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Crude oil hits one-week high despite demand concerns

 

Thursday, September 15, 2022

The news shaping the markets today

Ukraine reclaimed more towns seized during the early days of the Russian invasion, which sent the US dollar index higher this morning.


The People’s Bank of China kept interest rates unchanged at 2.75% on Thursday. The CNY/USD forex pair traded slightly lower on the news.


Australia’s unemployment rate rose to 3.5% in August and came in higher than market expectations of 3.4%. Despite this, the AUD/USD pair rose in forex trading this morning.


Japan’s trade deficit widened to ¥2,817.3 billion in August, from ¥653.4 billion in the year-ago month. This being the largest trade shortfall on record exerted pressure on the JPY/USD forex pair.


New Zealand’s economy grew by 1.7% during the three months to June, compared to a 0.2% contraction in the earlier quarter. The latest reading also exceeded market views of 1% growth, sending the NZD/USD pair higher in forex trading this morning.

 

What’s happening: Crude oil recorded gains on Wednesday, with traders assessing the energy demand outlook.

What happened: The IEA (International Energy Agency) said global oil consumption is expected to weaken in the fourth quarter.

However, the latest IEA forecast followed an upbeat outlook issued by one of the major agencies on Tuesday.

Why it matters: The oil market had been under pressure due to demand concerns with central banks around the world continuing to aggressively increase interest rates in a bid to control inflation.

Markets widely expect the US Federal Reserve to raise interest rates by 75bps at its upcoming meeting, with some speculations of a bigger 100bps hike, following the hotter-than-expected inflation data released on Tuesday.

ECB chief economist Philip Lane also reiterated that interest rates will continue to be increased over the next several meetings.

The IEA said it expects global oil demand to weaken in the final quarter of 2022 amid an economic slowdown. The Paris-based organisation added that there could be a sharp pickup in demand in 2023.

The IEA’s recent report also signalled a widespread switch from gas to oil for heating purposes, which it expects to average 700,000 bpd (barrels per day) from October 2022 through March 2023, double the level from the year-ago period.

The latest report from the IEA came a day after the OPEC (Organization of the Petroleum Exporting Countries) said it expects strong growth in oil demand around the world in 2022 and 2023, with developed economies exhibiting great resilience despite rising inflation.

The EIA (Energy Information Administration) also released data on crude oil inventories on Wednesday, which showed an increase of 2.442 million barrels in the week ended September 9, amid releases from the US SPR (Strategic Petroleum Reserve). The figure was much higher than analyst projections of an increase of 0.833 million barrels. Distillate stockpiles climbed by 4.219 million barrels, while gasoline inventories shrank by 1.767 million barrels. Crude stockpiles at Cushing, Oklahoma fell by 0.135 million barrels last week.

US WTI crude climbed $1.17, or 1.3%, to close at $88.48 per barrel on Wednesday, after moving towards a one-week high of $90 per barrel earlier in the session. Brent crude futures gained 93 cents to settle at $94.10 per barrel.

In another energy trading, wholesale gasoline for October delivery added 4 cents to $2.52 a gallon, while October natural gas gained 83 cents to $9.11 per 1,000 cubic feet.

What to watch: Traders await the release of major economic reports and comments from Fed members.

The release of data on natural gas stockpiles from the EIA will also remain in focus today. Working gas held in storage facilities in the US, which rose by 54 billion cubic feet in the week ending September 2, is expected to increase by 73 billion cubic feet in the latest week.

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports

Context: The CAD/USD forex pair recovered on Wednesday after falling to a one-week low earlier in the session.

Details: The loonie recorded losses on Tuesday after the US released a lower-than-expected decline in its annual inflation rate for August.

Last week, the Bank of Canada raised its benchmark interest rate by 75 basis points to 3.25%, a level not seen since April 2008. “Given the outlook for inflation, the Governing Council still judges the policy interest rate will need to rise further,” the central bank stated.

Markets are expecting the US Federal Reserve and the Bank of Canada to increase interest rates to 4% or more over the course of the next few months, despite the Canadian economy showing signs of a slowdown in the second half of the year.

Canada’s factory sales contracted by 0.9% in July, representing the third monthly decline in a row. However, the figure was in-line with expectations.

A rise in the price of crude oil, which is one of Canada’s major exports, provided some support to the Canadian dollar on Wednesday.

The CAD/USD forex pair gained around 0.1% to settle at 1.3166, after hitting its lowest intraday level since last Wednesday of 1.3206.

The S&P/TSX Composite Index added 0.41% to settle at 19,726.14, after recording losses in the previous session.

What to watch: Investors await the release of economic data on housing starts and new motor vehicle sales from Canada today. Housing starts in Canada, which rose by 1.1% to 275,329 units in July, are expected to decline to 271,000 units in August. Analysts expect car registrations in Canada to rise to 157,000 units in July, from 153,361 units in June.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 1.47%, 1.22%, 0.37% and 0.86%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 0.9969 and 0.9983 Positive
GBP/USD – 1.1533 and 1.1547 Positive
Gold – 1703.40 and 1705.80 Positive
Dow Jones – 30969.95 and 31234.17 Positive
DAX 40 – 13015.66 and 13058.65 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9974, -0.07%) Dow ($31,298, 0.15%) Brent ($94.04, -0.1%)
GBP/USD (1.1533, -0.07%) S&P500 ($3,972, 0.16%) WTI ($88.57, 0.1%)
USD/JPY (143.42, 0.18%) Nasdaq ($12,237, 0.12%) Gold ($1,701, -0.5%)

What else to watch today

Germany’s wholesale prices, Norway’s balance of trade, Saudi Arabia’s inflation rate and wholesale price inflation, France’s inflation rate, Poland’s inflation rate, Turkey’s gross foreign exchange reserves and central government budget balance, Eurozone’s balance of trade, labour costs and wage growth, Belgium’s construction output and balance of trade, Nigeria’s food inflation, South Africa’s building permits and SACCI business confidence index, Brazil’s IBC-Br economic activity index, US retail sales, export prices, import prices, initial jobless claims, New York Empire State manufacturing index, Philadelphia Fed manufacturing index, continuing jobless claims, industrial production, manufacturing production, capacity utilization and business inventories, Colombia’s industrial output and retail sales, Israel’s inflation rate, as well as Spain’s consumer confidence indicator.


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