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Crude oil rises on supply data, demand outlook

 

Friday, January 19, 2024

Today’s headlines

What’s happening: Crude prices rose on Thursday, as investors weighed US stockpile data and the demand outlook.

What happened: The Energy Information Administration reported a surprise decline in US commercial crude supplies, driving oil prices higher.

The International Energy Agency (IEA) raised its demand projections for the year, lending further support to crude prices on Thursday.

Why it matters: The EIA (Energy Information Administration) said US commercial crude inventories declined by 2.492 million barrels in the week ended January 12, versus expectations of an increase of 93,000 barrels. The report was released a day later than usual due to the Martin Luther King Jr. holiday on Monday.

Late Wednesday, the API (American Petroleum Institute) said crude inventories rose 483,000 barrels last week.

The EIA data also showed gasoline stockpiles rising by 3 3.083 million barrels and distillate fuel inventories increasing 3.083 million barrels last week. US natural gas supplies in storage declined by 154 billion cubic feet in the week ended January 12.

The IEA raised its projections for oil demand in 2024 by 180,000 barrels to an increase of 1.24 million barrels per day, amid improving economic growth.

On Wednesday, the OPEC (Organization of the Petroleum Exporting Countries) said it expects global oil demand to increase by 2.25 million bpd in 2024. The group also said oil demand is likely to increase by 1.85 million bpd to 106.21 million bpd in 2025.

Extreme cold weather conditions in North Dakota also resulted in a significant decline in oil output.

WTI crude for February delivery gained $1.52 to close at $74.08 per barrel on the NYMEX (New York Mercantile Exchange), while March Brent crude rose $1.22 to settle at $79.10 per barrel on ICE Futures Europe.

In other energy trading, February gasoline added 4 cents to $2.18 a gallon, while February heating oil rose 4 cents to $2.69 a gallon on Thursday. Natural gas for February delivery fell 17 cents to $2.70 per million British thermal units.

What to watch: Investors will continue monitoring geopolitical concerns after Pakistan conducted strikes in Iran, two days after strikes by Iran in Pakistani territory.

The release of data on Baker Hughes crude oil rigs will also remain in focus today. Crude oil rigs in the US fell to 499 in the week of January 12, compared to 501 in the prior week.

The markets today

Taiwan Semiconductor Manufacturing Company will be in focus today after releasing results for its fourth quarter

Context: Shares of Taiwan Semiconductor jumped on Thursday, following better-than-expected quarterly results.

Details: There have been signs of a rebound in chipmaking in recent weeks. The Semiconductor Industry Association said chip sales rose in November, after recording declines for more than a year.

Taiwan Semiconductor, the world’s largest chipmaker, projected a return to solid growth in the current quarter and said it was looking to increase capital spending this year.

Taiwan Semiconductor reported a 1.5% year-over-year decline in quarterly revenues to $19.62 billion, beating the consensus estimates of $19.45 billion. The company’s quarterly earnings came in at $1.44 per share, topping Wall Street expectations of $1.37 per share.

Its gross margin shrank by 920 bps to 53.0% due to a decline in capacity utilisation and increased electricity costs, while operating margin contracted by 1,040 bps to 41.6%.

The company’s board announced a cash dividend of NT$3.50 per share, versus NT$3.00 per share in the previous quarter and NT$2.75 per share in the third quarter of 2022.

“Our fourth quarter business was supported by the continued strong ramp of our industry-leading 3-nanometer technology,” CFO Wendell Huang said. “Moving into first quarter 2024, we expect our business to be impacted by smartphone seasonality, partially offset by continued HPC-related demand,” he added.

Management guided to revenues between $18.0 billion and $18.8 billion for the first quarter, gross margins of 52%-54% and operating margins 40%-42%. They also projected 2024 revenue growth in the low to mid-20% range.

How shares responded: Taiwan Semiconductor’s shares surged 9.8% to close at $113.03 in the US on Thursday, following the release of quarterly results. The stock has gained more than 11% year to date.

What to watch: Investors will continue monitoring the chipmaking sector, as a continuous recovery is expected to provide a significant boost to Taiwan Semiconductor’s overall results ahead.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.17%, 0.83%, 1.13% and 0.59%, respectively.

The news shaping the markets

Ukraine is working actively with partners to resume air travel, which has been suspended for around two years. The news sent the RUB/USD pair lower in forex trading this morning.


New Zealand’s BusinessNZ Performance of Manufacturing Index fell to 43.1 in December, from 46.7 a month ago. This being the tenth month of contraction exerted pressure on the NZD/USD forex pair.


Japan’s annual inflation rate eased to 2.6% in December, from 2.8% a month ago, which sent the JPY/USD pair lower in forex trading this morning.


Argentina reported a trade surplus of $1,018 million in December, versus a year-ago surplus of $1,102 million. The latest reading marked the first trade surplus after nine months of deficit and lent support to the ARS/USD forex pair.


US initial jobless claims fell by 16,000 to 187,000 in the latest week. This being the lowest since September 2022 sent the Dow Jones index higher by over 200 points on Thursday.

What else to watch today

Germany’s producer price inflation, UK’s retail sales, Italy’s construction output, India’s foreign exchange reserves, Brazil IBC-Br economic activity index, Mexico’s retail sales, Russia’s current account, Canada’s retail sales, US University of Michigan’s consumer sentiment, net long-term TIC flows, net purchases of US treasury bonds and notes, net treasury international capital flows and existing home sales, Argentina’s leading economic index and Central Bank of Argentina’s interest rate decision, China’s foreign direct investment, as well as Spain’s consumer confidence indicator.


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