rise in infections in Taiwan and Malaysia, raising concerns over energy demand from these countries. Several developing nations in Asia are also struggling with a slower pace of vaccinations and covid-related restrictions.

Stock markets remaining in the positive zone and a softer US dollar are drive crude oil prices higher. The Dow Jones index jumped as much as 250 points, while the ICE US dollar index, which tracks the greenback versus a basket of six major rivals, fell around 0.2% on Monday.

Concerns over the Iranian deal emerged again after the speaker of Iran’s parliament said the monitoring agreement between Iran and the UN nuclear watchdog had expired. However, Iran said it would extend the monitoring agreement for a month.

A US Department of State representative also warned of several challenges in reinstating the JCPOA (Joint Comprehensive Plan of Action). The removal of sanctions on Iran is expected to pave the way for crude supply of more than 2 million bpd (barrels per day) into the market.

“If and when the U.S. rejoins the Iranian nuclear deal, this will likely hit sentiment in the oil market, however we are still of the view that the market will be able to absorb this additional supply, so would expect price weakness to be short-lived,” ING analyst Warren Patterson said in a note.

WTI (West Texas Intermediate) crude for July delivery climbed $2.47 to settle at $66.05 per barrel on the NYMEX (New York Mercantile Exchange) on Monday. July Brent crude gained $2.02 to $68.46 per barrel on ICE Futures Europe.

Among other energy commodities, June gasoline gained 15 cents to $2.12 a gallon, while June heating oil climbed 5 cents to end at $2.04 a gallon on Monday.

What to watch: Traders will continue to keep an eye on developments around the deal with Iran. The covid-19 situation in Asian-Pacific countries, will also remain in focus.

Markets await API (American Petroleum Institute) data on crude oil stockpiles, after inventories rose by 0.62 million barrels in the previous reported week.

The Markets Today

     

European stocks will be in focus today, after closing mostly higher on Monday.

Context: European stocks traded higher at the start of the new week, despite several markets remining closed in the bloc.

Details: Markets in Europe remained near record highs, with tech shares leading the gains on Monday.

The rise in European stocks followed a mixed trading session in the Asia-Pacific region, with markets in Japan, China and Singapore moving higher, while Hong Kong and South Korea stocks closed lower.

The pan-European STOXX 600 index had closed previous week slightly higher, despite inflation woes. Sentiment has been supported by a survey showing that Eurozone business growth in May had accelerated at the fastest pace in more than three years.

The STOXX 600 index rose 0.14% to close at 445.07 points on Monday, slightly shy of its all-time high of 446.19 points. Technology stocks gained 1%, while shares of banking and basic resources traded in the negative territory.

“Although global stocks are now around 20% above pre-pandemic highs, a combination of strong earnings growth and reasonable valuations relative to still-low bond yields points to further upside,” UBS analyst Mark Haefele said in a note.

Equity markets were closed in Germany, Switzerland, Belgium, Denmark, Austria, and Norway for the Whit Monday holiday. The French 40 rose 0.35% on Monday, while London’s FTSE 100 gained 0.5%.

What to watch: Investors await economic reports from various countries in Europe. Rising covid-19 cases remain a top concern for markets, with total global infections surging past 167.1 million.

Other Markets: US indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.54%, 0.99% and 1.72%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany's gross domestic product and Ifo business climate indicator, UK’s public sector net borrowing and CBI distributive trades , South Africa’s composite leading business cycle indicator, Spain's producer price inflation, Turkey’s manufacturing confidence index and capacity utilization, Bank Indonesia’s interest rate decision, Brazil’s FGV consumer confidence index and net payrolls, Mexico’s balance of trade and current account, Canada's manufacturing sales, America’s Redbook index, S&P CoreLogic Case-Shiller 20-city home price index, FHFA house price index, new home sales, CB consumer confidence and Richmond Fed manufacturing index as well as Russia’s Industrial production.

 

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