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Crude oil hits 3-week high on China’s announcement

 

Wednesday, December 28, 2022

The news shaping the markets today

Russia’s military forces shelled Ukraine’s eastern and southern cities and towns, sending the safe-haven US dollar index higher this morning.


The People’s Bank of China announced the injection of 202 billion yuan in reverse repos into the country’s banking system, exerting pressure on the CNY/USD forex pair.


Japan’s industrial production declined by 0.1% in November, following a 3.2% contraction in the previous month. This being the third consecutive month of decline in industrial output sent the JPY/USD pair lower in forex trading this morning.


South Korea’s Business Survey Index for the manufacturing sector fell to 71 in December, from 74 a month ago. However, the KRW/USD forex pair remained elevated after the news.


Argentina’s retail sales grew by 120% year-over-year in October, following 124.6% growth in the previous month. Despite this, the ARS/USD pair remained broadly flat in forex trading this morning.

 

What’s happening: Crude oil recorded gains on Tuesday, following a key announcement from China.

What happened: Oil prices surged to a three-week high after China announced major easing of its covid-19 restrictions.

Crude prices were also supported by disruptions to oil flows from winter storms across the US.

Why it matters: China will end its quarantine requirements for inbound travellers starting from January 8, the National Health Commission said on Tuesday, as a major step toward easing restrictions imposed since 2020.

The announcement raised prospects of higher demand for oil from the world’s top crude importer. However, China is witnessing an increase in infections after easing its zero-covid policy.

Over a third of the Texas Gulf refining capacity remained closed over the last few days due to winter storms, impacting oil supplies. The storm impacted the US and Canada just before the Christmas weekend, which results in the cancelation of several flights. Some facilities were back online with weather in the US expected to improve this week.

Prospects of an output reduction by Russia also provided support to oil prices. The country is widely expected to cut output by 5% to 7% in early 2023 in response to the recent price caps imposed by Western nations.

Brent crude for February delivery settled higher at $83.92 per barrel on Tuesday, while WTI crude oil for February delivery settled mostly flat at $79.53 per barrel.

Both oil benchmarks reached their strongest level since December 5 earlier in the session, but pared gains on concerns around the global economy. Markets in the US and UK remained closed on Monday for Christmas.

In other energy trading, wholesale gasoline for January delivery declined 2 cents to $2.36 a gallon, while January natural gas gained 20 cents to $5.28 per 1,000 cubic feet.

What to watch: Investors will continue monitoring further announcements related to the easing of restrictions from China. Markets will also keep an eye on Winter Storm Elliott, with experts predicting an improvement in weather conditions.

The API’s (American Petroleum Institute) release of data on crude oil stockpiles will also be in focus today. US crude inventories had declined by 3.1 million barrels in the week ended December 16.

The markets today

European stocks will be in focus today after closing higher on Tuesday

Context: Markets in Europe moved higher on Tuesday after China announced the easing of covid restrictions.

Details: European markets mirrored the gains recorded by Asia-Pacific stocks after China said it will end the quarantine requirements for inbound travellers starting January 8. China’s Shanghai Composite climbed around 0.98% following the news.

Sentiment during the final trading days of the year typically remains positive. Investors also purchased undervalued stocks after the downturn in equities following hawkish statements from global central banks.

On the economic data front, the number of people registered as out of work in France fell by 64,700 to 2.810 million in November, the lowest since October 2011. The number also marked a decline of 311,300 from the year-ago figure.

European equities recorded gains on Tuesday, with the STOXX Europe 600 index adding 0.13% to settle at 428.00 points, amid gains in consumer discretionary stocks.

Germany’s DAX 40 rose 0.39% to close at 13,995.10, while France’s CAC 40 climbed 0.70% to 6,550.66, outperforming its European peers. London markets were closed on Tuesday.

What are expectations: With no major economic data due to be released today, investors will keep an eye on the macroeconomic conditions. Investors will also monitor China’s easing of restrictions.

Other Markets: US trading indices closed mostly lower on Tuesday, with the S&P 500 and Nasdaq 100 down by 0.40% and 1.48%, respectively, and the Dow Jones index up by 0.11%.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 133.94 and 134.17 Positive
GBP/USD – 1.2006 and 1.2019 Positive
Silver – 24.180 and 24.210 Positive
WTI Crude Oil   – 79.55 and 79.75 Positive
FTSE 100 – 7468.09 and 7478.34 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0640, -0.02%) Dow ($33,435, 0.06%) Brent ($84.75, 0.1%)
GBP/USD (1.2011, -0.17%) S&P500 ($3,857, 0.05%) WTI ($79.55, 0.1%)
USD/JPY (134.05, 0.42%) Nasdaq ($10,922, 0.05%) Gold ($1,819, -0.2%)

What else to watch today

Mexico’s unemployment rate, US MBA mortgage applications, Redbook index, pending home sales, Richmond Fed manufacturing index, Richmond Fed services index, as well as Dallas Fed general business activity index, Saudi Arabia’s money supply M3 and value of loans, Russia’s unemployment rate, retail sales, real wages, industrial production, and GDP, as well as Brazil’s net payrolls.


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