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Oil futures settle higher as market bounces off of Cyprus concerns

Oil futures settled higher Wednesday, partially rebounding from Tuesday’s sharp selloff on uncertainty in Cyprus, after weekly inventory data from the US Energy Information Administration proved to be unexpectedly bullish.

NYMEX April crude closed 80 cents higher at $92.96/b after jumping immediately ahead of the 2:30 EDT (1830 GMT) contract expiration. The May contract closed up 98 cents at $93.50/b.

ICE May Brent settled $1.27 higher at $108.72/b.

Both contracts climbed ahead of the US market settle, building on overnight gains as market sentiment turned optimistic despite the lack of a resolution to the situation in the eurozone after Cyprus’ parliament overwhelmingly rejected a controversial bailout deal from the EU late Tuesday.

“The problem has been that we’ve had three, maybe four events in the eurozone where it looks like the wheels are going to come off, and then something comes along and it gets a bit better,” said Bill O’Grady, chief market strategist at Confluence Investment Management.

Cyprus’ Parliament vote to reject the terms of the EU bailout opened up the possibility of other plans, including a possible Gazprom-led rescue package in return for a role in developing the island nation’s recently discovered gas resources.

“Regardless, time has been put back on the clock,” John Kilduff of the Kilduff Report said in a note.

The US dollar index fell back Wednesday, trading 0.40% lower at 82.658 at 2:30 EDT after the euro recovered slightly against the dollar during overnight trade.

Equities markets were largely in positive territory in both Asia and Europe overnight. The Dow Jones industrial average was up 0.59% at 14,540.8 at the US market settle, while the Standard & Poor’s 500 was 0.78% higher at 1,560.54.

Analysts said that the US Energy Information Administration’s weekly fuel inventory report also helped to boost sentiment across the oil complex after commercial crude stocks posted a largely unexpected 1.3 million-barrel decline over the week ended March 15.

“There’s a little more optimism [today],” Schneider Electric commodities analyst Jacob Correll said. “The inventory report was pretty bullish and that’s helped to put a bit more ‘umph’ into crude.”

NYMEX April RBOB settled sharply higher Wednesday, closing the day up 7.12 cents at $3.1163/gal after dropping as low as $3.0203/gal during the morning session.

Wednesday’s EIA report showed a 1.48 million-barrel decline in US gasoline inventories, bringing total stocks to 222.83 million barrels, their lowest level since the week ended December 14. The EIA’s data showed a particularly sharp decline in imports into the US Atlantic Coast — home of the New York Harbor-delivered RBOB contract — which more than halved during the week.

However, analysts said the continued volatility on the contract was due predominately to the ongoing uncertainty over the high price of ethanol credits and their likely effects on both retail prices and future demand heading into the peak-driving season.

“No one knows how to trade [RBOB],” O’Grady said. “Ethanol credits have everyone off their game.”

NYMEX April heating oil also settled higher Wednesday, closing up 2.80 cents from Tuesday’s settle at $2.8921/gal.

The US Federal Reserve elected to keep interest rates at 0.25% Wednesday, in line with expectations.

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