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What’s happening: Crude oil recorded sharp gains on Tuesday, following a steep decline in the prior session.
What happened: Both Brent and WTI crude settled Monday’s session in the red, with the global benchmark for crude prices at its lowest level since December 2021.
As investors waited for the Fed’s interest rate decision, crude oil recovered on Tuesday on some important news from China.
Why it matters: The economy of China, the world’s second largest oil consumer, has remained a major concern, with a disappointing recovery in oil demand after the country lifted its stringent covid-19 restrictions late last year.
Brent crude oil prices fell 3.9% to end the Monday’s session at their weakest level since December 2021, while WTI crude oil declined by 4.4% to record its lowest settlement since March 17. Both oil benchmarks have lost around 15% year to date.
The announcement of stimulus measures from China lent support to oil prices on Tuesday. The People’s Bank of China also reduced the interest rate for 7-day repurchase operations from 2% to 1.9%.
Weakness in the US dollar also supported oil prices on Tuesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.3% to 103.34 on Tuesday, as markets expect the US Federal Reserve to keep interest rates unchanged at its meeting this week.
Traders also responded to the OPEC’s (Organization of the Petroleum Exporting Countries) monthly report, which showed the group keeping its 2023 outlook for global oil demand steady.
On the supply side, oil exports from Russia to China and India climbed to record levels in May, offsetting Saudi Arabia’s plans to cut production in July. Also, the API said crude oil stockpiles in the US had risen by 1.024 million barrels in the week ended June 9, following a decline of 1.710 million barrels in the prior week.
WTI crude oil for July delivery gained $2.30 to close at $69.42 per barrel on Tuesday, while Brent crude for August delivery added $2.45 to $74.29 per barrel.
In other energy trading, wholesale gasoline for July delivery gained 8 cents $2.56 a gallon, while July heating oil added 9 cents to $2.40 a gallon. July natural gas gained 7 cents to $2.34 per 1,000 cubic feet.
What to watch: Traders await the release of the EIA’s (Energy Information Administration) data on crude oil stockpiles. US crude oil inventories, which fell by 0.451 million barrels in the week ending June 2, are expected to decline by 0.51 million barrels in the recent week. Analysts expect gasoline stockpiles to rise by 0.316 million barrels, while distillate inventories are expected to rise by 1.208 million barrels in the last week.
Context: Equities in Europe settled higher on Tuesday, following the release of some major economic reports.
Details: UK released strong labour data, while the US reported the easing of inflation.
UK’s annual average wages grew 7.2% in the February to April period, coming in better than market expectations. Employment rose by 0.2 percentage points, while the number of vacancies fell by 79,000 to 1,051,000.
In the US, consumer price inflation fell to 4.0% in May, versus market views of 4.1%. The data supports expectations of the US Federal Reserve keeping its interest rate unchanged when it ends its monetary policy meeting today.
Investors also await the European Central Bank’s policy meeting, with growing speculations of a rate hike of 25 basis points.
Other economic reports released on Tuesday showed Germany’s current account surplus widening to €21.8 billion in April, from €11.3 billion in the year-ago month. The country’s annual inflation rate eased to a 14-month low of 6.1% in May. The ZEW Indicator of Economic Sentiment for Germany improved to -8.5 in June, from the prior month’s reading of -10.7.
The STOXX Europe 600 Index gained 0.55% to settle at 463.27 on Tuesday, with most sectors closing in the positive zone. Mining and tech stocks were among the top performers.
London’s FTSE 100 gained 0.32% to close at 7,594.78 on Tuesday, while Germany’s DAX 40 and France’s CAC 40 added 0.83% and 0.56%, respectively.
What are expectations: Investors await the release of the Eurozone’s industrial production data today. Industrial production in the Eurozone, which contracted by 4.1% in March, is expected to grow by 1.9% in April.
Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.43%, 0.69% and 0.79%, respectively.
The US announced a new military aid package worth $325 million for Ukraine. The news sent the safe-haven US dollar index slightly lower this morning.
New Zealand’s current account deficit shrank to NZ$5.2 billion in the first quarter, from NZ$6.6 billion in the year-ago period, lending support to the NZD/USD forex pair.
South Korea’s export prices fell 11.2% year-over-year in May. This being the biggest annual decline since March 2010 sent the KRW/USD pair lower in forex trading this morning.
Turkey’s retail sales rose 27.5% year-over-year in April. However, this being lower than the 28.8% growth reported in the prior month exerted pressure on the TRY/USD forex pair.
US NFIB Small Business Optimism Index rose to 89.4 in May, from the earlier month’s reading of 89.0. This helped send the Nasdaq 100 higher by more than 100 points on Tuesday.
Germany’s wholesale prices, UK’s GDP, goods trade balance, industrial production, manufacturing production, balance of trade and construction output, India’s wholesale prices and money supply M3, South Africa’s retail sales, US MBA mortgage applications and producer prices, Brazil’s retail sales, Canada’s new motor vehicle sales, China’s foreign direct investment, Indonesia’s total car sales, as well as Argentina’s inflation rate.
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