09 February 2021

Oil Burns Brighter on Recovery Optimism

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News shaping
the markets today

     

What’s happening: Crude oil traded higher on Monday, with prices settling at their highest level in more than a year.

What happened: Crude oil prices were boosted by optimism of a faster rebound in the US economy with the rollout of covid-19 vaccines.

Hopes of the Biden administration’s massive economic rescue bill being passed also supported crude oil.

Why it matters: After the sharp decline in crude oil prices in early 2020, the commodity was mostly supported by massive output cuts by the OPEC+ group. On the demand side, there was little hope, with covid-19 infections spreading rapidly. Hopes of a rise in demand came only with various governments around the world announcing massive stimulus measures.

This theme continued Monday, as crude prices recorded gains on expectations of the US government passing the Biden administration’s stimulus plan. Sentiment was lifted by US Treasury Secretary Janet Yellen saying that the relief plan is expected to help the country return to full employment by 2022.

Meanwhile, Iran’s supreme leader Ayatollah Ali Khamenei pushed Washington to completely lift sanctions on his country. However, US President Joe Biden said the sanctions will remain in place until Iran complies with the commitments under the nuclear deal.

April Brent crude surged 2.1% to close at $60.56 per barrel, after rising as high as $60.63 earlier in the session on the ICE Futures Europe exchange. Prices of the global crude benchmark notched a gain for the seventh successive session, also recording the highest settlement since January 24, 2020.

WTI (West Texas Intermediate) crude for March delivery gained 2% to settle at $57.97 per barrel on the NYMEX (New York Mercantile Exchange), notching the highest finish since January 21, 2020. WTI prices had risen by 8.9% last week.

In other commodities, March gasoline added around 1.6% to reach $1.6748 a gallon, while March natural gas closed at $2.882 per million British thermal units, recording a 0.7% rise on Monday.

What to watch: Markets await the API’s (American Petroleum Institute) data on crude oil inventories scheduled for release today, with the EIA’s (Energy Information Administration) report due on Wednesday. Crude oil stockpiles in the US had declined by 4.26 million barrels in the week ended January 29, following a 5.27 million decline in the prior week.

Crude oil is expected to add to Monday’s gains, with prices rising by 0.8% to $58.43 per barrel during the Asian session.

Rising covid-19 cases remain a major concern for traders, with total infections surpassing 106.4 million around the world.

The Markets Today

     

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

Context: European stocks settled higher on Monday, buoyed by positive sentiment in Asia and the US last week. Investors are still monitoring the final rounds of earnings releases, while covid-19 continues to raise concerns.

Details: Reports of the highly transmissible variants of the covid-19 virus from around the world continued to cause concern. On Friday, Virginia health officials reported the state’s first case of the new strain identified in South Africa.

Meanwhile, South Africa announced a pause in the distribution of AstraZeneca’s covid-19 vaccine after results from a study showed that its vaccine provides “minimal protection” against the new strain of the virus discovered there.

No major earnings from Europe were released on Monday, while Germany announced industrial production figures, which showed that output remained unchanged in December versus market expectations of a 0.3% gain.

The pan-European Stoxx 600 index rose 0.3% on Monday, with most sectors ending in positive territory. Italy’s FTSE MIB was once gain among the top performing indices, surging by 1.5% after recording sharp gains last week.

London’s FTSE 100 gained 0.53%, while the German DAX 30 and French 40 added 0.02% and 0.47%, respectively.

What to watch: In the absence of any major economic data from the Eurozone today, markets will monitor corporate earnings reports and developments related to covid-19 vaccines.

Other Markets: US indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.76%, 0.74% and 0.67%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s balance of trade and current account, Italy's industrial production, Brazil's annual inflation rate, Mexico’s annual inflation rate as well as the US NFIB small business optimism index, Redbook Index and job openings.

 

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