Crude Oil Breaches $80 on Easing COVID-19 Concerns

The news shaping the markets today

China’s annual inflation rate eased to 1.5% in December, from a fifteen-month high of 2.3% in the previous month. The latest reading also came in below market views of 1.8%, lending support to the CNY/USD forex pair.

The Philippines reported a rise in the retail price index by 2.3% year-over-year in November, following a 2.1% increase a month ago. This sent the PHP/USD pair lower in forex trading this morning.

Japan’s current account surplus shrank to ¥897.3 billion in November, from ¥1,732.3 billion in the year-ago month. This being the smallest surplus since January exerted pressure on the JPY/USD forex pair.

South Korea’s unemployment rate climbed to 3.8% in December, from 3.1% a month ago. This was the highest jobless reading since May 2021 and sent the KRW/USD pair lower in forex trading this morning.

Brazil’s annual inflation rate fell to 10.06% in December, from the eighteen-year high of 10.74% in the previous month. The figure came in slightly higher than the consensus estimate of 9.97%. However, the BRL/USD forex pair remained flat after the news.

What’s happening: Crude oil recorded gains on Tuesday, with WTI prices surging past the major $80 resistance level.

What happened: Although traders continued to monitor the spread of the Omicron variant, markets were boosted by easing concerns around global energy demand being derailed.

Investors trod carefully, however, due to uncertainties around oil production in Libya and Kazakhstan.

Why it matters: Although covid-19 cases have risen sharply, many countries have not imposed strict restrictions. Aviation activity is rebounding around the world, despite Omicron spreading rapidly, with reports of mild symptoms and low risk of hospitalisation.

Brent crude prices had jumped around 50% in 2021 and have been on an uptrend so far this year. Sentiment was also lifted by Federal Reserve Chairman Jerome Powell saying the economic impact of the new strain is likely to be short-lived. Weakness in the US dollar also provided support to crude prices on Tuesday.

While disruptions in Libya curtailed crude supply, several reports suggest that the country’s oil production has recovered to 1 million bpd (barrels per day). Activity at Kazakhstan’s Tengiz oil field also returned to normal, after being disrupted by unrest last week.

WTI crude for February delivery gained $2.99 to settle at $81.22 per barrel on the NYMEX on Tuesday, taking oil prices higher than the key $80 level for the first time since November 16, 2021.

March Brent crude added $2.85 to close at $83.72 per barrel on ICE Futures Europe, recording its strongest level since early November. Prices for both US and Brent crude have climbed more than 5% year to date.

Among other energy products, wholesale gasoline for February delivery gained 8 cents to reach $2.36 a gallon and February heating oil rose 7 cents to $2.56 a gallon on Tuesday.

What to watch: Traders await weekly oil supply data from the EIA (Energy Information Administration) today. Analysts expect a decline of 1.95 million barrels in US crude supplies for the latest week, following a contraction of 2.14 million barrels in the previous week.

The markets today

The British pound will be in focus today after recording gains on Tuesday.

Context: The sterling moved higher on Tuesday amid expectations of a rate hike by the Bank of England.

Details: There are growing speculations of the Bank of England raising its benchmark interest rate by next month, following the unexpected rake hike in December.

The GBP/USD forex pair received further support from weakness in the US dollar. On Tuesday, the dollar index, which measures the greenback’s performance versus a basket of currencies, traded well below the sixteen-month high hit in November.

Sentiment for the pound was also supported by data showing 2.1% year-over-year growth in UK’s retail sales in December.

The GBP/USD forex pair gained around 0.4% to settle at 1.3634 on Tuesday, trading around its strongest level since November 4. The pound rose around 0.1% against the euro to settle at 83.38 pence, hitting its strongest level versus the shared currency since February 2020.

What to watch: With no major economic reports due to be released from Britain today, investors will focus on major economic releases from the US and Europe. Traders will also keep an eye on GDP, industrial production and balance of trade data from the UK on Friday.

Other Markets: US indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.51%, 0.92% and 1.47%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s wholesale prices, Eurozone’s industrial production, India’s industrial production, manufacturing production and inflation rate, US MBA mortgage applications, inflation rate and government budget, Russia’s consumer price inflation, as well as China’s new yuan loans, outstanding yuan loans, M2 money supply and total social financing.