28 September 2020

Oil Tanks As Covid-19 Cases Rise

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News shaping
the markets today

     

What’s happening: Crude oil closed lower on Friday, recording its third weekly decline in the last four weeks.

What happened: The resurgence of covid-19 cases across Europe and the US fuelled fears of the reimposition of restrictions hurting the demand outlook for energy.

Lack of progress around the new fiscal stimulus package from the US government and a rebound in the greenback also exerted pressure on oil prices.

Why it matters: The rise in covid-19 cases in Europe has prompted the authorities to again impose lockdown restrictions in certain regions. The US is also witnessing a rise in infections, stoking concerns over its economic prospects.

Although House Democrats are reportedly preparing a stimulus plan of $2.4 trillion, the delay in the US government announcing the package added to concerns over the rebound in the world’s largest economy losing momentum.

The US dollar, in which oil prices are denominated in the global market, rebounded strongly last week. This took the ICE US Dollar Index, a measure of the greenback’s performance versus six major currencies, higher by 1.8%.

On the last trading day, Baker Hughes reported a rise in US oil rigs for the first time since the week beginning September 4. The number of active rigs drilling for oil rose by 4 to 183 last week. The prospects of an increase in supply also put pressure on oil prices.

On the other hand, Libya also reported an increase in oil production after months of civil unrest.

WTI (West Texas Intermediate) crude for November delivery fell around 0.2% to close at $40.25 per barrel on the NYMEX (New York Mercantile Exchange), rebounding from the session’s low of $39.71 per barrel.

November Brent slipped around 0.1% to settle at $41.92 per barrel on ICE Futures Europe on Friday, while December Brent declined 0.1% to $42.41 a barrel.

The US benchmark lost 2.6% last week, while the global benchmark crude recorded a weekly decline of 2.9%.

Natural-gas futures moved lower in the previous session after recording a surge of around 6% on Thursday. The October contract fell around 4.9% to $2.139 per million British thermal unit on Friday, but still notched a 4.4% gain for the week.

What to watch: Investors await the US government’s announcement of a fresh covid-19 rescue package. Markets will continue to monitor the global covid-19 case count, as it approaches 33 million.

The EIA’s (Energy Information Administration) report on crude oil stockpiles, which is scheduled for release on Wednesday, will also remain in focus.

The Markets Today

     

European stocks will be in focus today, after closing sharply lower last week.

Context: European stocks finished lower on Friday amid a volatile trading session as markets continued to assess developments related to the rise in coronavirus cases.

Details: Various European nations have reported an increase in infections, with some regions imposing restrictions to control the spread of the virus, triggering investor concern around the prospects of an economic recovery.

In terms of daily new confirmed cases, Italy and Germany remained below 2,000, the UK reported more than 5,000, Spain above 10,000 and France crossed the 12,000 mark.

Market sentiment for European stocks was also hurt by declining US stocks, although the Nasdaq recorded gains, giving hopes of another rally in tech stocks.

Meanwhile, BMW and its two subsidiaries in the US will be paying fines of $18 million for inflating sales volumes.

The pan-European Stoxx 600 index fell 0.1% on Friday, after trading higher earlier in the session. Travel-related stocks were among the worst performers, losing around 1.8% in the session. Shares of GVC Holdings jumped 17% on Friday to lead the gainers list of the index. The Stoxx 600 recorded a 3.6% decline for the week, marking this its worst week since mid-June.

London’s FTSE 100 gained 0.34% on Friday, while Germany’s DAX 30 index and the French 40 fell 1.1% and 0.7%, respectively.

What to watch: With no major economic reports due to be released today, markets await speeches from the European Central Bank’s President Christine Lagarde and Executive Board member Isabel Schnabel.

Covid-19 remains a major concern for investors, with cases rising in Europe.

Other Markets: US indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.34%, 1.6% and 2.26%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

South Africa’s producer prices, Mexico’s unemployment rate and trade balance, Brazil’s loan growth and government revenues, Argentina’s economic activity index, Saudi Arabia’s money supply M3, bank lending growth and balance of trade as well as the US Dallas Fed manufacturing index.

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