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Oil prices rise on decline in crude supplies

 

Thursday, June 08, 2023

Today’s headlines

What’s happening: Oil prices moved higher on Wednesday after Saudi Arabia announced plans for deep production cuts over the weekend.

What happened: Oil prices settled higher despite data released on Wednesday showed weakness in exports from China.

A lower-than-expected decline in US crude inventories also lent support to crude oil.

Why it matters: Both crude oil benchmarks, WTI and Brent, had added more than $1 per barrel on Monday after Saudi Arabia announced plans to cut output by 1 million bpd (barrels per day) to 9 million bpd in July.

Traders also assessed data released by the EIA (Energy Information Administration) on Wednesday, which showed US crude stockpiles contracting by around 450,000 barrels last week. The drawdown was significant, as it came against market expectations of an increase of 1 million barrels.

Oil prices had declined in early trading on Wednesday mainly on weak economic data out of China. The country’s exports fell 7.5% year-over-year in May, worse than market estimates of a 1% decline. Imports contracted by 4.5% in May, following a 7.9% decline in April.

Sentiment was lifted by news of a rebound of crude imports by China, the world’s largest importer of crude oil. China’s imports showed a 17% month-over-month increase and 12% year-over-year growth in May.

Some weakness in the US dollar also provided support to oil demand, as weaker greenback generally makes all commodities cheaper for foreign currency users.

Brent crude for August delivery gained 66 cents to close at $76.95 per barrel., while WTI crude oil futures added 79 cents, or 1.1%, to settle at $72.53 per barrel on Wednesday.

What to watch: Investors will watch data released showing the health of the global economy. The EIA’s data on natural gas stockpiles, due to be released today, will also remain in focus. Analysts expect natural gas inventories to have risen by 113 billion cubic feet last week.

The markets today

European stocks will be in focus today ahead of a couple of major economic reports

Context: Markets in Europe closed slightly lower on Wednesday after recording gains in the previous session.

Details: Investors remained concerned about the European Central Bank’s interest rate decision. The benchmark STOXX 600 index has remained range-bound so far this week ahead of the ECB’s and Federal Reserve’s policy decisions.

Markets expect the US central bank to hold interest rates, while the ECB is likely to increase rates at its upcoming meeting.

Weak trade data from China and Germany’s industrial output increasing at a slower-than-expected pace in April also hurt investor risk sentiment.

France’s trade deficit widened to €9.7 billion in April, following a €8.4 billion gap a month ago, while Germany’s industrial production increased 0.3% during April, below market expectations of 0.6% growth.

The European retail index gained around 2% on Wednesday, while healthcare stocks were among the worst performers.

The STOXX Europe 600 Index declined by 0.19% to close at 460.80 on Wednesday. London’s FTSE 100 fell 0.05% to 7,624.34, while Germany’s DAX 40 and France’s CAC 40 lost 0.20% and 0.09%, respectively. Spain’s IBEX 35 index was the only major European indices that ended Wednesday’s session in the green. It climbed 0.5% to settle at a six-week high.

What are expectations: Traders await the release of data on GDP growth and employment change from the Eurozone today. The Eurozone’s economy is expected to grow at 1.3% year-over-year during the first quarter, compared to 1.8% in the prior period. Analysts expect the number of employed persons in the Eurozone to increase by 0.6% to 166.1 million in the first quarter.

Other Markets: US trading indices closed mixed on Wednesday, with the S&P 500 and Nasdaq 100 down by 0.38% and 1.75%, respectively, and the Dow Jones index up by 0.27%.

The news shaping the markets

China’s trade with Russia surged to $20.5 billion in May, its strongest in a month since the invasion of Ukraine. The news lent support to the RUB/USD forex pair.


Australia’s trade surplus contracted to A$11.16 billion in April, from A$14.82 billion in the prior month. However, the figure being a significant trade surplus sent the AUD/USD pair higher in forex trading this morning.


Colombia’s annual inflation rate eased for the second consecutive month to 12.36% in May, from 12.82% in the previous month, lending support to the COP/USD forex pair.


Japan’s economy expanded by 2.7% in the first quarter, versus 0.4% growth in the prior period. The figure also topped market estimates of 1.9% growth and sent the JPY/USD pair higher in forex trading this morning.


UK’s RICS Residential Market Survey house price balance increased to -30 in May, from -39 in the prior month. This being the highest figure in six months lent support to the GBP/USD forex pair.

What else to watch today

France’s payroll employment, Saudi Arabia’s GDP growth rate, South Africa’s current account and manufacturing production, Turkey’s gross foreign exchange reserves, Mexico’s inflation rate, US initial jobless claims, continuing jobless claims and wholesale inventories, as well as Argentina’s industrial production.


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