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Crude oil settles higher after IEA’s demand forecast

 

Friday, August 12, 2022

The news shaping the markets today

Russia’s shells hit Ukraine’s Zaporizhzhia nuclear power facility several times on Thursday. The ongoing war sent the safe-haven US dollar higher this morning.


Australia’s new home sales dipped 13.1% in July, following 1.9% growth in June. However, the AUD/USD forex pair remained elevated after the news.


New Zealand’s BusinessNZ Performance of Manufacturing Index rose to 52.7 in July, from 49.7 a month ago. The index moving back into the expansion zone sent the NZD/USD pair higher in forex trading this morning.


South Korea’s import prices surged 27.9% year-over-year in July, following a 33.6% increase in the prior month, lending support to the KRW/USD forex pair.


Mexico’s central bank increased its benchmark policy rate by 75 bps to 8.5% at its latest meeting. Despite this, the MXN/USD pair declined slightly in forex trading this morning.

 

What’s happening: Crude oil recorded gains on Thursday, after the IEA (International Energy Agency) issued a bullish outlook.

What happened: The IEA increased its projections for global oil demand growth, lending support to oil prices.

However, another major agency lowered its demand growth forecast, although this still showed a healthy market for oil.

Why it matters: Paris-based IEA raised its 2022 oil demand growth forecast by 380,000 bpd (barrels per day) to 2.1 million bpd, as tight supplies of natural gas and higher electricity prices are likely to lead to increased use of oil for power generation.

The agency also projected a decline of around 20% in Russia’s oil output by the beginning of next year, with the European Union ban gaining traction.

However, the OPEC (Organization of the Petroleum Exporting Countries) reduced its demand growth estimate for 2022 to 3.1 million bpd, from its prior forecast of 3.36 million bpd. The OPEC said that the forecast is still healthy, with overall oil demand likely to average about 100 million barrels per day in 2022.

The EIA (Energy Information Administration) issued a report on Wednesday that showed an increase in US crude inventories by 5 million barrels during the week ended August 5, with gasoline supplies declining 5 million barrels and distillate supplies climbing 2.2 million barrels.

US gasoline demand remained 6% lower during the past four weeks versus the same period last year. Flows from the Russian pipeline to Central Europe resumed earlier this week, easing concerns around the oil supply.

WTI crude futures climbed by $2.41, or 2.6%, to settle at $94.34 per barrel on Thursday, following a 1.6% increase in the prior session. Brent crude for October delivery added $2.20 to close at $99.60 per barrel, extending its 1.1% increase on Wednesday.

In another energy trading, wholesale gasoline for September delivery remained flat at $3.07 a gallon, while September heating oil gained 7 cents to $3.48 a gallon and September natural gas settled at $8.87 per 1,000 cubic feet, up 67 cents.

What to watch: Traders await the release of the Baker Hughes crude oil rig data today. Crude oil rigs in the US fell to 598 in the week ended August 5, compared to 605 in the earlier week. Markets will continue monitoring the release of major economic reports, which could also impact oil prices.

The markets today

The British pound will be in focus today ahead of a basket of economic reports from the UK

Context: The sterling recorded losses against the US dollar and the euro on Thursday.

Details: The British pound is one of the weakest performers among the G10 currencies so far this year. The GBP/USD forex pair has lost around 10% in 2022.

The GBP/USD moved lower, despite the US dollar index, which measures the greenback’s performance versus a basket of major rivals, weakening on Thursday. The US dollar gained support versus the sterling after the US released lower-than-expected inflation data.

US CPI increased 8.5% year-over-year in July, versus the consensus estimate of 8.7%. Producer prices fell 0.5% month-over-month during July, following 1% growth in the prior month.

The Bank of England increased its benchmark interest rates from 1.25% to 1.75%, in a bid to control rising inflation. This was not only its sixth rate hike since late 2021 but also the biggest increase in 27 years. The country’s central bank also warned of a recession by yearend, saying that it could last till 2024.

The GBP/EUR fell to its weakest level since July 26 on Thursday. The GBP/USD forex pair declined by around 0.2% to settle at 1.2199 on Thursday, following a 1.4% increase in the previous session.

What to watch: Traders await the release of economic data on GDP growth, industrial production and balance of trade today. The British economy, which expanded 8.7% year-over-year during the first three months of 2022, is expected to grow by just 2.8% in the second quarter. Analysts expect industrial production to grow 1.7% year-over-year in June, following 1.4% growth in May. The UK trade deficit is projected to narrow to £9.6 billion in June, from a £9.7 billion gap in May.

Other Markets: US indices closed mixed on Thursday, with the Dow Jones index up by 0.08%, and the S&P 500 and Nasdaq 100 down by 0.07% and 0.65%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 133.23 and 133.35 Positive
EUR/JPY – 137.47 and 137.56 Positive
Gold – 1804.96 and 1807.51 Positive
WTI Crude Oil – 93.82 and 93.98 Negative
S&P 500 – 4202.52 and 4212.26 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0322, 0.01%) Dow ($33,348, 0.13%) Brent ($99.16, -0.4%)
GBP/USD (1.2195, -0.03%) S&P500 ($4,217, 0.17%) WTI ($93.82, -0.6%)
USD/JPY (133.16, 0.11%) Nasdaq ($13,345, 0.25%) Gold ($1,806, -0.1%)

What else to watch today

France’s unemployment rate and inflation rate, the UK’s manufacturing production, business investment, goods trade balance, construction output and construction orders, Spain’s consumer prices, Turkey’s industrial production and retail sales, Italy’s balance of trade, Eurozone’s industrial production, India’s value of deposits, foreign exchange reserves, the value of loans, industrial production, inflation rate, manufacturing production and total passenger vehicles sales, US import prices, export prices and University of Michigan consumer sentiment, Russia’s gross domestic product, Australia’s new home sales, as well as China’s new yuan loans, outstanding loan growth, total social financing and money supply M2.


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