The price of oil jumped on Monday after a number of broker notes postulated the sinking oil market may be nearing a bottom. The suggestion is based on falling rig counts, following Friday’s report from Baker Hughes that showed a decline in North American drilling for a third straight week.
By Peter Martin
Monday, September 21, 2015
Goldman Sachs and Commerzbank were among the brokers that issued notes forecasting lower US oil production, arguing that investment in oil production is uneconomic at current prices. US crude oil futures rose more than 1$ a barrel to $46.12 in early trading. Binary options for November crude oil futures to finish in positive territory for the day were trading with a bid/offer on Nadex of 69.1/79.2 at the time of writing. Regardless of the situation in the US, the global picture remains one of high production and soft demand, as oil producers in the Middle East battle for market share.
Global growth concerns have also been plaguing the world’s stock markets, particularly in Asia, and we saw further slides in the Asian trading session overnight. The Japanese Nikkei slumped close to 2%, while the Hang Seng fell 0.75%. European shares for once did not follow Asia’s lead, though, and the leading European indices were in positive territory late in their trading sessions.
Helping sentiment for Europe was the weekend election result from Greece that saw the left-wing Syriza party win its second general election in under a year. Despite originally gaining power based on an anti-austerity mandate, the party eventually agreed a number of fiscal reforms in order to secure bailout funds and the weekend’s outcome consequently bodes well for the future of that bailout program.
The euro responded well to the news initally, trading above 1.1300 against the US dollar early on Monday morning, but lost ground as the session progressed, slipping to 1.1243, down 0.53%, by 09.30 in New York. Contributing to weakness in the euro was a surprise indication of softer prices at the wholesale level in Germany. The German producer price index fell 0.5% for August, the steepest fall since January — an unchanged result had been expected. The steep fall in August takes the annual change down to -1.7% from -1.3% in July and such a result will bring further pressure to bear on the ECB to provide further stimulus.
Stocks on Wall Street finished on a downbeat note last week, but opened on Monday with a rebound, jumping sharply in early trading. Shortly after the opening bell in New York, the Dow Jones was up 97 points or 0.59%, while the S&P 500 Index gained 0.56% to stand at 1969.0. A number of Fed officials are speaking this week and investors will be looking for further detail on last week’s decision to leave rates unchanged and for any clues to the timing of a first rate hike. President of the St Louis Fed James Bullard, a non-voting member of the FOMC this year, said in an interview this morning that ‘There's a powerful case to be made that it's time to raise interest rates.’ Atlanta Fed President Dennis Lockhart is speaking later on Monday, while Fed chief Janet Yellen is set to speak at the University of Massachusetts on Thursday afternoon.
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