Crude Oil Burns Brighter After OPEC+ Decision

The news shaping the markets today

Singapore’s IHS Markit PMI rose to 55.1 in December, from 52.0 in the previous month. However, the SGD/USD forex pair came under pressure with a rise in covid-19 cases.

Hong Kong’s IHS Markit SAR PMI slipped to 50.8 in December, from 52.6 in November. However, the recent reading still showed expansion for the eleventh consecutive month in the private sector, lending support to the HKD/USD pair in forex trading this morning.

Australia’s job advertisements fell by 5.5% in December, following 9.9% growth a month ago. The release of this data exerted pressure on the AUD/USD forex pair.

Ireland’s services PMI fell to 55.4 in December, from 59.3 in the previous month. However, the services sector remained in expansion zone, providing support to the EUR/USD pair in forex trading this morning.

The Philippines reported a decline in its annual inflation to a twelve-month low of 3.6% in December, from 4.2% in the previous month. However, the PHP/USD forex pair declined after the news.

What’s happening: Crude oil moved higher on Tuesday, following the output decision from the OPEC+ (Organization of the Petroleum Exporting Countries and its allies).

What happened: The OPEC+ group said it had decided to stick to its earlier planned output increase for February.

Traders also monitored Iran’s talks with major powers, which could impact crude supplies.

Why it matters: The OPEC and its allies agreed to increase the crude output target by 400,000 bpd (barrels per day) from February, given expectations of the Omicron strain having only a mild impact on global energy demand.

“Though Omicron cases continue to climb in key geographies, the absence of widespread lockdown restrictions will likely keep near-term demand concerns in check,” RBC analysts said in a note to clients.

The UK’s vaccine minister said people hospitalised due to covid-19 were mostly exhibiting less severe symptoms than earlier. France’s Finance Minister Bruno Le Maire said he expects the country’s economy to expand by 4% in 2022, despite surging covid-19 cases.

Manufacturing activity around the world remained strong during December. Although the US ISM manufacturing PMI declined to 58.7 in December, it remained in the expansion zone.

Libya, meanwhile, started maintenance work on a ruptured main pipeline that could lower oil output by 200,000 bpd. However, markets expect the reinitiating of nuclear talks between Iran and world powers to put an end to oil sanctions and boost crude supplies going ahead.

The API reported a decline of 6.432 million barrels in crude oil stockpiles in the US for the latest week.

Brent crude for March delivery gained $1.02 to settle at $80 a barrel on Tuesday, surging to its strongest level since November. WTI crude rose 91 cents to close at $76.99 a barrel. Wholesale gasoline for February delivery added 2 cents to $2.28 a gallon, while February natural gas slipped 10 cents to $3.72 per 1,000 cubic feet.

What to watch: Traders await data on crude inventories from the EIA (Energy Information Administration). US crude oil inventories, which had shrunk by 3.576 million barrels in the week ending December 24, is projected to decline by another 3.283 million barrels in the latest week.

The markets today

The Canadian dollar will be in focus today ahead of a couple of economic reports from the country.

Context: The CAD/USD forex pair recorded gains on Tuesday, following Canada’s factory activity data.

Details: The loonie came under pressure on Monday over prospects of the US Federal Reserve boosting interest rates several times in 2022. The forex pair also responded to Canada’s most populous province, Ontario, reimposing restrictions in a bid to curb the spread of Omicron.

Data released Tuesday showed factory activity in Canada expanding at the weakest pace in the past five months. The IHS Markit manufacturing PMI dropped to 56.5 in December, from 57.2 in the previous month amid raw material shortages. Although the latest reading showed expansion in the factory activity for the eighteenth straight month, it was still the lowest reading since July.

Canada’s industrial product prices rose 0.8% in November, versus a 1.6% increase in the prior month.

The rise in prices of crude oil, one of Canada’s major exports, also provided support to the loonie on Tuesday after the OPEC+ agreed to continue with its planned increase for February.

The CAD/USD forex pair settled higher at 1.2706 on Tuesday. The pair had surged to a seven-week high of 1.2625 on December 31, 2021.

What to watch: Traders await economic reports on Canada’s house price index and building permits. The house price index, which rose to 0.90% in October, is expected to increase to 1.4% in November. The value of building permits is expected to increase by 2.3% in November, following 1.3% growth a month ago.

Markets will also keep an eye on Canada’s jobs report on Friday for cues on the strength of the country’s economy.

Other Markets: US indices closed mixed on Tuesday, with the S&P 500 and Nasdaq 100 down by 0.06% and 1.35%, respectively, and the Dow Jones index up by 0.59%.

Support & resistances for today

Market snapshot

What else to watch today

South Africa’s IHS Markit PMI and manufacturing PMI, France’s consumer confidence indicator, Spain’s services PMI, composite PMI and consumer confidence indicator, Italy’s services PMI, composite PMI and inflation rate, France’s services PMI and composite PMI, Germany’s services PMI and composite PMI, Eurozone’s services PMI and composite PMI, Brazil’s producer price inflation, services PMI and composite PMI, Mexico’s consumer confidence indicator, as well as US MBA mortgage applications, ADP employment change, composite PMI, services PMI and FOMC minutes.