Crude oil burns brighter amid supply concerns

The news shaping the markets today

The US is believed to be ready with a contingency plan in case Russia uses chemical or nuclear weapons during its war with Ukraine. The news sent the WTI crude oil prices higher this morning.

Japan’s manufacturing PMI rose to 53.2 in March, from 52.7 in the previous month, which was the weakest reading since last September. However, the JPY/USD forex pair remained under pressure due to strength in the US dollar.

Australia’s services PMI climbed to 57.9 in March, from 57.4 in the previous month. Although services output expanded for the second consecutive month, the AUD/USD pair declined in forex trading this morning.

Argentina’s trade surplus shrank to $297 million in February, from $1,062 million in the year-ago month, which exerted pressure on the ARS/USD forex pair.

Russia’s producer prices surged 23.5% year-over-year in February, following a 23.1% rise in the earlier month. The RUB/USD pair remained flat in forex trading this morning.

What’s happening: Crude oil recorded gains on Wednesday as traders monitored the ongoing crisis in Ukraine.

What happened: Crude oil prices had declined last week, falling below the major $100 per barrel support level.

However, with the Russia-Ukraine tensions showing little signs of abating, supply concerns took oil to a more than two week high on Wednesday.

Why it matters: Oil prices have been unusually volatile over the past few trading sessions, with several nations imposing and considering sanctions on Russia, the second-largest crude exporter in the world.

The US and the UK have already announced bans on Russia’s oil, with countries from the European Union also considering similar moves. After recording a sharp decline last week, crude prices have gained steadily so far this week, mainly on supply-related concerns.

Investors grew even more concerned on news of sea storms causing major disruption to oil flows from Kazakhstan to global markets. Russia and Kazakhstan said that the storms could cause a decline in oil exports via the CPC (Caspian Pipeline Consortium) by up to 1 million bpd (barrels per day), which accounts for around 1% of the global oil production. Local officials indicated that repairs could take a month and a half.

Meanwhile, the EIA (Energy Information Administration) reported a decline in US crude oil inventories of 2.508 million barrels to 413.4 million barrels for the week ending March 18, following a 4.345 million increase in the prior week. Analysts had projected growth in stockpiles by 0.114 million barrels for the week. Production remained almost flat at 11.6 million bpd for the seventh consecutive week.

The EIA also reported a decline in gasoline inventories by 2.9 million barrels and in distillate stockpiles by 2.1 million barrels last week. Crude stocks at the Cushing, Oklahoma hub grew by 1.2 million barrels in the week.

WTI crude for May delivery gained $5.66 to close at $114.93 per barrel on the NYMEX, following a 0.6% decline on Tuesday. May Brent crude added $6.12 to settle at $121.60 per barrel on ICE Futures Europe.

In other energy trading, April gasoline gained 11 cents to $3.44 a gallon, while April natural gas added 4 cents to reach $5.23 per million British thermal units.

What to watch: Traders will keep an eye on the meeting between US President Joe Biden and European leaders today, which could result in more sanctions on Russia being announced. Some of the EU member nations, including Germany, remain reluctant to ban energy imports from Russia.

The release of EIA’s data on natural gas stockpiles will also remain in focus today, with supplies contracting by 79 billion cubic feet in the previous week.

The markets today

UK stocks will be in focus today ahead of a basket of economic reports from the country

Context: UK stocks closed lower on Wednesday, following a speech from Finance Minister Rishi Sunak.

Details: British Finance Minister Rishi Sunak gave his Spring budget speech on Wednesday, during which he lowered the 2022 growth estimates by 2.2 percentage points to 3.8%, citing risks from the ongoing Russia-Ukraine war. Sunak also announced a £6 billion tax cut, in a bid to ease the impact of surging living costs in the country.

The budget statement came after CPI data showed the country’s headline inflation rate climbing to a three-decade high of 6.2% in February, amid rising food, fuel and energy costs. The figure rose from 5.5% in January and came in higher than market expectations of 5.9%.

The headline rate of output prices in the UK also rose to 10.1% year-over-year in February, from 9.9% in the prior month.

US President Joe Biden is scheduled to attend an emergency NATO summit as well as meet EU leaders later today. Biden and the European leaders will be discussing fresh sanctions against Russia.

London’s FTSE 100 fell 0.22% to close at 7,460.63, while FTSE 250 declined by 0.53% to settle at 21,001.62 on Wednesday.

What to watch: The ongoing Russia-Ukraine war will remain a major concern for markets.

Traders also await economic data on manufacturing PMI, services PMI and composite PMI from the UK today. The IHS Markit/CIPS UK manufacturing PMI, which rose to a three-month high of 58 in February, is expected to decline to 56.7 in March. The services PMI is projected to decline to 58, from 60.5 in February. Analysts expect the IHS Markit/CIPS UK composite PMI to fall to 57.8 in March, from 59.9 in February.

 Other Markets: US indices closed lower on Wednesday, with the Dow Jones, S&P 500 and Nasdaq 100 down by 1.29%, 1.23% and 1.41%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Saudi Arabia’s balance of trade, France’s manufacturing climate indicator, business climate indicator, composite PMI, manufacturing PMI and services PMI, ECB’s general council meeting, Eurozone’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, UK’s CBI distributive trades survey’s retail sales balance, Turkey’s foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Mexico’s consumer prices, retail sales and Mexico’s central bank interest rate decision, US durable goods orders, current account, initial jobless claims, continuing jobless claims, composite PMI, services PMI, manufacturing PMI and Kansas Fed manufacturing index, South Africa’s SACCI business confidence index and interest rate decision, India’s money supply M3, as well as Brazil’s government revenues.