Monday, August 17, 2020

Decline in US Supplies Fuels Weekly Crude Oil Gains

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News shaping
the markets today

     

What’s happening: Crude oil closed lower on Friday but ended the week on a higher note due to a decline in weekly US supplies.

What happened: Crude prices remained under pressure last week, with major oil organisations issuing downbeat projections for global oil demand.

Despite this, the EIA’s (Energy Information Administration) report showing a higher-than-expected decline in crude supplies supported oil prices last week. The upcoming meeting of the OPEC+ committee will be in the spotlight this week.

Why it matters: In a monthly report released on Thursday, the IEA projected global oil demand to shrink by 8.1 million bpd (barrels per day) to 91.9 million bpd in 2020.

Earlier in the week, a monthly OPEC (Organisation of the Petroleum Exporting Countries) report also estimated a decline of 9.1 million bpd in 2020 in global oil demand to 90.6 million bpd.

Investors shrugged off these downbeat projections and focused on the EIA’s weekly report showing a decline of 300,000 barrels per day in total oil production in the US, with crude inventories contracting by 4.5 million barrels, falling for the third consecutive week.

In another positive sign for the oil market, the Baker Hughes report issued on Friday said that the number of active US rigs drilling for oil had dropped by 4 to 172. This, too, had declined for the third successive week.

WTI (West Texas Intermediate) crude for September delivery fell 0.5% to close at $42.01 per barrel on the NYMEX (New York Mercantile Exchange). The global benchmark Brent crude for October declined 0.4% to $44.80 a barrel on the ICE Futures Europe.

For the week, US crude gained 1.9%, while Brent recorded a gain of 0.9%.

In other energy trading, September natural gas jumped 8% to $2.356 per million British thermal units in the previous session, adding 5.3% last week.

What to watch: Markets will keep a close eye on the meeting of the Joint Technical Committee of the OPEC, scheduled for Monday. The JMMC (Joint OPEC-non-OPEC Ministerial Monitoring Committee) is also due to hold a meeting on Tuesday to monitor compliance with output cuts among the OPEC+ countries.

Crude oil is expected to continue its positive momentum today, with crude oil futures trading higher by 0.8% to reach $42.33 during the Asian session.

The Markets Today

     

European stocks will be in focus today, after recording gains in the previous week.

Context: European stocks closed lower on Friday after the UK added another six countries to its coronavirus quarantine list. Despite the downturn on the last trading day, stocks closed the week higher.

Details: The UK said that travellers arriving from France, the Netherlands, Aruba, Monaco, Malta, and the Turks and Caicos Islands will have to self-isolate themselves for a period of 14 days and any person found not following the rules will be subject to a fine. Spain and Belgium were already on the UK’s quarantine list.

The Eurozone’s GDP shrank 12.1% in the second quarter, according to European Union statistics agency Eurostat. The region’s trade surplus also widened to €21.2 billion, following a massive decline in imports.

The pan-European Stoxx 600 index fell 1.2% on Friday, with travel shares sliding more than 2.3% following the announcement of travel restrictions by the UK. However, the index added around 1.2% last week.

Shares of Easyjet and Tui tumbled more than 7% each, while British Airways parent IAG’s stock declined by around 5% on Friday.

Shares of Cancom tumbled 7%, after the German reseller reported results for the half year.

London’s FTSE 100 index dropped 1.6%, while the German DAX 30 index closed lower by 0.7% on Friday.

What to watch: With no major economic data due to be released by the Eurozone today, investors will keep a close eye on developments in the US government’s decision around the new covid-19 rescue aid.

Markets would also continue to assess the covid-19 numbers, with total cases exceeding 21.5 million globally.

Other Markets: US indices trading closed mixed on Friday, with the S&P 500 and Nasdaq 100 down by 0.02% and 0.21%, respectively, while the Dow Jones index gained 0.12%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Canada’s new motor vehicle sales and foreign stock investment, Russian industrial production as well as the US New York Empire State manufacturing index and NAHB housing market index.