Morning Briefing: Crude oil climbs to 2-months high on OPEC cuts & higher demand

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Vrasidas Neofytou
Head of Investment Research

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Morning Briefing: Crude oil climbs to 2-months high on OPEC cuts & higher demand

Crude oil prices surged 3% on Friday morning, extending the recovery rally from their historic lows in late April, on improved fundamentals in the energy market. Global stock markets have also moved higher this morning, as economies reopen after the pandemic, while governments around the world implement more stimulus plans.

Coronavirus Update:

Global cases: More than 4.4 million
Global deaths: At least 302,025
Most cases reported: United States (over 1.4 million), Russia (252,245), United Kingdom (234,439), Spain (229,540), Italy (223,096).

Crude Oil:

WTI and Brent crude prices traded near $29 and $32.50 per barrel respectively on the Friday morning session, having jumped more than 10% since yesterday. Both contracts are heading for a third weekly gain, up by more than 100% from their April lows.

Fig.1: WTI crude oil contract, Daily chart

Crude prices got a boost yesterday, after the International Energy Agency (IAE) reported that it expects lower global stockpiles by about 5.5 million barrels per day in the second half of this year.

Those predictions fit well with the first draw-down in Cushing oil inventories after 4-months of build, because of lower Shale oil production and recovering fuel demand as more States have started easing lockdowns.

Market Reaction:

The US stock markets rose 1.5% on Thursday on gains from the energy and banking sector, after President Trump said that he could negotiate another possible stimulus bill to boost the economy.

Fig.2, Dow Jones index, 2-hour chart

The Dow Jones index finished the day at 23.625, up 1.6%, after falling more than 450 points to 22.800 earlier in the day on fears for a second pandemic wave. The S&P 500 and Nasdaq Composite settled at 1% higher.

Asian markets traded slightly higher on Friday morning in response to the better-than expected China’s industrial output for April, which was the first expansion data after the pandemic. China’s industrial output rose 3.9% year-on-year in April vs 1.5% estimated by analysts. Retail sales, however, fell more than expected at 7.5% in April vs 7% decline.

Precious Metals:

Gold price extended recent gains towards yearly highs, benefiting from zero interest rates, synchronised stimulus plans, record high unemployment rates, and ongoing US-China trade tensions.

Fig.3 Gold price, Weekly chart

Gold price climbed at $1.736/oz this morning, approaching the multi-year highs of $1.750/oz. Silver price also broke above the $16 level, currently trading near $16.30 while Palladium extended recent declines, dropping near $1.835/oz.

Forex Market:

US dollar was stronger across the board yesterday on growing fears of a second wave of infections combined with the renewed trade tensions and weakness in the growth-related currencies.

The DXY-dollar’s index holds recent gains above the 100 level, after the Federal Reserve Chairman Jerome Powell dismissed speculation over U.S. interest rates entering negative territory.

Economic Calendar for May 15, 2020 (GMT+ 3:00):

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