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Crude oil settles lower after surging past $82

 

Tuesday, December 06, 2022

The news shaping the markets today

Ukraine launched its most brazen attack into Russia’s territory, targeting two military airbases deep into the country. Despite the ongoing tensions, the US dollar index traded slightly lower this morning.


UK’s retail sales surged 4.1% from a year ago in November, compared to 1.2% growth in the previous month, which sent support to the GBP/USD forex pair.


Australia recorded a current deficit of A$2.3 billion in the third quarter versus a surplus of A$14.7 billion in the prior quarter. Despite this being the first current account deficit since the first quarter of 2019, the AUD/USD pair rose in forex trading this morning.


Japan’s average cash earnings rose by 1.8% year-over-year in October, recording growth for the tenth consecutive month. The news lent further support to the JPY/USD forex pair.


The Philippines reported that its annual inflation rate had accelerated to 8.0% in November, from 7.7% a month ago. The latest reading also exceeded market expectations of 7.8%, sending the PHP/USD pair lower in forex trading this morning.

 

What’s happening: Crude oil settled lower on Monday after recording gains earlier in the session.

What happened: WTI crude oil prices climbed past $82 per barrel on hopes of a rebound in demand from China.

However, oil prices pared gains later in the session, following the release of data on the US service sector.

Why it matters: The world’s top crude importer, China, has been easing covid-19 restrictions, after several protests broke out across many regions of the country. On Monday, Shanghai removed PCR testing requirements for entry into most public places.

The easing of restrictions, after three years of strict lockdowns, fuelled prospects of a recovery in China’s economic growth and the demand outlook for oil. A decline in new covid cases, after climbing to a peak of 40,000, also raised hopes of a rebound in oil demand from China.

However, oil prices turned lower later during Monday’s session after data on US services activity raised concerns of the Federal Reserve continuing its aggressive rate-hike policy. The US reported an unexpected increase in services activity in November, with the country also reporting better-than-expected nonfarm payrolls last week, giving the central bank more leeway to raise interest rates.

The ISM services PMI rose to 56.5 in November, recovering from more than a 2-year low of 54.4 in October. The figure also topped estimates of 53.3.

On the supply side, the OPEC+ (Organization of the Petroleum Exporting Countries and allies) agreed to continue with its policy of cutting oil output by 2 million bpd (barrels per day) from November through 2023.

Last week, the G7 (Group of Seven) nations and Australia agreed to impose a $60 per barrel price cap on Russian crude. The European Union’s embargo on seaborne oil imports from Russia also went into effect on Monday.

Brent crude for February delivery declined $2.89 to close at $82.68 a barrel on Monday. WTI (West Texas Intermediate) crude oil for January delivery fell $3.05 to settle at $76.93 per barrel. Both oil benchmarks had earlier added more than $2 per barrel.

In other energy trading, wholesale gasoline for January delivery declined 8 cents to $2.20 a gallon, while January natural gas fell 70 cents to $5.58 per 1,000 cubic feet.

What to watch: Traders will keep an eye on the covid-19 situation in China and any news of a further easing of restrictions.

The API’s (American Petroleum Institute) data on crude oil stockpiles will also remain in focus today. The API had reported a decline in US crude oil inventories by 7.85 million barrels in the week ended November 25, 2022.

The markets today

Bitcoin will be in focus today after recording gains in recent sessions

Context: Bitcoin prices rose on Monday, breaching the key $17,000 resistance level.

Details: The cryptocurrency market started the week on a positive note after recording gains over the weekend. With an improvement in risk appetite, Bitcoin surged past the $17,000 level.

The gains on Monday added to the uptrend maintained by Bitcoin last week, which saw the world’s most valued cryptocurrency rising by around 7%.

Ethereum also recorded gains on Monday, trading around the $1,300 mark, after climbing around 11% last week.

Gains in the cryptocurrency market were driven by comments from Fed Chairman Jerome Powell around plans of the central bank to slow down the pace of interest rate hikes as early as in December. “It makes sense to moderate the pace at which we raise our interest rates as we approach the level of moderation that will be sufficient to reduce inflation,” Powell said.

Investor optimism was also supported by the easing of covid restrictions in China, with the country signalling further reopening efforts, following protests in major cities.

What are expectations: Traders will keep an eye on developments surrounding FTX´s bankruptcy case. Markets will also continue monitoring comments from Fed officials regarding interest rate hikes.

Other Markets: European trading indices closed mostly lower on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.56%, 0.67% and 0.41%, respectively, and the FTSE 100 up by 0.15%.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 1.0507 and 1.0522 Negative
USD/CAD – 1.3566 and 1.3585 Positive
Silver – 22.481 and 22.657 Positive
Natural Gas  – 5.565 and 5.620 Negative
FTSE 100 – 7566.04 and 7584.66 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0513, 0.19%) Dow ($34,048, 0.18%) Brent ($83.17, 0.6%)
GBP/USD (1.2210, 0.15%) S&P500 ($4,011, 0.19%) WTI ($77.44, 0.7%)
USD/JPY (136.54, -0.18%) Nasdaq ($11,832, 0.22%) Gold ($1,787, 0.3%)

What else to watch today

Germany’s factory orders, new car registrations and construction PMI, Eurozone’s construction PMI, France’s construction PMI, Italy’s construction PMI, South Africa’s GDP, UK’s construction PMI, Mexico’s auto exports, car production and gross fixed investment, Canada’s balance of trade and Ivey Purchasing Managers Index, US balance of trade, Redbook index, total vehicle sales and Logistics Manager’s Index, as well as Australia’s performance services index.


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