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Crude oil becomes volatile as Russia relaxes ban

 

Tuesday, September 26, 2023

Today’s headlines

What’s happening: Crude oil prices settled almost flat in a volatile trading session on Monday.

What happened: Russia announced plans to relax its fuel export ban, which weighed on oil prices.

Markets also monitored tightening supply and uncertainty in the demand outlook for energy, which impacted crude oil trading.

Why it matters: Oil prices have risen sharply since Summer, with both WTI and Brent breaching $90 per barrel, after Saudi Arabia and Russia extended planned output cuts through yearend.

Last week, Russia had announced a temporary ban on the export of all types of gasoline and high-quality diesel to most nations, with immediate effect, in a bid to stabilise energy prices.

However, a government document on Monday showed some changes to Russia’s fuel ban. The country lifted restrictions for fuel used as bunkering for some vessels and diesel with high sulphur content. The ban announced last week remains broadly in place.

The US dollar rose to its strongest level since November 2022 on Monday, which exerted pressure on oil prices. A stronger US dollar generally makes commodities more expensive for foreign currency holders.

Data released by Baker Hughes showed the number of operating oil rigs in the US declining by 8 to 507 last week. The figure is the lowest since February 2022 and lent support to oil prices.

Traders also monitored economic reports from China, the world’s largest crude importer. An improvement in the Chinese economy is expected to boost energy demand. China’s oil demand rose by 0.3 million bpd (barrels per day) to 16.3 million barrels last week.

WTI crude oil for November delivery fell 35 cents, or 0.39%, to close at $89.68 per barrel on the NYMEX (New York Mercantile Exchange) on Monday, while November Brent crude added 2 cents to reach $93.29 per barrel on ICE Europe.

In other energy trading, October gasoline lost 0.7% to settle at $2.5439 a gallon, while October heating oil fell 1.3% to $3.2622 and October natural gas gained 0.2 cent to close at $2.6390 per million British thermal units.

What to watch: Traders will watch major economic reports from China this week. The country’s manufacturing activity is likely to increase in September, with the PMI expected to cross 50 and reach the expansion zone for the first time since March.

Markets also await the API’s (American Petroleum Institute) data on crude oil stockpiles today. US crude inventories had declined by 5.25 million barrels in the week ended September 15, following a gain of 1.174 million barrels a week ago.

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports

Context: The CAD/USD forex pair started the week on a positive tone, ending Monday’s session with gains.

Details: Earlier this month, the Bank of Canada had maintained its key overnight interest rate at 5% but indicated a rate hike in case inflationary pressures continued.

The country’s central bank had raised rates by 25 basis points in both June and July to cool inflation, which has remained above the 2% target level.

Investors widely expect BoC to stick to its hawkish stance and raise interest rates at its next policy meeting on October 23.

Weakness in oil, one of Canada’s major exports, limited the upside for the loonie. WTI crude oil prices fell 0.39% to close at $89.68 per barrel on Monday.

The CAD/USD forex pair rose more than 0.2% to reach 1.3454 on Monday.

Canadian government bond yields also moved higher, with the 10-year rising above the 4% level for the first time since January 2008. The S&P/TSX Composite Index gained 0.10% to close at 19,800.61 on Monday.

What to watch: Investors await the release of economic reports on manufacturing sales and wholesale sales from Canada today. Manufacturing sales, which grew 1.6% in July, are expected to rise 0.7% in August. Analysts expect wholesale sales to decline by 0.2% in August, following 0.2% growth in the previous month.

Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.13%, 0.40% and 0.46%, respectively.

The news shaping the markets

Ukrainian officials said that air strikes by Russia had resulted in “significant damage” to its infrastructure at the Black Sea port of Odesa and its grain storage facilities. The news sent the safe-haven US dollar index slightly higher this morning.


South Korea’s Composite Consumer Sentiment Index declined to 99.7 points in August, from 103.1 in the previous month, which exerted pressure on the KRW/USD forex pair.


Brazil’s current account deficit narrowed to $0.78 billion in August, from $7.02 billion in the year-ago period. Despite this, the BRL/USD pair fell slightly in forex trading this morning.


Germany’s Ifo Business Climate indicator slipped to 85.7 in September, from 85.8 in August, exerting pressure on the EUR/USD forex pair.


Thailand reported a trade surplus of $0.36 billion in August, versus $4.22 billion in the year-ago month. The country’s imports contracting by 12.8% year-over-year in August sent the THB/USD pair lower in forex trading this morning.

What else to watch today

South Africa’s leading business cycle indicator, Brazil’s inflation rate and Central Bank of Brazil Copom meeting minutes, US Redbook index, S&P CoreLogic Case-Shiller 20-city home price index, FHFA house price index, new home sales, Richmond Fed services index, Dallas Fed services index and building permits, as well as Argentina’s economic activity estimator and retail sales.


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