The price of crude advanced significantly on Tuesday morning, spurred by the US and European Union increasing its sanctions list yesterday to include Igor Sechin, the CEO of Russian oil giant Rosneft.
By Peter Martin
Tuesday, April 29, 2014
Several major Western oil companies have ties with Rosneft and, though the sanctions do not preclude dealings with Rosneft, US persons are now barred from doing business with Mr Sechin directly. In itself, this probably has little bearing on the oil market beyond complicating procedures for oil companies (most notably UK company BP which owns a 19.75% stake in Rosneft and has an American citizen as its CEO), but it has served to stoke concerns that the clash between Russia and the West, which shows no signs of diminishing, will eventually lead to some form of sanction-led disruption in energy supplies out of Russia. That has helped push US crude oil futures for June up 1% today to $101.83 per barrel.
Also at play is the state of crude oil storage in the US. The Energy Information Administration, the reporting arm of the Energy Department, will release weekly inventory data on Wednesday. While a Reuters survey of analysts shows a consensus estimate of a 1.93 million-barrel rise in overall oil stocks, the focus may be on what is happening at Cushing, Oklahoma. While crude supplies have been rising in recent weeks, hitting 397.7 million in the week ended April 18 (the highest total since the introduction of weekly records in 1982), the stockpile at Cushing has dwindled to a four-year low, thanks to the Keystone XL pipeline which began pumping oil out of Cushing to refineries on the Gul Coast in January. The hub at Cushing is significant as it is the price settlement point for US crude oil futures.
In the forex market, USD/CAD fell 0.6% to C$1.09.62 by late morning in New York on Tuesday, a day ahead of the release of monthly Canadian gross domestic product data. A Reuters survey points to 0.2% growth in the Canadian economy, which would be a slowdown in the pace from the 0.5% jump seen in January. Though Bank of Canada Governor Stephen Poloz said in a press conference this month that he wouldn’t rule out a rate cut in order to boost the economy, recent indications of strength in the US manufacturing sector will have raised hopes for Canadian exports, an area that the Bank of Canada highlighted as critical for economic recovery in its monetary policy statement. The US is Canada’s most important trade partner by far, so a spring bounce in US manufacturing bodes well for both US and Canadian GDP. The Loonie will also have benefitted from today’s bounce in oil prices, with oil being an important export for Canada.
The British pound has gained 0.12% against the US dollar, despite UK GDP data for the first quarter coming in short of estimates. Q1 GDP increased 0.8%, a faster pace of economic growth than the 0.7% see in the final quarter of 2013, but lower than the 0.9% that had been expected. Nevertheless, this is a healthy rate of expansion for the UK economy and will have done little to dampen the growth outlook. GBP/USD advanced to 1.6828, close to the four-year high of 1.6853 attained in Monday’s trading.
The US stock market has risen moderately today, with the Dow Jones industrial Average gaining 0.45% or 75 points to 16,523, while the broader S&P 500 index climbed a similar percentage. Dow component Merck reported better-than-expected earnings and led the index higher with a 3% rise in its share price. The earnings season has proven to be satisfactory so far, without being sparkling, which has helped to support share prices outside of frothy momentum stocks.
The latest FOMC meeting began today, with the announcement from the Fed set for tomorrow afternoon, which clearly offers the potential for some volatility in the financial markets.
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