Thursday, June 25, 2020

Oil Cools Down On Record Increase in Stockpiles

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News shaping
the markets today

     

What’s happening: Oil prices tumbled around 6% on Wednesday after the US recorded another record surge in crude storage.

What happened: The resurgence of coronavirus cases in Germany and some heavily populated states of the US has unnerved investors in the past few days, fuelling raising fears of a slowdown in crude demand.

Although upbeat manufacturing reports from Europe provided some support to the markets, ECB chief economist Philip Lane’s warning, IMF projections and the EIA’s latest report sent crude on a downturn in yesterday’s session.

Why it matters: US crude oil inventories climbed for the third consecutive week, growing 1.4 million barrels in the latest week, after adding 1.22 million in the earlier period, the Energy Information Administration reported yesterday. The figure came in much higher than the expectations of 299,000 barrels.

Investors worried about future crude demand, as the IMF said the damage to economies from the coronavirus outbreak is worse than was earlier anticipated. The organization’s chief economists Gita Gopinath said, “Several countries have started to recover. However, in the absence of a medical solution, the strength of this recovery is highly uncertain, and the impact across sectors and countries highly uneven.”

The IMF projected the global economy to contract by 4.9% in 2020, versus its earlier forecast of a 3% contraction. It now expects US GDP to be down 8% for the year and Europe’s output to decline 10.2%.

ECB chief economist Philip Lane added to investor concerns by warning that the Eurozone could take a long time to recover, despite the upbeat manufacturing PMIs for June.

Meanwhile, the WHO reignited fears of a second wave of covid-19 infections after pointing towards rising cases in the US, China and Latin America.

WTI crude tumbled 5.9% to settle at $38.01 per barrel on the NYMEX on Wednesday. A day after surging to its highest levels since early March, Brent crude lost 5.5% to end the day at $40.29 a barrel.

What to watch: Investors will continue to focus on coronavirus numbers, with the global total cases surging past 9.4 million. The US has so far confirmed around 2,380,450 cases.

Markets await the EIA’s report on natural gas stocks in the US, scheduled for release today. Crude oil futures traded down 0.4% to $37.85 per barrel in the Asian session.

The Markets Today

     

German stocks will be in focus today, ahead of the release of the consumer sentiment indicator later today.

Context: The German DAX 30 index closed sharply lower on Wednesday following a surge in covid-19 cases in the countries emerging from a lockdown. Germany also recorded another outbreak of infections at a slaughterhouse.

Details: Late Tuesday, 23 workers tested positive at a meat-processing plant in Wildeshausen, Germany.

A massive outbreak has also been recorded at a plant in North Rhine-Westphalia, where around 1,550 workers tested positive for the covod-19. Lockdown measures have also been reinforced in some German municipalities following an outbreak.

Investors were also worried after reports of the US considering imposing new tariffs worth $3.1 billion on goods from Germany, France, Spain and the UK.

The IMF now expects a deeper recession in 2020, projecting the global economy to shrink 4.9%, versus its earlier projection of a 3% drop. The IMF also projected a 7.8% decline in Germany’s GDP this year.

Meanwhile, the German Ifo business climate indicator climbed 6.5 points to a four-month high of 86.2 for June, surpassing the consensus estimate of 85.0. The indicator had declined to an all-time low in April.

The German DAX 30 index fell 3.43% on Wednesday. Shares of Wirecard tumbled around 28% after the country’s financial watchdog filed an updated case against the company as cash worth €1.9 billion vanished from its balance sheet.

What to watch: Investors await the consumer sentiment indicator data from Germany. The GfK consumer sentiment indicator, which climbed to -18.9 in June, is expected to rise again, to a reading of -12 for July.

Markets will continue to access on the coronavirus numbers, with Germany reporting around 192,870 infections and 8928 deaths.

Other Markets: US indices trading closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 2.72%, 2.59% and 2.19%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain’s producer prices, UAE’s loan growth and inflation rate, France’s initial jobless claims and unemployed persons, the UK’s CBI distributive trades, ECB’s general council meeting, Canada’s average weekly earnings as well as the US GDP growth rate, durable goods orders, corporate profits, goods trade balance, wholesale inventories, initial jobless claims and Kansas City Fed's manufacturing production index.