Futures Movers: Oil mixed as China adds to stimulus, traders eye Middle East tensions

Futures Movers: Oil mixed as China adds to stimulus, traders eye Middle East tensions

2 Jan    Finance News

Oil futures were off to a mixed start for 2020 on Thursday, with global benchmark prices finding some support after China’s central bank announced it would provide a further shot of stimulus to the economy. Traders were also keeping an eye on developments in the Middle East.

West Texas Intermediate crude for February delivery CLG20, -0.46%  on the New York Mercantile Exchange was down 29 cents, or 0.5%, at $60.77 a barrel, while global benchmark Brent crude for March delivery BRNH20, -0.29% rose 7 cents, or 0.1%, to $66.07 a barrel on ICE Futures Europe.

U.S. and most global financial markets were closed Wednesday for the New Year’s Day holiday.

Oil lost ground Tuesday but saw WTI, the U.S. benchmark, log a 34.5 % gain in 2019, while Brent, the global benchmark, rose 22.7%. It was the strongest year for both benchmarks since 2016.

Global equities got a boost Thursday after the decision by China’s central bank on Wednesday to announce it would reduce the portion of deposits its commercial banks are required to set aside as reserves. The 0.5-percentage-point cut in the reserve requirement ratio by the People’s Bank of China will inject more than 800 billion yuan ($114.9 billion) into the financial system.

Investors also paid attention to the latest gauge of activity in China’s manufacturing sector grew at a slower rate in December but expanded for a fifth straight month, according to the final Caixin purchasing managers index for the sector, released Wednesday, which fell slightly to 51.5 from a November reading of 51.8.

“The resilience in the Caixin manufacturing PMI is still difficult to square with trends in commodity prices,” said Caroline Bain, chief commodities economist at Capital Economics, in a note. “Admittedly, the prices of both copper and oil rose in the final weeks of 2019, on the back of optimism about a preliminary trade deal between China and the U.S. but, on past form, both prices remain significantly below the levels implied by the manufacturing PMI data.”

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Bain also looks for the PBOC to follow its cut in the reserve-ratio requirement with further monetary easing in an effort to put more downward pressure on interbank rates.

Oil traders largely ignored an attempt by supporters of Iran-backed militias to storm the U.S. Embassy on Tuesday. Protesters subsequently withdrew from the area. The U.S. took steps to boost security at the embassy, sending Marines from neighboring Kuwait and moving to deploy an infantry battalion of around 750 solders to the region.

“We do not see a threat to Iraq’s crude supply at the moment, other than a small wind down over the first few months of 2020 in line with its OPEC cut agreements,” wrote analysts at JBC Energy, a Vienna-based consulting firm. “Nevertheless, heightened tensions in the region involving Iranian backed forces may introduce a certain geopolitical risk moving forwards.”

Weekly government data on U.S. crude inventories is set for release Friday after being delayed from its usual Wednesday release due to the New Year’s Day holiday.

The American Petroleum Institute, an industry trade group, late Tuesday said crude inventories fell 7.8 million barrels last week, according to sources, while gasoline inventories fell by 776,000 barrels and distillate stocks rose by 2.8 million barrels.

Analysts at IHS Markit expect the EIA on Friday to report a decline of 2.3 million barrels for U.S. crude-oil inventories for the week ended Dec. 27, along with a rise of 1.3 million barrels for gasoline stockpiles. Distillate supplies, which include heating oil, are forecast to be unchanged.

On Nymex Thursday, February gasoline RBG20, +0.66%  rose 0.9% to $1.7053 a gallon, while February heating oil HOG20, -0.19%  lost 0.1% to $2.0203 a gallon.

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February natural-gas futures NGG20, -2.70%  declined by 2.9% to trade at $2.125 per million British thermal units ahead of Friday’s holiday-delayed EIA weekly update on U.S. supplies of the fuel. On average, analysts polled by S&P Global Platts expect the government data to report a weekly decline of 67 billion cubic feet in natural-gas stocks.

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