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Crude oil ignites on signs of strong demand

 

Thursday, June 22, 2023

Today’s headlines

What’s happening: Crude oil recorded gains on Wednesday after upbeat remarks from a top official in China.

What happened: Traders had been concerned about the disappointing recovery of the Chinese market even after the easing of covid-19 restrictions.

Prospects of strong demand for crude from the world’s second-largest importer lent support to oil prices on Wednesday.

Why it matters: Crude oil has been under pressure due to the tepid recovery in the Chinese economy.

Upbeat comments from China’s Vice Premier He Lifeng lent support to oil prices on Wednesday. Lifeng said China’s economic development is showing “sound momentum” in the first half of the year, according to Xinhua, the country’s state news agency.

Strong demand in Asia for Middle Eastern crude and Federal Reserve Chairman Jerome Powell’s testimony before the Congress also sparked a rally in oil prices during Wednesday’s session.

Powell said US inflation rate remains well above the central bank’s target and further rate hikes are likely this year. Last week, the Fed had kept interest rates unchanged at its latest meeting. Powell signalled two more rate hikes this year.

Weakness in the US dollar, which makes oil cheaper for holders of other currencies, also provided support to crude.

China’s biggest oil and gas producer, CNPC, lowered its projections for crude oil demand this year, while recent economic data also showed a decline in China’s energy imports for May.

US crude oil stockpiles contracted by 1.246 million barrels in the week ended June 16, following a gain of 1.024 million barrels in the prior week and much worse than market estimates of a decline of 0.433 million barrels.

WTI crude for August delivery gained $1.34, or 1.9%, to settle at $72.53 per barrel on the NYMEX (New York Mercantile Exchange), while August Brent crude gained 1.6% to close at $77.12 per barrel on ICE Futures Europe. Both crude oil contracts had surged to a two-week high earlier in the session on Wednesday.

What to watch: Traders will watch the EIA’s (Energy Information Administration) data on crude oil stockpiles today. US crude oil inventories, which climbed the most in 17 weeks by 7.919 million barrels in the week ending June 9, are expected to increase by just 0.329 million barrels in the latest week.

The markets today

European stocks will be in focus today ahead of consumer confidence data

Context: European markets closed lower on Wednesday, as investors digested higher-than-expected inflation data from the UK.

Details: The UK released its inflation data on Wednesday, which showed annual headline consumer price inflation coming in unchanged at 8.7% in May from the previous month. The figure was higher than the market estimates of 8.4%.

UK’s inflation data remained significantly above than the Bank of England’s target of 2.0%, increasing prospects of the central bank hiking interest rates by 50 basis points at today’s meeting.

UK’s producer inflation slowed to 2.9% year-over-year in May, from 5.2% in the prior month.

London’s FTSE 100 index declined by 0.13% to settle at 7,559.18 on Wednesday, extending losses for the third straight session.

The STOXX Europe 600 Index fell 0.5% to close at 457.01 on Wednesday, with most sectors closing in the negative zone. Tech stocks were among the worst performers, down around 1.6% on, following concerns over global growth. Oil and gas stocks bucked the overall market trend, gaining about 1%.

Germany’s DAX 40 fell 0.55% to 16,023.13, while France’s CAC 40 lost 0.46% to close at 7,260.97.

What are expectations: Investors await economic data on Eurozone’s consumer confidence indicator. Analysts expect the consumer confidence indicator in the Eurozone to improve further to -17 in June, from the previous month’s reading of -17.4. The ECB’s General Council meeting will also remain in focus.

Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.30%, 0.52% and 1.35%, respectively.

The news shaping the markets

Ukraine’s President Volodymyr Zelensky acknowledged “slower than desired” progress in the battlefield. Despite the ongoing conflict, the safe-haven US dollar declined slightly this morning.


New Zealand reported a trade surplus of NZ$46 million in May, compared to a year-ago surplus of NZ$148.2 million, lending support to the NZD/USD forex pair.


Brazil’s central bank held its key Selic rate at 13.75% for the seventh straight meeting, which sent the BRL/USD pair lower in forex trading this morning.


Russia’s producer prices fell by 3.6% year-over-year in May, following a 12.7% decline in the prior month, which lent support to the RUB/USD forex pair.


Canada’s new home prices rose by 0.1% in May, following a 0.1% decline in April, which sent the CAD/USD pair higher in forex trading this morning.

What else to watch today

Saudi Arabia’s balance of trade, France’s manufacturing climate indicator and business climate indicator, Indonesia’s loan growth and Bank Indonesia interest rate decision, Turkey’s foreign exchange reserves and Central Bank of Turkey’s interest rate decision, UK’s interest rate decision, Mexico’s consumer prices and Bank of Mexico interest rate decision, US current account, initial jobless claims, Chicago Fed National activity index, continuing jobless claims, Fed Chair Powell testimony, existing home sales, CB leading index, Kansas City Fed’s manufacturing production index, as well as Argentina’s leading economic index, gross domestic product and unemployment rate.


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