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Oil retreats after rising for 2 straight weeks

 

Tuesday, July 11, 2023

Today’s headlines

What’s happening: Crude oil moved lower on Monday after recording strong gains last week.

What happened: Supply cuts announced by the OPEC (Organization of the Petroleum Exporting Countries) lent support to oil prices last week.

However, oil began this week in the red due to sluggish economic reports from top global consumers.

Why it matters: Crude oil had climbed more than 4% last week to jump to its highest level since May and recorded its second straight week of gains, following oil supply cuts by the OPEC. Saudi Arabia’s decision to extend its output cuts through August lend support to oil prices.

US NFP (nonfarm payrolls) data released on Friday showed weaker-than-expected job gains for June, although wage growth remained strong. These numbers sparked more speculations of the US Federal Reserve increasing its interest rates at this month’s meeting.

Cleveland Fed President Loretta Mester also signalled on Monday that the central bank could raise rates due to persistently high inflation levels. Higher rates raise borrowing costs, which in turn negatively impacts overall economic growth and the demand for oil.

Data from China showed producer prices declining at their fastest pace in more than seven years in June, pointing towards a slowdown in recovery for the world’s leading importer of crude oil.

Weakness in the US dollar limited losses for the oil, as a higher greenback generally makes commodities like crude more expensive for foreign currency holders. The US dollar index, which measured the greenback’s performance versus a basket of major peers, fell around 0.3% to 101.97 on Monday.

WTI crude oil futures fell 87 cents to close at $72.99 per barrel on Monday, while Brent crude oil futures declined by 78 cents to $77.69 per barrel after hitting its strongest level in over two months earlier in the session.

In other energy trading, wholesale gasoline for August delivery slipped 2 cents $2.57 a gallon, while August heating oil declined 1 cent to $2.55 a gallon and August natural gas added 9 cents to settle at $2.67 per 1,000 cubic feet on Monday.

What to watch: Traders await the release of US Consumer Price Index and some major economic reports from China this week.

Markets will also watch the EIA’s (Energy Information Administration) release of its monthly short-term energy outlook today, while IEC and OPEC are all set to report their monthly oil reports on Thursday.

The API (American Petroleum Institute) will release its crude oil stockpile data later today. Stockpiles of crude oil in the US fell by 4.382 million barrels during the week ended June 30, 2023, following a decline of 2.408 million barrels in the prior week.

The markets today

European stocks will be in focus today ahead of the ZEW economic sentiment index

Context: Equities in Europe closed higher on Monday as investors digested economic data from China.

Details: The pan-European index had recorded its worst week in around four months last week, following hawkish remarks from global central bankers and a mixed jobs report from the US, which increased concerns of rates remaining higher for longer.

China’s producer prices fell 5.4% year-over-year in June, following a 4.6% decline in the earlier month, while consumer prices came in flat in June, following a 0.2% increase in May. The data fuelled concerns around China’s economic recovery faltering, which has negative implications for the global economy.

The STOXX Europe 600 Index gained 0.18% to close at 448.47 on Monday, after falling around 0.3% earlier in the session. Travel and leisure stocks were among the top performers, while mining stocks declined around 0.6%.

London’s FTSE 100 gained 0.23% to close at 7,273.79 on Monday, driven by energy shares.

France’s CAC 40 index rose 0.45% to settle at 7,143.69 on Monday, after recording a 3.9% decline in the previous week, while Germany’s DAX 40 increased 0.45% to 15,673.16.

What are expectations: Investors await the release of ZEW economic sentiment index from the Eurozone today. The ZEW Indicator of economic sentiment for the region had declined further into negative territory and reached -10 in June. It is expected to decline again to a reading of -17 in July.

Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.62%, 0.24% and 0.06%, respectively.

The news shaping the markets

Russia’s President Vladimir Putin confirmed meeting with Wagner leader Yevgeny Prigozhin for three hours. The news sent the safe-haven US dollar index lower this morning.


Australia’s NAB business confidence index rose to 0 in June, from -4 in the previous month, which lent support to the AUD/USD forex pair.


The Philippines said its trade deficit had narrowed to $4.40 billion in May, from $5.56 billion in the year-ago month, sending the PHP/USD pair higher in forex trading this morning.


UK’s retail sales grew by 4.2% year-over-year in June, accelerating from 3.7% in the prior month, which lent support to the GBP/USD forex pair.


Colombia’s annual inflation rate eased for the third straight month to 12.13% in June and sent the COP/USD pair higher in forex trading this morning.

What else to watch today

Germany’s consumer price inflation, ZEW economic sentiment index and ZEW current conditions, Japan’s machine tool orders, Saudi Arabia’s industrial production, UK’s unemployment rate, employment change, average earnings and claimant count change, Turkey’s current account, Italy’s industrial production, US NFIB small business optimism index, Redbook index and IBD/TIPP economic optimism index, South Africa’s manufacturing production, Brazil’s inflation rate, Russia’s current account, China’s new yuan loans, outstanding yuan loans, total social financing and money supply M2, as well as Spain’s consumer confidence indicator.


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