On Wednesday (May 3), during the Asian session, U.S. crude oil fluctuated within a narrow range and is currently trading around $71.51/barrel. Oil prices tumbled about 5 percent overnight to a five-week low, weighed down by economic worries as the U.S. government and Congress debate how to avoid a debt default, while investors brace for further interest rate hikes this week amid fears of a banking crisis and recession. Concerns are also on the rise again.
Brent crude futures fell $3.99, or 5.0%, to settle at $75.32 a barrel on Tuesday, while U.S. crude futures fell $4.00, or 5.3%, to settle at $71.66 a barrel. Both indexes posted their lowest close since March 24 and their biggest one-day percentage losses since early January.
Oil prices and Wall Street’s main indexes fell after U.S. Treasury Secretary Janet Yellen said the federal government could run out of money within a month.
The White House said President Joe Biden will not discuss the debt ceiling when he meets with the top four congressional leaders on May 9, but will discuss starting a “separate budget process.”
U.S. job vacancies fell for a third straight month in March, while layoffs rose to their highest level in more than two years.
Analysts at Barclays said in a note that “the U.S. economy continues to develop in a direction consistent with expectations of a recession starting later this year. Manufacturing is shrinking, consumers are struggling … the more There are growing signs of cracks in the labor market.”
The Fed is expected to raise interest rates by 25 basis points on Wednesday. The European Central Bank is also expected to announce a rate hike at its regular policy meeting on Thursday.
It is worth mentioning that Tesla CEO Elon Musk reiterated his concerns about the consequences of the Fed raising interest rates again. Musk tweeted on Sunday local time that there was too much delay in the data used by the Fed, adding, āA mild recession is here.āMusk also raised the possibility of a severe recession. “Further rate hikes will trigger a deep recession. Mark my words. I probably have more real-time global economic data than anyone else.”
However, oil prices fell sharply overnight, and there is a possibility of an oversold rebound in the short term, and the decline in API crude oil inventories was larger than expected, which is also bullish for oil prices.
In this trading day, we need to pay attention to the EIA crude oil inventory series data, the ADP employment change in the United States in April, the ISM non-manufacturing PMI data in the United States in April, and the Federal Reserve interest rate decision.
Fundamentals are mainly bullish
[U.S. job vacancies fell and the number of layoffs hit a record high in more than two years, the labor market has softened]
U.S. job vacancies fell for a third straight month in March and layoffs rose to their highest level in more than two years, pointing to a softening in the labor market that could help the Fed’s fight against inflation.
The Labor Department’s monthly Job Openings and Labor Turnover Survey (JOLTS) report showed that there were 1.6 job vacancies for every unemployed person in March, the lowest since October 2021.
Job vacancies, a measure of labor demand, fell by 384,000 to 9.59 million, the lowest level since April 2021, while layoffs jumped 248,000 to 1.8 million, the highest level since December 2020 .
U.S. government may not be able to meet all payment obligations after June 1 without Treasury raising debt ceiling
The U.S. Treasury Department said on Monday it now only expects to meet all U.S. government payment obligations until June 1 without raising the federal debt ceiling, adding urgency to a bitter fiscal battle between Republicans and Democrats in Congress and the White House .
U.S. Treasury Secretary Janet Yellen said in a letter to Congress that the Treasury Department will be unlikely to meet all U.S. government payment obligations by early June. The debt ceiling could become binding on June 1, she said.
Treasury Secretary Yellen previously told Congress that after hitting the $31.4 trillion borrowing limit on Jan. 19, the Treasury would use cash receipts and extraordinary cash management measures to continue paying debt, federal benefits and other spending through at least June 5. day.
The above new date is a more specific estimate based on the tax situation for the April 2023 income tax filing season.
[ASEAN+3 financial leaders appealed to be alert to the spillover effects of the banking turmoil in the US and Europe]
Asian financial leaders reiterated the need to be vigilant about possible spillover effects on the region from recent U.S. and European banking turmoil. A joint statement by the finance ministers and central bank governors of ASEAN countries, Japan, South Korea and China after their meeting in Incheon, South Korea stated that “while the recent banking turmoil in the United States and Europe has limited direct spillovers to the region, the meeting reaffirmed the need to remain vigilant .ā
ćDragged by the sharp drop in regional bank stocks, U.S. stocks plunged by more than 1%ć
Major U.S. stock indexes fell more than 1 percent on Tuesday, with regional bank shares tumbling on renewed concerns about the financial system, while investors tried to gauge how much longer the Federal Reserve might need to keep raising interest rates.
The Fed is expected to announce a 25 basis point rate hike on Wednesday, with investors eagerly watching for any signals from the central bank on whether this is the last hike in the current cycle or whether further hikes are possible if inflation remains high.
The KBW Regional Bank Index tumbled 5.5 percent, its biggest one-day percentage drop since March 13. Earlier in the session, the index hit its lowest level since November 2020.
U.S. regional banks extended Monday’s losses. First Republic Bank was taken over and put up for auction on Monday, with most of its assets bought by JPMorgan Chase & Co, a deal brokered by the Federal Deposit Insurance Corporation (FDIC).
Two other U.S. regional banks failed in March. “There are concerns that this is not over and that interest rates will (continue to) rise and that could be a catalyst for more problems,” said Quincy Krosby, chief global strategist at LPL Financial.
She added that there was “more and more talk about issues around commercial real estate”, an area relevant to regional banks.
Higher borrowing costs tend to hit consumers and businesses.
As of the close, the Dow Jones Industrial Average fell 367.17 points, or 1.08%, to 33684.53 points. The S&P 500 fell 48.29 points, or 1.16%, to 4,119.58. The Nasdaq fell 132.09 points, or 1.08%, to 12,080.51.
Fundamentals are mainly bullish
[US API crude oil inventories fell by about 3.9 million barrels, a larger-than-expected decline]
U.S. crude and distillate stockpiles fell last week, while gasoline stockpiles rose, market sources said on Tuesday, citing data from the American Petroleum Institute (API).
For the week ended April 28, API crude inventories fell by about 3.9 million barrels, gasoline inventories rose by 351,000 barrels and distillate inventories fell by 975,000 barrels.
Analysts polled by Reuters had expected crude inventories to fall by 1.1 million barrels last week, gasoline inventories fell by 1.2 million barrels and distillate inventories fell by 1.1 million barrels.
[Survey shows OPEC oil production fell in April, affected by Iraq and Nigeria issues]
Oil output from the Organization of the Petroleum Exporting Countries (OPEC) fell in April as exports from Iraq were partially halted and shipments from Nigeria were delayed, a Reuters poll showed on Tuesday, reinforcing the push by big OPEC+ producers to stick to their pact to cut output. the impact caused.
OPEC produced 28.62 million bpd last month, down 190,000 bpd from March, the survey found. Production was down more than 1 million bpd from September.
On the whole, the recent trend of oil prices has fluctuated greatly. After a sharp rebound in oil prices supported by OPEC+’s unexpected production cuts, the market returned to tightening liquidity and worried about the risk of recession. Crude oil demand was under pressure and oil prices fell. OPEC+ production cuts support oil prices, the Fed raises interest rates, dumps reserves to curb inflation and oil prices, and recession concerns, including the sharp drop in US M2 data, continue to suppress oil prices. In such a trend, it is necessary to see continued unexpected production cuts by production-reducing countries or geopolitical disturbances. Support oil prices.
From a technical point of view, U.S. crude oil fell below the Bollinger line support, the MACD dead fork signal continued and broke the zero axis, the Bollinger line opened, the mid-line trend has been biased towards the bearish, and the short-term bias is to further test the support near the 70 integer mark, March 27 There is also some support around the daily low of 69.11. However, the short-term decline in oil prices has already been large, and short sellers also have a certain need to take profits, so we need to beware of the possibility of oil prices bottoming out and rebounding.
At 09:33 Beijing time, U.S. crude oil was trading at $71.56 a barrel.