Crude Oil Prices Climb Ahead of OPEC+ Meeting
The Delta variant was attributed to the recent surge in Covid-19 cases in the UK and Australia, threatening a new round of lockdowns and travel restrictions around the world. This may cast a shadow over the recovery of global energy demand, especially among countries that have relatively slow vaccination progress. A worsening pandemic situation may limit upside potential for crude oil prices.
Meanwhile, OPEC+ will meet to discuss easing production curbs further in August to meet rising fuel demand. A Bloomberg survey shows that the oil cartel may increase output by 550k bpd in August, which is only a fraction of an estimated global supply shortfall of 3 million bpd. Therefore, tight market conditions may warrant a slow and gradual output increase without causing significant price volatility.
The oil cartel and its allies have slashed production by more than 5 million bpd since the onset of the Covid-19 pandemic. During a April meeting, OPEC+ decided to lifted output cuts by 2.15 million bpd from May to July.
The American Petroleum Institute (API) reported an 8.15-million-barrel draw in crude inventories for the week ending June 25th, compared to a 4.68-million-barrel decline forecast. This also marked the 6th consecutive weekly decline in stockpiles, hinting at tightened market conditions as refiners geared up capacity to meet demand for the summer driving season.
WTI Crude Oil Price – Daily Chart
Dollar holds steadier in European morning trade
The dollar continues to hold its ground on the week as it inches a little higher across the board, though this is perhaps just some stretching for the ranges of the day.
It has been a relatively quiet start to proceedings, with EUR/USD resting in a 25 pips range and USD/JPY settling in a 15 pips range still even as European traders enter the fray.
GBP/USD is down a little to 1.3816 as sellers keep in near-term control with key support still seen closer to 1.3800 at this point in time.
It is looking a bit like a taste of the summer lull again but be wary of key risk events to follow with the month/quarter-end.
USD Chart H1
China’s Official Manufacturing, Non-Manufacturing PMI Dip in June
The official manufacturing PMI dipped to 50.9 in June from 51 in the previous month, but managed to beat economists’ forecast for a reading of 50.8 and remain above the 50-threshold indicating expansion in the sector.
While China has posted a stronger rebound in economic activity after effectively controlling the pandemic, the uneven pace of recovery around the world has impacted China’s supply chain. In addition, sporadic breakout of fresh COVID-19 infections across the export region of Guangdong also weighed on the manufacturing sector, driving a dip in the overall PMI reading.
In more worrying news, Chinese services sector activity reported a sharper slowdown in activity over June amid fresh restrictions imposed across the Southern region to combat a resurgence in cases. China’s official non-manufacturing PMI dropped to 53.5 for the month of June from 55.2 in May.
Despite the disappointing drop, analysts remain upbeat about the prospects of China’s economic recovery stabilizing. They remain hopeful as domestic consumption and services sector remain in expansion mode even as exports and manufacturing continue to post growth over successive months.
U.S Dollar / Chinese Yuan 1W
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