Monday, December 7, 2020

Crude Oil Burns Brighter for Fifth Straight Week


News shaping
the markets today


What’s happening: Crude oil moved higher on Friday to record gains for the fifth successive week.

What happened: Although the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) last week agreed to raise output slightly from next year, the group will continue with the bulk of the current supply cuts due to restricted demand amid the covid-19 crisis.

Crude oil prices continued to rise last week despite US production rebounding from the two-and-a-half-year lows hit in May.

Why it matters: The OPEC and Russia announced plans to ease oil production cuts starting January 2021 by 500,000 bpd (barrels per day). The group also said that supply will be increased on a monthly basis, although the amount has not yet been defined.

Markets were expecting the OPEC+ to continue with its current cuts at least till March, after the group shelved its plan to lift production by 2 million bpd. The raise will now result in output reduction by 7.2 million bpd, versus the existing cuts of 7.7 million bpd.

Meanwhile, US production has been recovering with shale producers bringing their wells back online due to increases in oil prices. The US oil rig count rose by 5 to 246 last week, taking the total rigs to the highest since May, Baker Hughes reported on Friday.

Crude oil prices rose in Friday’s session, as hopes of additional stimulus from the US and encouraging data from covid-19 vaccine manufacturers overshadowed oversupply fears. WTI (West Texas Intermediate) crude oil prices gained 62 cents to settle at $46.26 per barrel, after rising as high as $46.68 per barrel earlier in the session. Brent added 54 cents to $49.25 per barrel, after notching its highest level since early March of $49.92 per barrel during the session.

Both oil benchmarks recorded gains for the fifth straight week, with Brent gaining 1.7% and WTI adding 1.9% last week.

What to watch: Markets will keep an eye on the OPEC+ group’s meetings, which are scheduled to be held on a monthly basis starting next month, to decide on further production cuts taking into account market conditions. Traders continue to be concerned about the growing internal OPEC discord. Some profit-taking is expected today, with US crude oil futures trading lower this morning.

The Markets Today


US stocks will be in focus today after rising to record highs in the previous session.

Context: Wall Street closed higher on Friday despite the weak jobs report for November. All three major indices surged to record highs in the previous session on renewed hopes of the fiscal stimulus package.

Details: The most important trigger of optimism in the US markets on Friday was the country moving closer to a fiscal stimulus package. Senate Majority Leader Mitch McConnell suggested that the relief package could be initiated as early as yearend. Markets were also hopeful of the $908 billion bipartisan bill being approved soon.

Investors digested a worrying jobs report released on Friday. The report showed the US adding just 245,000 jobs during November, missing the consensus view of 432,000 job adds by a significant margin. Markets instead focused on the decline in the unemployment rate to 6.7% in November. Market sentiment was also lifted by a 1% rise in US factory orders in October, versus a revised 1.1% increase in September.

Investors also took a breather from concerns around the continued rise in covid-19 cases in the country, even though new confirmed cases surged sharply to more than 2,17,000 on Thursday.

Energy stocks drove some of the gains in the US equity market. These stocks had been significantly impacted by a record plunge in crude prices earlier in the year. However, various stocks in the energy sector rose sharply, with Occidental Petroleum and Diamondback Energy recording among the strongest gains in the S&P 500.

The Dow Jones index climbed 248.74 points to 30,218.26, notching record intraday as well as closing highs on Friday. The S&P 500 gained 0.88% to settle at 3,699.12, while the Nasdaq 100 added 0.7% to 12,464.23 in the earlier session.

What to watch: Markets will keep an eye on announcement by US lawmakers related to a new stimulus to provide some relief to the coronavirus-led crisis. The economic calendar for the US is light today. The only important data release is the report on consumer credit, which is expected to rise by $17 billion in October, after rising $16.21 billion in September.

Covid-19 remains a major concern, with total cases in the country surpassing 14.7 million.

Other Markets: European trading indices closed higher on Friday, with the FTSE 100, German DAX 30 and French 40 up by 0.92%, 0.35% and 0.62%, respectively.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

What else to watch today


China’s foreign exchange reserves, Germany’s industrial production, UK’s Halifax house price index, Brazil’s car production and new vehicle registrations, Russia’s foreign exchange reserves as well as Canada’s Ivey PMI.