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What’s happening: Crude oil prices rose sharply on Wednesday, to their strongest level in more than two months.
What happened: The US and China reaching an agreement raised prospects of higher energy demand.
However, rising tensions in the Middle East and a steeper-than-expected decline in US crude oil stockpiles led to greater supply concerns.
Why it matters: Oil prices climbed on Wednesday on reports of the US looking to evacuate its embassy in Iraq, which is the second-biggest crude producer in the OPEC (Organization of the Petroleum Exporting Countries) after Saudi Arabia.
Meanwhile, Iran threatened to strike US bases in the region in case nuclear talks fail. Ongoing concerns with Iran are expected to impact its oil supplies due to sanctions.
News of a trade agreement between the US and China also drove oil prices higher, as easing concerns are expected to provide a boost to energy demand from the world’s two biggest economies.
While US and Chinese negotiators announced a preliminary deal, this is subject to final approval by President Donald Trump and President Xi Jinping.
The US also released softer-than-expected consumer inflation data on Wednesday, fuelling speculations of the Federal Reserve lowering interest rates in September, which would support economic growth and increase oil demand.
Data released by the US Energy Information Administration (EIA) on Wednesday showed crude oil stockpiles declined by 3.6 million barrels to 432.4 million barrels in the week ended June 6, much higher than market estimates of a decline of 2 million barrels, indicating strong demand for oil.
The EIA also said that US gasoline inventories grew by 1.504 million barrels, while stockpiles of distillate fuels surged by 1.246 million barrels last week.
However, oil supplies are still expected to rise in the upcoming period with OPEC+ looking to increase oil output by 411,000 bpd (barrels per day) in July.
Brent crude futures jumped $2.90, or 4.34%, to close at $69.77 a barrel, while WTI crude oil climbed $3.17, or 4.88%, to settle at $68.15 a barrel on Wednesday. Both standards of crude oil surged to their strongest level since early April.
In other energy trading, gasoline settled at $2.1668 a gallon, while heating oil closed at $2.2053 a gallon and natural gas ended trading at $3.507 per million British thermal units.
What to watch: Investors will continue monitoring ongoing concerns in the Middle East, which is expected to significantly impact oil supplies ahead.
Data on natural gas stockpiles from the EIA (1830 UAE Time) will also remain in focus today. US natural-gas stockpiles, which grew by 122 billion cubic feet from the previous week to 2.598 trillion cubic feet during the week ended May 30, are expected to rise by 108 billion cubic feet in the latest week.
Context: The EUR/USD forex pair rose this morning as investors monitored the European Central Bank’s policy outlook.
Details: Last week, the ECB announced its eighth straight interest rate cut, which brought the rate down to 2%.
However, recent remarks from ECB members have fuelled speculations of the central bank taking a pause in its monetary policy easing cycle. The ECB is expected to adopt a wait-and-watch approach while it monitors the impact of US tariffs on the region’s economic growth.
Meanwhile, recent data showed Eurozone’s inflation easing to 1.9% in May, while the bloc’s economy grew by 0.6% in the first quarter, the strongest pace since the third quarter of 2022.
In contrast, lower-than-expected inflation data from the US weighed on the greenback, lending support to the EUR/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.2% to 98.40 this morning.
The EUR/USD pair gained around 0.3% to reach 1.1517 this morning, while the EUR/GBP forex pair edged higher to 0.8484.
What to watch: With no major economic data scheduled for today, investors await reports on balance of trade (1300 UAE Time) and industrial production (1300 UAE Time) from the Eurozone on Friday. Analysts expect the Eurozone to record a trade surplus of €20.2 billion in April, lower than the €36.8 billion recorded in the previous month.
Industrial production in the Eurozone, which grew by 2.6% in March, is expected to decline by 1.3% in April.
Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.003%, 0.27% and 0.37%, respectively.
Ukraine hit a key gunpowder plant in the western Tambov region of Russia, resulting in a huge fire in the region. The news sent the RUB/USD pair lower in forex trading this morning.
Australia’s consumer inflation expectations rose to 5.0% in June, from 4.1% in the previous month, exerting pressure on the AUD/USD forex pair.
New Zealand’s electronic card transactions fell 0.2% on a seasonally adjusted basis to NZ$6.46 billion in May, sending the NZD/USD pair lower in forex trading this morning.
Colombia’s consumer confidence index increased by 4.8 percentage points to -8.6% in May. This being the highest level in four months lent support to the COP/USD forex pair.
Mexico’s industrial output contracted by 4% year-over-year in April, after 1.9% growth in the previous month. Industrial production declining the most since February 2021 sent the MXN/USD pair lower in forex trading this morning.
Italy’s 30-year BTP auction (1210 UAE Time), 3-year BTP Auction (1310 UAE Time) and 7-year BTP Auction (1310 UAE Time), South Africa’s gold production (1330 UAE Time) and mining production (1330 UAE Time), India’s inflation rate (1430 UAE Time), UK’s NIESR monthly GDP tracker (1500 UAE Time), Turkey’s foreign exchange reserves (1530 UAE Time), Brazil’s retail sales (1600 UAE Time), US PPI (1630 UAE Time), initial jobless claims (1630 UAE Time), continuing jobless claims (1630 UAE Time), 4-week Bill auction (1930 UAE Time), 8-week Bill auction (1930 UAE Time), WASDE report (2000 UAE Time), 15-year mortgage rate (2000 UAE Time), 30-year mortgage rate (2000 UAE Time) and 30-year Bond auction (2100 UAE Time), Germany’s current account (1645 UAE Time), Brazil’s business confidence (1800 UAE Time), as well as Argentina’s inflation rate (2300 UAE Time).
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