Oil jumps 21%, extending Wednesday’s rally as traders bet on US production cuts

Oil jumped more than 20% on Thursday, accelerating Wednesday’s rally, as the Street eyed continued production cuts, as well as rising tensions in the Middle East.

West Texas Intermediate, the U.S. benchmark, rose 21.4%, or $2.95, to trade at $16.73 per barrel. Brent crude, the international benchmark, traded 9.4% higher at $22.29 per barrel.

Thursday’s move higher comes after WTI jumped 19.1% on Wednesday for one of its best days on record.

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President Donald Trump said Wednesday in a tweet that the U.S. would “destroy” any Iranian gunboats that harass American ships, which Bjornar Tonhaugen, head of oil markets at Rystad Energy, said contributed to oil’s jump. The Middle East is key to the oil trade, so any possible tumult can impact the worldwide flow of crude.

There was also optimism in the market that with oil prices at historic lows, producers will continue to scale back on production and shut-in wells. Oklahoma regulators said they would help producers shut wells without taking away leases, which Tonhaugen said was “a relief for producers that want to cut some output but were hesitating due to regulatory consequences.”

But oil’s strength over the last two days has done little to dent crude’s enormous 75% loss this year as the coronavirus pandemic sapped around one third of global demand. At the beginning of the year WTI traded above $60. On Monday for the first time in history, WTI plunged below zero into negative territory. The contract in question was about to expire and therefore was thinly traded, but the move was nonetheless notable.

Analysts are warning that storage around the world is quickly reaching capacity, which has also pressured prices in recent weeks.

“The ultimate complication is that storing oil costs money, and storage facilities aren’t unlimited,” Howard Marks, who co-founded Oaktree Capital Management, told CNBC in an email. “Right now storage is scarce and thus expensive, so it’s not worth it to buy oil today and store it. The cost of storing exceeds the value today; thus the price is negative.”

As the June WTI contract nears expiration on May 19, some are warning that it could plunge in the same way that the May contract did.

“June could see storage tanks struggling to come off highs, in which case the days leading to expiry next month could see yet another squeeze,” Francesco Martoccia, senior associate in commodity research at Citi, wrote in a note to clients.

Data from the U.S. Energy Information Administration on Wednesday showed that storage in Cushing, Oklahoma — the hub for WTI delivery — rose by about 10% in a week to 59.7 million barrels, about 25 million barrels shy of its capacity.

Traders say that this will lead to natural shut-ins since there will soon be nowhere for oil to go.

“There is an inflection point coming for Cushing stocks (and global stocks), but their exact timing is tricky. US oil production is falling quickly even now,” Martoccia added.

But supply is only one side of the equation, and Tonhaugen warned that until demand recovers any gains could be short-term.

“The only concrete development that could give prices a boost that can last is either a rebound in demand, when lockdowns are scrapped and industrial activity ramps up, or a generous and unprecedented production cut, in addition to what OPEC+ decided,” he said.

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08.07.2020 15:14
Forex — Dollar Edges Higher as Virus Cases Grow

The dollar edged higher in early European trade Wednesday, with the safe haven currency in demand as a resurgence of the coronavirus in the United States cast doubt over the strength of the economic rebound.

At 3:050 AM ET (0705 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.873.

EUR/USD was up 0.2% at 1.1280, while USD/JPY was flat at 107.52.

There are almost 11.8 million COVID-19 cases globally as of July 8, according to Johns Hopkins University data, of which the U.S. has the highest known numbers of cases and deaths in the world.

A number of Federal Reserve officials expressed concern Tuesday that the surge in infections could adversely impact the economy just as some stimulus programmes are set to expire.

Atlanta Federal Reserve Bank President Raphael Bostic warned that the spike in the number of cases has made business owners “nervous again” and that ‘there is a real sense this might go on longer than we have planned for.”

Still, the rise in cases is not simply a matter for America. The AUD/USD pair lost 0.2% to 0.6935, with the Australian dollar weakening after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.

Elsewhere, GBP/USD gained 0.2% to 1.2559 after Prime Minister Boris Johnson said that the U.K. remains committed to working hard to find an agreement over trade with the EU. Chancellor of the Exchequer Rishi Sunak is due to announce details of the country’s latest fiscal stimulus package later Wednesday.

Sterling has gained around 0.6% this week against the dollar and 0.4% against the euro, but still remains one of the weakest G7 currencies as doubts still remain as to whether a trade deal will be signed by the end of the year.

Additionally, skepticism exists that a proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg would come to fruition, as such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.

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08.07.2020 13:12
Risk aversion sends gold higher, oil downwards

Oil retreats slightly on risk aversion
With one eye on the equity markets overnight, oil markets mirrored the response of currency markets, giving up some of their recent gains and slipping into range trading mode. Brent crude fell slightly by 0.70% to 42.90 a barrel. WTI eased by 0.70% to USD 40.50 a barrel.
Both contracts are unchanged this morning in Asia, with critical resistance on Brent crude at USD 44.00 a barrel, and on WTI at USD 42.00 a barrel. Only a fall below USD 40.00 a barrel for Brent crude, or USD 37.00 a barrel for WTI, would suggest that the rally in oil prices has run its course.
Oil prices continue to remain balanced between Covid-19 induced growth concerns, and recovery expectations in Asia and Europe. Oil’s downside is likely to be limited unless the US situation deteriorates dramatically. OPEC+ discipline is high, and the grouping will no doubt find the willingness to extend the headline cuts if the situation calls for it.

Excitement builds for gold longs as USD 1800.00 approaches
Anticipation is building in the gold fraternity, with Covid-19 concerns giving a haven boost to prices overnight. Gold rose 0.60% to USD 1795.00 an ounce, having tested USD 1797.00 an ounce earlier in the session. Gold’s grind higher is remorseless and pleasingly, appears to have detached itself from negative equity price action for now.
The USD 1800.00 an ounce region will be a tough nut to crack though. It capped gold’s advance multiple times from 2011 to 2012. I do not doubt that there will be substantial option related offers ahead of it to defend USD 1800.00 strikes. Nevertheless, gold is girding itself for the long-awaited assault on this critical resistance level. Gold had support at USD 1775.00 an ounce. Only a daily close below here would delay proceedings. Should USD 1800.00 an ounce give way, gold is likely to move quickly to the USD 1820-1830 zone, driven by stop loss and algorithmic buying.
Gold is unchanged in Asia today in yet another moribund session. It will probably be left to the New York market to get the job done.

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07.07.2020 12:23
Oil prices fall on demand concerns from U.S. coronavirus case surge

Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.

U.S. West Texas Intermediate (WTI) crude (CLc1) futures fell 17 cents, or 0.4%, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.

Brent crude (LCOc1) futures declined by 19 cents, or 0.4%, to $42.91, after hitting an intraday high of $43.19.

With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.

Florida is re-introducing some limits on economic reopenings to grapple with rising cases. California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.

«The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,» said CMC Markets’s Chief Market Strategist Michael McCarthy in Sydney in an email.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.

However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.

«Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,» ANZ said in a note.

Data from the American Petroleum Institute industry group later on Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.

The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.

Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail.

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