Market Watch. The oil rally continues

Financial and commodity markets analytics

Market Watch review. 12.11.2020

In today's release, we’ll cover the following topics:

  • Oil hits another high.
  • ECB decision and new stimulus for the economy.
  • Failed Brexit negotiations. 

The oil market continues to fly to new highs, despite the decline in consumption in the US and Europe. At the auction on Thursday, Brent quotations in London broke the $50 mark for the first time since March. Futures on WTI rose 3.36% to $47 per barrel.

Having added $10, or 25% in November, the "black gold" market continues to rally in December, despite the deplorable statistics on US stocks.

The day before, the US Department of Energy reported that the surplus in commercial storage increased by 15.1 million barrels for the week - a record amount since April, and total reserves of all categories of hydrocarbons jumped by almost 20 million barrels. After the release of this data, oil sank by 2%, but immediately regained losses.

The demand for physical oil comes from Asia. Indian Oil has announced a tender for immediate purchases of Middle Eastern consignments, while independent Chinese refineries are looking for raw materials for the next year, even in unconventional markets, including from fields in the North Sea.

The European Central Bank is preparing to increase injections into markets and the euro zone economy in order to put out the fire of the largest economic downturn since the Great Depression with hundreds of billions of euros of money.

At the last meeting, the Board of Governors of the ECB decided to increase the volume of asset purchases by 500 billion euros, as well as to extend all anti-crisis measures.
Leaving interest rates unchanged - 0% for loans and minus 0.1% for deposits - the ECB announced the expansion of the emergency QE program (Pandemic Emergency Purchase Program) and extended its operation until March 2022. The deadline for curtailing the program is pushed back to 2024: until then, the ECB will continue to hold the purchased assets on the balance sheet.

In addition to direct money issuance through asset purchases, the ECB will continue to offer banks free loans at a rate of 0% per annum.

As we can see, the "printing press" operating at full capacity has so far been powerless to stop the growth of the Euro, which for the first time in 2.5 years has consolidated above the $1.2 mark. Europe is losing the devaluation race, which could further worsen the economy, which the IMF predicts will collapse by more than 8% this year.

British Prime Minister Boris Johnson and the head of the European Commission Ursula von der Leyen were unable to find a way out of the impasse in the Brexit negotiations at an emergency face-to-face meeting. Decision whether "hard Brexit" will happen on New Year's Eve will be made in the coming days. 

The Prime Minister and the head of the European Commission decided to give the delegations at the talks the time until Sunday. After that, a final decision will be made whether an agreement is possible, or Britain will leave the European Union on December 31 without settled relations.

Closely monitor the news background and be prepared for all the surprises of the market.
 


Analyst

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