13 May 2021

Oil Burns Brighter on Better Demand Outlook

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News shaping
the markets today

     

What’s happening: Crude oil traded higher on Wednesday, after data showed a decline in US crude inventories.

What happened: A decline in crude stockpiles in the US last week and strong projections for energy demand during the second half of the year helped oil futures record gains on Wednesday.

Traders also monitored fuel shortage across Southeast US after a cyberattack caused a major pipeline to shut down.

Why it matters: The IEA (International Energy Agency) reported a decline of 400,000 barrels in US crude inventories for the week ending May 7. Investors cheered the news, despite the decline being lower than the consensus estimate of 4.1 million barrels.

The API (American Petroleum Institute) had on Tuesday reported a 2.5 million barrel decline in crude stockpiles.

The IEA lowered its 2021 demand growth projections. However, this was due to lower-than-expected demand in the first half of the year. For the back half, the agency held its forecast, while saying that global oil demand could return to pre-pandemic levels by yearend.

The IEA’s report followed the OPEC’s (Organization of the Petroleum Exporting Countries) monthly report, which maintained its upbeat demand growth forecast for 2021.

The EIA also said that motor gasoline product supplied averaged 8.9 million bpd (barrels per day) over the past four weeks, representing a spike of more than 41% from the year-ago period.

Markets also responded to the Colonial Pipeline shutdown due to logistical snags, which resulted in around 12,000 gas stations in Southeast US being completely dry on Wednesday. The shortage pushed spot prices for gasoline past $3 a gallon, its highest in years.

“While a prolonged outage would be supportive for refined product prices, it could start to weigh on crude oil prices, if refiners on the U.S. Gulf Coast are forced to reduce run rates due to a build-up of refined product inventories,” ING analyst Warren Patterson warned in a note.

WTI (West Texas Intermediate) crude for June delivery gained 1.2% to settle at $66.08 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday. July Brent crude rose 77 cents to $69.32 per barrel on ICE Futures Europe. Meanwhile, June gasoline futures gained 2 cents to end the day at $2.16 a gallon.

What to watch: Markets will keep an eye on recent developments around gas shortages, as the situation could rapidly deteriorate if Colonial Pipeline does not reopen soon.

Some profit-taking is expected in today’s session after the sudden spike in oil prices. WTI futures were trading lower by around 1% at 0500 (GMT).

Traders also await the EIA’s weekly supplies report on natural gas. Working gas held in storage facilities had risen by 60 billion cubic feet during the week ending April 30.

The Markets Today

     

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

Context: European stocks rebounded on Wednesday, after recording their worst plunge this year, as upbeat earnings reports and prospects of a quicker economic recovery offset rising inflation concerns.

Details: European stocks had fallen sharply on Tuesday on concerns around rising inflation in the US resulting in the Federal Reserve tightening its monetary policy much sooner than expected.

US inflation rate increased at its fastest pace since 2008 in April, with consumer prices rising 4.2% year-over-year and surpassing market estimates of 3.6% growth.

Investors remained worried about accelerating inflation pushing central banks to increase interest rates. US Federal Reserve Chair Jerome Powell reassured markets saying that any rise in consumer prices is likely to be “transitory.”

Several companies, including Commerzbank, Allianz, TUI Group, and Bayer, released their earnings reports on Wednesday. Shares of Commerzbank surged more than 8%, after the German lender reported upbeat first-quarter profits and booted its revenue forecast.

Investor sentiment was also lifted by Refinitiv IBES raising its estimate for earnings growth by European companies in the first quarter from 83.1% to 90.2%.

The pan-European Stoxx 600 closed the session higher by 0.3% on Wednesday, after shedding around 2% in the previous session. Oil and gas stocks were among the top performers, climbing around 2% on Wednesday, amid higher crude prices, while technology shares remained under pressure.

German DAX 30 rose 0.2%, even as the inflation rate climbed to 2.0% in April. The French 4 rose 0.19%, while the FTSE MIB and IBEX 35 gained 0.23% each.

Although UK’s GDP shrank 6.1% year-over-year in the first quarter, investor sentiment was lifted by news of the economy expanding by 1.4% in March and industrial production rising 1.8%. London’s FTSE 100 gained 0.82% on Wednesday.

What to watch: With no major economic reports scheduled for release today, investors will continue monitoring the covid-19 vaccine rollout in the region.

Rising covid-19 cases globally remains a top concern for markets, with total infections surpassing 160 million.

Other Markets: US indices closed lower on Wednesday, with Dow Jones index, S&P 500 and Nasdaq 100 down by 1.99%, 2.14% and 2.62%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s mining production, gold production and SACCI business confidence index, Canada’s industrial product price index, America’s producer prices and initial jobless claims, Mexico's central bank interest rate decision as well as Argentina’s inflation rate.

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