Oil prices post a loss as EIA reports first weekly U.S. crude-stock climb in 7 weeks


Oil prices posted a loss on Thursday after U.S. government data revealed a weekly climb in U.S. crude inventories, on the heels of six consecutive weeks of declines, raising expectations of an oversupplied market as uncertainty continues to surround the outlook for demand.

The Energy Information Administration reported Thursday that U.S. crude inventories rose by 2 million barrels for the week ended Sept. 4—the first weekly rise in seven weeks. Total U.S. crude inventories, excluding those in the Strategic Petroleum Reserve stood at 500.4 million barrels, about 14% above the five-year average for this time of year.

That compared with an average forecast by analysts polled by S&P Global Platts for a fall of 500,000 barrels. The American Petroleum Institute on Wednesday reported a climb of 3 million barrels, according to sources. The supply reports were each delayed by a day due to Monday’s U.S. Labor Day holiday.

U.S. refiners took an even bigger hit than expected from Hurricane Laura, which made landfall in late August on the U.S. Gulf Coast, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. The EIA reported a big drop of 1.1 million barrels per day in crude refinery runs for last week, leading to the first domestic crude-stock build in weeks, he said.

On Thursday, West Texas Intermediate crude for October delivery
CL.1,
-2.52%

CLV20,
-2.52%

 on the New York Mercantile Exchange fell 75 cents, or 2%, to settle at $37.30 a barrel. November Brent crude
BRN.1,
-0.39%

 
BRNX20,
-0.39%
,
the global benchmark, lost 73 cents, or 1.8%, to reach $40.06 a barrel after a 2.5% gain in the previous session.

Read:Volatility in oil and gold may offer more opportunity than risk

Oil futures finished higher Wednesday, with U.S. prices reclaiming less than half of the more than 7% drop suffered in the previous session though worries over the demand outlook, driven by the pandemic, continued to limit crude’s upside potential.

Thursday’s EIA data also showed crude stocks at the Cushing, Okla., storage hub edged up by about 1.9 million barrels for the week, while total domestic oil production climbed by 300,000 barrels to 10 million barrels per day.

Gasoline supply, meanwhile, fell by 3 million barrels, while distillate stockpiles declined by 1.7 million barrels. The S&P Global Platts survey had shown expectations for a supply decline of 2.5 million barrels for gasoline, but distillates were expected to rise by 300,000 barrels.

On Nymex, October gasoline
RBV20,
-2.40%

 shed 1.9% to $1.0977 a gallon, while October heating oil
HOV20,
-2.48%

 settled at $1.0824 a gallon, down 2.1%.

The market is in the “midst of refinery maintenance season, which inherently causes a drop in refinery runs and ultimately finished products supplied,” a proxy for demand, said Tyler Richey, a co-editor at Sevens Report Research.

“If we don’t see those demand metrics recover to where they were prior to Hurricane Laura’s landfall, then it will be very difficult for oil to revisit the recent highs in the low-mid $40s, especially given the global supply side uncertainties regarding OPEC+’s next policy moves,” he told MarketWatch.

On Sept. 17, the Organization of the Petroleum Exporting Countries and its allies, which form a group known as OPEC+, will hold a market-monitoring meeting. The group in August trimmed supply cuts from earlier this year on hope of improved demand amid the pandemic.

OPEC+ oil production climbed by 1.71 million barrels a day to 34.63 million barrels a day in August from a month earlier, according to an S&P Global Platts survey released Wednesday.

Also Wednesday, in a monthly report, the EIA lowered its 2021 growth forecast for global consumption of petroleum and liquid fuels by 500,000 barrels per day from its August forecast, to about 99.6 million barrels a day, even as it raised its 2020 forecasts for WTI and Brent crude-oil prices, natural-gas prices, and U.S. crude production.

Read:How a big decline in China’s oil imports may ‘test the resiliency of the market’

Rounding out action on Nymex, prices for the October natural gas contract
NGV20,
-3.78%

 settled at $2.323 per million British thermal units, down 8 cents, or nearly 3.5%.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet for the week ended Sept. 4. That was a bit higher than the increase of 64 billion cubic feet forecast by analysts polled by S&P Global Platts.



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Gold prices gain as euro strength pressures the dollar


Gold futures climbed on Thursday, poised to score a third straight session gain, as strength in the euro in the wake of the European Central Bank’s decision to leave its policy unchanged pressured the U.S. dollar.

The European Central Bank left its policy unchanged at minus 0.5% and its refinancing rate at 0%, while reaffirming it plans to leave rates at present or lower levels until inflation rises to converge with its target at 2%.

In a news conference, ECB President Christine Lagarde said the Governing Council “extensively” discussed the recent strength of the shared currency, but reiterated that the bank doesn’t target the exchange rate. A Bloomberg report, meanwhile, said that members of the council had agreed to not overreact to euro strength.

“The ECB has confirmed that there is no further need for additional help,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update. “For traders, the ECB’s confidence in the Eurozone’s economy is a good thing and this is the reason that we have seen the EUR/USD moving higher.”

In Thursday trading, the euro
EURUSD,
+0.80%

 traded at up 0.8% at $1.19, but that helped pull the ICE U.S. Dollar Index
DXY,
-0.45%

 down by 0.5% to 92.802. A weaker dollar can provide support for assets priced in greenback, making them less expensive to overseas buyers.

December gold
GCZ20,
+0.87%

GC00,
+0.87%

was up $18.60, or 1%, at $1,973.50 an ounce, following gains in each of the last two sessions.

December silver
SIZ20,
+1.98%

SI00,
+1.98%

traded 54 cents, or 2%, higher at $27.62 an ounce after climbing 0.3% in the previous session.

In U.S. economic news Thursday, the number of American who applied for unemployment benefits through state and federal programs in the week ended Sept. 5 was unchanged at a seasonally adjusted 884,000, the Labor Department said. Still, continuing jobless claims, the number of people already receiving benefits rose by 93,000 to a seasonally adjusted 13.39 million in the seven days ended Aug. 29.

“The mixed bag of economic data confirms that there is gradual recovery for the U.S. economy,” said Aslam. “However, things are not improving and this is the reason that we are seeing improvement in the gold price. It is likely that the bottom is in for the gold price and it is likely to continue to move higher.”

Other metals traded on Comex also moved higher Thursday. December copper
HGZ20,
+0.04%

traded at $3.0545 a pound, up 0.1%. October platinum
PLV20,
+1.89%

 added 2% to $943.50 an ounce and December palladium
PAZ20,
+1.19%

 climbed 1% to $2,342 an ounce.



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Here’s why the stock market tumbled last week and what’s ahead for Wall Street


A bout of volatility returned to financial markets with a vengeance last week, disrupting a nearly uninterrupted climb to records for U.S. stock indexes and raising questions about the path for Wall Street headed into a hornet’s nest of challenges for investors.

Perhaps, the overarching question is, “What the heck just happened to equity markets in the 48 hours after the S&P 500 index
SPX,
-0.81%

and Nasdaq Composite Index
COMP,
-1.26%

on Wednesday notched their 22nd and 43rd closing records of 2020 respectively, and the Dow
DJIA,
-0.56%

scored its first finish above 29,000 since February, bringing it within 2% of its Feb. 12 all-time closing high?”

The bull perspective

From the bull’s perspective, not a lot has changed.

Bullish investors see the promise of lower interest rates for years to come and further injections of money by the Federal Reserve into various parts of the financial system, along with perhaps another fiscal stimulus from the government, as buttressing the market and offering a floor against future dramatic losses.

Optimists see the slump that the equity market experienced this week as a bump in the road to greater gains.

“Since the current bull market kicked off in March, there have only been two pullbacks of more than 5%. Recent bull markets have tended to have three or four setbacks over the first nine months,” wrote SunTrust Advisory chief market strategist Keith Lerner in a research note on Thursday — see chart:

Lerner also notes that the five-month winning streak for the S&P 500 since August, which has only occurred 27 times since 1950, is a good sign because it tends to imply that further returns are ahead.

So, investors may view this retreat as a natural corrective phase that removes some of the euphoric froth from equity valuations that had far exceeded the metrics that pragmatic investors use to assess an asset’s value compared against its peers.

MarketWatch’s William Watts wrote last Thursday, citing Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, that technology stocks — particularly, a cohort that includes Facebook
FB,
-2.88%
,
Amazon.com
AMZN,
-2.17%
,
Netflix
NFLX,
-1.84%
,
Microsoft
MSFT,
-1.40%
,
Apple
AAPL,
+0.06%

and Google parent Alphabet
GOOGL,
-2.96%

GOOG,
-3.09%

(or FANMAG) — had seen their valuations rise by dint of multiple expansion, or rapidly rising prices, while other segments of the market had seen earnings estimates fall out of whack with their prices, distorting the “P” portion of the commonly used priced-to-earnings metric, or P/E, used to gauge a stock’s worth.

“But these two groups of stocks have gotten more expensive for completely different reasons,” he noted. “FANMAG’s P/E has risen because their ‘P’ (prices) has gone up faster than their ‘E’ (earnings), while the P/E for the rest of the S&P 500 has expanded because ‘E’ has gone down much more than ‘P’,” wrote Suzuki.

Indeed during the period between the market’s March lows and early last week, investors have maintained a voracious appetite for technology-related stocks, and a group known as “stay-at-home companies”, including Zoom Video Communications Inc.
ZM,
-2.99%
,
due to the belief that not only are they receiving a boost from the COVID-19 pandemic but also that they are best positioned to benefit when the economy eventually emerges from the recession.

A bounce off Friday’s lows, aided by moves into financials also was viewed as constructive for the broader market, heading into the three-day Labor Day weekend.

“The move higher was mostly led by financials, which came as a result of slightly higher rates rate on the long end of the curve, notably the 10 basis point move in the 10-year Treasury,” wrote Peter Essele, head of portfolio management for Commonwealth Financial Network, via email.

Yields in the 10-year Treasury
TMUBMUSD10Y,
0.721%

benchmark bond rose to 0.72%, marking the biggest single-day rise on Friday since May 18.

It’s unusual for yields to climb as stocks are falling as they did on Friday because investors usually turn to the perceived safety of government debt, driving prices higher and yields lower, in times of uncertainty. That didn’t occur on Friday and may be interpreted by some as signaling that at least fixed-income investors see the move in stocks as indicative of a temporary pullback rather than a more significant and lasting decline.

UBS Global Wealth Management’s chief Investment Officer Mark Haefele said that he viewed this week’s market drop as investors consolidating gains. “We view the latest selloff as a bout of profit-taking after a strong run,” he wrote.

“The S&P 500 enjoyed its strongest August in 34 years, gaining 7%, and added a further 2.3% in the first two days of September, to reach a fresh record high,” he wrote. “Stocks are still well-supported by a combination of Fed liquidity, attractive equity risk premiums, and a continuing recovery as economies reopen from the lockdowns.”

The bear’s perspective

From a bearish vantage point, the outlook for stocks looks more uncertain for investors. This uncertainty may have well laid the groundwork for substantial episodes of turbulence if not gut-wrenching drops in stocks, some experts say.

“The mini-tech selloff on Thursday has left a lot of scarring; it is not overly surprising that in New York equities trading, things were relatively muted into a long weekend,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in a Friday research note.

September is a notoriously weak month for investors, and even if that weakness is somewhat moderated in an election year, October also has the hallmarks of a rough patch for Wall Street, with the Nov. 3 presidential election looming.

Chris Senyek, chief investment strategist at Wolfe Research, said the possibility of a resurgence of COVID-19 headed into the fall and winter also is cause to lighten up on stocks.

“Our sense is that a similar resurgence in infection rates is likely to occur in the United States this fall as children and college students returns to school and flu season begins,” analysts at Wolfe Research wrote on Friday.

Michael Kramer, founder of Mott Capital Markets, in a blog on Friday described the recent swings in the market as “insane” and said that it is difficult to gauge what’s ahead for the market, but he notes that an explosion in volumes related to the selloff could signal a change in the uptrend for stocks.

He noted that for the first time since April 3, the S&P 500 closed below its uptrend. “This is typically not something we want to see; it would indicate that momentum is likely shifting,” he wrote (see attached chart).

Of Friday’s paring of losses into the close, Kramer said: “The rally into the close was impressive, but it could have just as easily been on the heels of short-covering as it was on real buying.”

Part of the downturn occurred as two popular companies saw their shares drop after stock splits: Apple
AAPL,
+0.06%

and Tesla
TSLA,
+2.78%
.

Tesla has been among the highest of highfliers in recent months and viewed by some as a gauge of sentiment in the overall market. Its recent retreat is something bearish investors have pointed to as a signal of weakness in the market.

On top of that, Tesla wasn’t announced as a new entrant into the S&P 500 index late Friday, which may cast a pall over the stock that has lost about 20% from its peak.

The road ahead

Looking ahead, investors turn next to the Federal Reserve’s Sept. 15-16 policy meeting, which could be important in clarifying the length of the time interest rates could be held lower but also what, if any, new quantitative easing the central bank will implement.

Fed Chairman Jerome Powell in an interview with National Public Radio conducted Friday afternoon said that the 1.4 million jobs added to the labor market in August and an unemployment rate falling to 8.4% from 10.2% as a good sign of progress in the economy.

But he did emphasize that progress is going to be slow: “We do think it will get harder from here,” Powell said.

Doubts that the government will soon provide a fresh round of fiscal stimulus for out-of-work Americans has put some pressure on the Fed to do more to dull the impact on the economy from disruptions caused by the pandemic.

The Fed’s role may be the most important feature of whether the stock market is able to continue to make progress higher. As it stands now, there are few alternatives to stocks, with long-dated government bonds yielding around 1% or less.



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Oil prices on track to settle at lowest since July on prospects for weak demand


Oil futures declined on Thursday, with prices for the U.S. and global crude benchmarks on track to mark their lowest settlements since July as concerns remained over the outlook for demand.

The Energy Information Administration on Wednesday reported a hefty, 9.4 million-barrel weekly drop in U.S. crude supplies, along with a fall of 4.3 million barrels in gasoline inventories, but the data also “showed a hit to demand, and the reduction in inventories is being attributed to a Hurricane Laura once-off drop,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

Over the past four weeks, the amount of gasoline product supplied, a proxy for demand, was down 8.9% for the same period last year. For distillate fuels, which include heating oil, it was down 5.1%, and for jet fuel product, it was down 47.1%, the EIA reported.

Meanwhile, oil production in the Gulf of Mexico region has seen a significant recovery since the hurricane made landfall on Aug. 27. The Bureau of Safety and Environmental Enforcement on Wednesday estimated that 19.9% of the current oil production in the Gulf of Mexico was shut in, rebounding from about 84% around the time Laura reached the Gulf Coast.

West Texas Intermediate crude for October delivery
US:CL
US:CLV20
on the New York Mercantile Exchange dropped 94 cents, or 2.3%, to trade at $40.57 a barrel. November Brent
UK:BRNX20
UK:BRN
, the global benchmark, declined $1.07, or 2.4%, to $43.36 a barrel on ICE Futures Europe. Settlements around the current levels for both benchmarks would mark the lowest for front-month contracts since late July.

Traders looked to the latest U.S. economic data for hints on the outlook for energy demand. On Thursday that data were mixed, with a decline in weekly jobless claims and a jump in the trade deficit in July. A closely followed index of non-manufacturing companies — retailers, banks, airlines, health-care providers and the like — fell in August.

A rebound by the U.S. dollar has also limited the upside for commodities. Oil had previously found support as the ICE U.S. Dollar Index
US:DXY,
a measure of the U.S. currency against a basket of six major rivals, fell to a more-than-two-year low earlier in the week, but it now trades around 0.5% lower for the week so far.

“The macro picture has started to send more mixed signals to the oil market, with strength in equity markets more and more concentrated on a few indices/industries, key government bond interest rates trending lower and the U.S. Dollar index in rebound mode after the EUR/USD exchange rate hit the $1.20 level two days ago,” wrote analysts at JBC Energy, in a note.

A stronger dollar can pressure commodity prices, making them more expensive to users of other currencies.

Weakness in oil prices was also attributed to a report by Bloomberg that Iraq may seek a two-month extension to its deadline for implementing additional production cuts as part of the OPEC+ agreement. Iraq and other countries that had overproduced their quotas earlier this summer, are required to make deeper cuts to compensate.

However, Iraq later denied reports that it wanted a waver on cuts,” and instead said its committed to the cuts, said Flynn.

On Nymex, October gasoline
US:RBV20
fell 1.6% to $1.1834 a gallon, while October heating oil
US:HOV20
declined 3.7% to $1.1449 a gallon.

October natural gas
US:NGV20
rose 2.3% to $2.545 per million British thermal units.

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 35 billion cubic feet for the week ended Aug. 28. That was generally in line with the increase of 34 billion cubic feet forecast by analysts polled by S&P Global Platts.



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S&P 500 and Nasdaq open at intraday records though ADP private-sector jobs report disappoints


U.S. equity benchmark indexes were trading at or near record territory early Wednesday, as investors drew hope from progress in the development of tests and vaccines for COVID-19 along with the potential for another fiscal stimulus package in Washington.

Investors were also digesting a private-sector jobs report that came in weaker than expected, well below the nearly 1 million that had been estimated for the month. An account of business conditions in parts of the U.S. from the Federal Reserve is due later in the afternoon.

How are the benchmarks performing?

The Dow Jones Industrial Average
US:DJIA
gain 120 points, or 0.4%, at 28,753, the S&P 500 index
US:SPX
climbed 14 points, or 0.4%, at 3,541, after hitting an intraday record at 3,546,41, while the Nasdaq Composite Index
US:COMP
advanced 81 points to reach 12,000, a gain of 0.6%, following its own intraday all-time high at 12,050.46.

On Tuesday, the Dow rose 215.61 points to end at 28,645.66, or 0.8% higher, the S&P 500 index  added 26.34 points to close at a record 3,526.65, a gain of 0.8%, after setting an intraday record of 3,528.03; while the Nasdaq Composite Index advanced 165.21 points to a record 11,939.67 finish, a rise of 1.1%, after touching a new intraday all-time high of 11,945.72.

What’s driving the market?

Stock markets looked upbeat early Wednesday, with a number of possible catalysts helping the investing mood amid the coronavirus pandemic. Bloomberg reported that U.S. Treasury Secretary Steven Mnuchin has again restarted talks with House Speaker Nancy Pelosi, sparking fresh hope of another fiscal stimulus plan to help out-of-work Americans.

On the health front, the leading health expert Dr. Anthony Fauci said that a COVID-19 pandemic could come sooner than expected if the roster of companies attempting to achieve a cure are able to produce outstanding preliminary results.

Speaking to Kaiser Health News, Fauci said that the board that is overseeing vaccine approvals could decided that “the data is so good right now that you can say it’s safe and effective.”

The global tally for confirmed cases of the coronavirus that causes COVID-19 climbed to 25.8 million on Wednesday, according to data aggregated by Johns Hopkins University, while the death toll rose to 857,552

Early moves in the session come a day after buying in large-capitalization technology stocks and shares tied to pandemic stay-at-home trends led the S&P 500 index to record its 21st record close of 2020 and the Nasdaq Composite its 41st on Tuesday.

Meanwhile, investors assessed a report from Automatic Data Processing Inc
US:ADP
that said 428,000 private-sector jobs were created in August, missing expectations for a gain of 900,000 jobs, according to a consensus of estimates surveyed by Econoday.

ADP did, however, raise last month’s jobs figure to 212,000 for July from a rise of 167,000, which was then below forecast of 1.9 million jobs.

The economy has recouped fewer than half of the 20 million-plus jobs lost in the early stages of the coronavirus pandemic.

In other news, the Centers for Disease Control and Prevention late Tuesday implemented a temporary eviction moratorium through the end of the year, protecting millions of U.S. renters from losing their homes during the COVID-19 pandemic, the Trump administration announced.

Other economic data, will be watched, including the Federal Reserve’s Beige Book, an anecdotal account of business conditions in the central bank’s districts set to be released at 2 p.m. ET, and before that a report on factory orders for July is due.

Which stocks are in focus?
  • Shares of Macy’s Inc.
    US:M
    shot up Wednesday, after the department store chain reported a fiscal second-quarter loss that was much narrower than expected as net sales topped forecasts.

  • Vera Bradley Inc. shares
    US:VRA
    soared Wednesday, after the handbag and accessories retailer posted a surprise profit for the second quarter.

  • Shares of DraftKings
    US:DKNG
    rallied Wednesday after the company added basketball legend Michael Jordan as an adviser to the company.

  • Shares of Peloton Interactive Inc.
    US:PTON
    ran up 7.9% toward record territory Wednesday, extending the 25.9% rally over the past six sessions, after J.P. Morgan analyst Doug Anmuth boosted his price target to the highest among Wall Street analysts, citing optimism ahead of next week’s earnings report.

  • Shares of Jack Daniel’s parent Brown-Forman Corp.
    US:BF
    fell Wednesday, although the alcohol brands company reported fiscal first-quarter results that beat expectations, although gross margin contracted as price/mix decreased.

  • Shares of ServiceMaster Global Holdings Inc.
    US:SERV
    were up Wednesday, after the termite and pest control company said it’s selling its ServiceMaster Brands franchise business for $1.55 billion to Roark Capital.

  • Clothing retailer Guess Inc. shares
    US:GES
    soared Wednesday, after the company blew past estimates for its fiscal second quarter.

How are other assets trading?

The Stoxx Europe 600
XX:SXXP
traded 1.8% higher, while U.K.’s FTSE 100 benchmark
FR:UKX
headed 1.5% higher on Wednesday.

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
added 0.6 basis point at 0.68%. Bond prices move inversely to yields.

Gold
US:GCZ20
shed $9.40, or 0.5%, at $1,969.90 an ounce, pulling back from its highest settlement in about two weeks on Tuesday. West Texas Intermediate crude for October delivery
US:CL
traded 20 cents higher, or 0.5%, at $42.95 a barrel on the New York Mercantile Exchange.

The ICE U.S. Dollar Index
US:DXY,
which tracks the currency versus a basket of six major rivals, rose 0.3% at 92.637 after trading down earlier in the session.

In Asia, China’s CSI 300
XX:000300
closed less than 0.1% higher and Hong Kong’s Hang Seng
HK:HSI
finished 0.3% lower. Japan’s Nikkei 225
JP:NIK
rose 0.5%, while the South Korea’s Kospi
KR:180721
gained 0.6%.



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