In early Asian trading on Wednesday, December 28, U.S. oil traded at $79.64 a barrel. Oil prices stabilized after hitting a three-week high on Tuesday, after some U.S. energy plants shut down by winter storms resumed operations, largely offsetting the easing of the coronavirus pandemic. Limiting gains fueled by hopes of a boost to demand recovery.
Bearish factors affecting oil prices
[The US winter storm may improve this week to limit the increase in oil prices]
Winter storms have cut oil and gas production from North Dakota to Texas. The resumption of operations at some U.S. energy plants previously shut by winter storms largely offset gains driven by hopes that easing of COVID-19 restrictions would boost demand recovery.
According to a report by the National Broadcasting Corporation (NBC) on December 27 local time, the extreme winter storm has caused at least 63 deaths in the United States. The US National Weather Service stated that parts of New York were still experiencing heavy snow on the 27th, causing difficulties for rescue work and road clearance.
“The U.S. weather is expected to improve this week, which means the rebound may not last long,” said Kazuhiko Saito, chief analyst at Fujitsu Securities.
[U.S. Treasury yields rise, U.S. stocks close lower]
U.S. stocks ended lower on Tuesday, as higher U.S. Treasury yields hit interest-rate-sensitive giants ahead of a week of shortened trading due to a public holiday. Growth stocks were the biggest drag on the tech-heavy Nasdaq. The S&P 500 also followed the Nasdaq down. Value stocks helped the Dow Jones Industrial Average hold onto gains.
Ryan Detrick, chief market strategist at CarsonGroup, said, “Higher (Treasuries) yields put pressure on growth stocks. On the other hand, industrials, utilities and energy stocks outperformed, and money flowed out of growth stocks and into value stocks. It’s a microcosm of what we’ve seen throughout the year. It’s important to remember that other sectors picked up the baton as previously soaring sectors came back to life.”
Tesla fell sharply after internal arrangements seen by Reuters showed that Tesla plans to implement production cuts at its Shanghai factory in January and extend the production cuts that started this month into next year. It is down nearly 70% year to date.
Rising U.S. Treasury yields have weighed on rate-sensitive growth stocks, a recurring theme in 2022. Growth stocks have tumbled more than 30 percent this year, while value stocks have lost about 7.5 percent. With just three trading days left in 2022, all three major indexes are on track for their biggest annual losses since the 2008 global financial crisis.
“It’s been a bad year for stocks, but it’s been even worse for bonds, which is extremely rare and an unfortunate reminder that markets can sometimes surprise,” Detrick said.
Strict coronavirus restrictions were eased in Asia, raising hopes for a recovery in global demand and improved supply chains. On the economic front, the Department of Commerce’s preliminary statistics on U.S. trade in goods showed that the deficit narrowed by 15.6%, and S&P Case-Shiller showed that its 20-city composite house price growth fell to 8.6% year-on-year, the lowest since November 2020.
Six of the 11 major S&P 500 sectors closed in the red, with consumer discretionary and communication services posting the biggest percentage losses.
[U.S. house price growth fell to single digits in October year-on-year]
Annual price gains in the increasingly fragile U.S. housing market slipped into single digits in October for the first time in about two years, two closely watched surveys showed on Tuesday, as mortgage rates soared above 7% for the month, further stifling demand.
The S&P CoreLogic Case Shiller National Home Price Index rose 9.2% in October, down from 10.7% in September and the first single-digit increase since November 2020. Meanwhile, the U.S. Federal Housing Finance Agency (FHFA), which oversees mortgage-financing entities Fannie Mae and Freddie Mac, said year-over-year home price growth slowed to 9.8% in October from 11.1% in September, marking the index’s biggest decline since September 2020. It was the first non-double-digit growth in months.
On a monthly basis, the S&P CoreLogic Case Shiller index fell for the fourth straight month, while the FHFA home price index was unchanged. “As the Federal Reserve continues to raise interest rates, mortgage financing continues to be a headwind for home prices,” Craig Lazzara, managing director at S&P Dow Jones Indices, said in a statement.
Bullish factors affecting oil prices
[Putin signed a decree banning the export of crude oil to countries that impose price caps from February 1]
Russian President Vladimir Putin unveiled his response to the price caps imposed by the West on Tuesday, signing a decree banning the supply of oil and petroleum products to countries imposing the caps for five months from Feb. 1.
The Group of Seven (G7), the European Union and Australia agreed this month to impose a price cap of $60 a barrel on Russian seaborne crude oil, effective Dec. 5, over Russia’s “special military operation” in Ukraine.
The decree published by the Kremlin reads: “The decree will come into force from February 1, 2023 and will last until July 1, 2023.”
The export of crude oil to relevant countries will be banned from February 1, but the implementation date of the oil product ban will be determined by the Russian government, which may be after February 1. The decree included a clause allowing Putin to withdraw the ban in exceptional circumstances.
[Fierce fighting broke out in eastern Ukraine]
In eastern and southern Ukraine, Russian forces again shelled and bombed towns and cities on Tuesday. After some significant advances were made in Ukraine in the fall, the war entered a slow attrition phase as the harsh winter set in.
The fiercest fighting took place in the eastern city of Bakhmut, which Russia has been trying to take for months at great cost in lives, while further north in the cities of Svatove and Kreminna, Ukraine is trying to break through Russia’s defenses.
“Russia continues to carry out frequent small-scale attacks in these areas (Bahmut and Svatov), although the areas of control remain unchanged,” the Ministry of Defense said in its latest report.
Kyiv says it is winning the war and will never agree to give up the territory. Ukrainian President Volodymyr Zelensky said in a late Tuesday night speech that the military command meeting had “established steps to be taken in the near future.”
[Russia and NATO have nothing to talk about now]
Deputy Chairman of the Russian Federation Security Council Medvedev published an article in “Russia Gazette” on December 26, saying that Russia no longer has reason to negotiate with the West, and there is no trust between Russia and the West at all. He pointed out that NATO’s eastward expansion is actually preparing to launch a war against Russia.
Medvedev pointed out that the Russian-Ukrainian conflict broke out in the past year, and the words and deeds of Western leaders were shocking, which obliterated the mutual trust and respect between Russia and the West, and obliterated the possibility of dialogue.
He mentioned that in 2010, as Russian president, he participated in the Lisbon meeting of the Russia-NATO Council, NATO member states told Russia at that time that NATO and Russia did not pose a threat to each other and were willing to work together for common security. But Medvedev pointed out that at the same time, NATO is constantly expanding eastward and preparing for confrontation. This is actually preparing to launch a war against Russia.
[Ukraine will increase Russian oil transit transportation fees]
According to “Russia Today” (RT) news, the website of the Russian State Oil Pipeline Transportation Company (Transneft) released on the 26th local time the news that from January 1 next year, the “Friendship” oil pipeline will be transported to EU countries through Ukraine. Transit transportation costs for Russian oil will rise.
RT said that Ukraine is expected to increase the transit transportation fee for crude oil transported from Russia to Hungary and Slovakia by 2.1 euros/ton to 13.6 euros/ton, a total increase of 18.3%.
Overall, the winter storm in the United States may have improved and dragged down oil prices, but optimism has picked up, boosting demand; while Putin signed a decree banning crude oil exports to countries that impose price caps from February 1, and Russia said that it is now working with NATO There is nothing to talk about, the geopolitical situation still supports oil prices, and the decline in oil prices may be limited. Pay attention to API data within the day.
At 8:24 Beijing time, U.S. crude oil was trading at $79.64 a barrel.