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Crude oil cools after breaching $120 per barrel

 

Tuesday, June 07, 2022

The news shaping the markets today

Russia’s Foreign Ministry announced plans to levy sanctions on 61 US nationals in response to rising US sanctions against Russia. Amid geopolitical tensions, the US dollar index traded higher this morning.


The Philippines announced that its annual inflation rate had accelerated to 5.4% in May, from 4.9% in the previous month, reaching the highest level since November 2018. However, the latest reading was in-line with market expectations and lent support to the PHP/USD forex pair.


UK’s retail sales fell 1.5% from a year ago in May, contracting for the third month in a row, which sent the GBP/USD pair lower in forex trading this morning.


Australia’s services index declined to 49.2 in May, from 57.8 a month ago, exerting pressure on the AUD/USD forex pair.


Japan’s nominal wages grew 1.7% year-over-year in April, rising for the fourth consecutive month. However, the JPY/USD pair declined in forex trading this morning.

 

What’s happening: Crude oil settled lower on Monday, after recording gains earlier in the session.

What happened: Oil prices topped the important $120 resistance level amid choppy trading on Monday, as Saudi Arabia announced to increase its crude prices for July delivery.

Natural-gas futures also climbed to a nearly 14-year high during the session.

Why it matters: Last week, the OPEC+ (Organization of the Petroleum Exporting Countries and allies) group had agreed to boost oil output in July and August by 648,000 barrels per day. However, several members indicated that were still struggling to increase output, which fuelled concerns around the cartel’s ability to meet overall demand, especially with China easing covid-19 restrictions and the ongoing peak driving season in the US.

“The market action since the meeting suggests that participants are unimpressed with the move from OPEC+. The group has failed to hit output targets for months, and this is unlikely to change with the latest increase in targets,” ING analyst Warren Patterson said in a note to clients.

Meanwhile, Saudi Arabia boosted the OSP (official selling price) for its flagship Arab light crude for the Asian, northwest European and Mediterranean markets.

In a bid to increase supply and cool oil prices, the US is looking to ease sanctions on Iranian and Venezuelan oil to compensate for oil imports from Russia.

WTI crude for July delivery declined 37 cents, or 0.3%, to close at $118.50 per barrel on the NYMEX on Monday, after climbing to $121 earlier in the session. On Friday, WTI prices had settled at the strongest level since March 8.

August Brent crude also shed 21 cents, or 0.2%, to finish at $119.51 per barrel on ICE Futures Europe.

In other energy trading, July gasoline slipped 1.4% to $4.193 a gallon, after hitting a record high on Friday. July natural gas climbed 9.4% to close at $9.3220 per million British thermal units, notching the highest settlement since August 1, 2008, following prediction of hotter-than-normal weather conditions in the US.

What to watch: Investors will keep an eye on the ongoing Russia-Ukraine war and any increase in covid-19 cases around the world.

The API’s (American Petroleum Institute) report on crude oil stockpiles will also remain in focus today. Crude oil inventories in the US had contracted by 1.181 million barrels in the week ended May 27, following a 0.567 million barrel increase in the prior week.

The markets today

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

Context: The CAD/USD forex pair surged to its strongest level in around seven weeks on Monday.

Details: Global stocks made a strong start to the week, clawing back much of the losses recorded in the previous week, with investors looking for some more insight into interest rate hikes by central bank around the world.

US equity markets rose sharply during the session on Monday but pared most of the strong gains by the end of the session, which exerted some pressure on the US dollar.

The rise in crude oil prices, one of Canada’s major exports, also provided some support to the CAD/USD forex pair.

The US Commodity Futures Trading Commission said that last week’s data showed that speculators had reduced their bearish bets on the loonie for a second week in a row.

The CAD/USD forex pair rose around 0.2% to close at 1.2582 on Monday, after hitting its highest level since April 21 during the session.

What to watch: Traders await economic data on balance of trade and Ivey PMI from Canada today. Canada had reported a trade surplus of C$2.49 billion in March and is expected to report a wider surplus of C$2.9 billion in April. The Ivey Purchasing Managers Index is projected to decline to 64 in May, from 66.3 in April.

The release of Canada’s employment report for May on Friday will also remain in focus, with investors looking for an indication of the Bank of Canada’s next interest rate move. The BoC had raised its benchmark interest rate by half a percentage point at its meeting last week.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 1.00%, 1.34%, 0.98% and 0.92%, respectively.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.2501 and 1.2511 Positive
USD/CAD – 1.2588 and 1.2598 Negative
WTI Crude Oil – 119.17 and 119.50 Negative
Nikkei 225 – 28033.34 and 28105.84 Negative
CAC 40 – 6551.29 and 6581.09 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0683, -0.09%) Dow ($32,774, -0.42%) Brent ($120.34, 0.7%)
GBP/USD (1.2507, -0.21%) S&P500 ($4,103, -0.43%) WTI ($119.38, 0.7%)
USD/JPY (132.62, 0.55%) Nasdaq ($12,537, -0.54%) Gold ($1,843, -0.1%)

What else to watch today

Germany’s factory orders and construction PMI, South Africa’s foreign exchange reserves, Spain’s industrial production and consumer confidence indicator, Eurozone’s construction PMI, France’s construction PMI, Italy’s construction PMI, China’s foreign exchange reserves, UK’s services PMI and composite PMI, South Africa’s GDP growth rate, US balance of trade, exports, imports, Redbook index, Logistics Manager’s index and consumer credit, Brazil’s car production, auto sales and balance of trade, Russia’s foreign exchange reserves, Turkey’s treasury cash balance, as well as India’s money supply M3.


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