UK Brent Crude Oil
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Oil prices dropped by nearly 4.5%, with Brent crude contracts (BRN) sliding to $86.10 on April 18 noon. A 2.7 million barrels jump in US commercial inventories was far above a 1.4 million consensus. Meanwhile, the country's congress speaker Mike Johnson assured that four separate bills to provide military assistance to Ukraine, Israel and the Indo-Pacific region would be ready to vote soon, which is considered as a decision increasing immediate chances for money allocation to the Middle East. This may calm tensions after Iran's missile attack on Israel. In combination with indications on weaker domestic demand on fuel from China as the biggest importer, these factors came together to form a reason for a substantial price correction. A few hours later, oil futures steadied between $86.5 and $87.5/barrel. Despite this subtle recovery, the rest of the week looks like a proper time to lock in profits, selling the early spring rally in the petroleum segment, in case it hasn't been done before on higher levels.
A price upsurge to the area above $90 per barrel certainly had a solid impact on gross margins, which allowed ExxonMobil (XOM) to climb from $105 at the very beginning of March to more than $123 per share on April 12, as an example, which was the equivalent of 17% growth in market value. Marathon Oil (MRO) added more than 20% for the same period, while BP price gains were within 15%. Now the situation is rapidly changing, as the rally was extended only in sync with high oil prices.
Another consequence is that a wave of profit taking in a the oil sector, if becoming more widespread, may partly lead to an additional decline in composite indices such as the S&P 500 and the Dow Jones. Yet, the latter effect would probably represent only a fragmented and rather weak contribution into the broader market price adjustment on Wall Street. It is unlikely to have even a mid-term impact on the overall dynamics of other segments of the S&P 500, just in the manner like the recent pullback in the S&P 500 due to the decline in the banking sector seemingly does not pretend to become a braking factor for a long time.
What is more, declining oil provides another chance for easing inflationary pressures all over the world. In turn, potentially lower inflation may indicate that there is no need for longer delays in monetary policy easing by the Federal Reserve and major European central banks. A possibility of any earlier steps towards launching the next rate cut cycle, at least no later than early autumn, is a positive driver both for the global economy revival and for new waves of stock rallies in the markets.
The S&P 500 has slid from its 5,275 intraday peak on March 31 to the vicinity of the 5,000 round figure on April 17, when the Federal Reserve's (Fed) Beige Book content helped the downside momentum by saying that the current pace of inflation continued to dent business profit margins amid struggles to past higher costs onto consumers. Some improvement in economic growth in 10 out of 12 districts "hadn't stoked a faster pace of inflation", the report said at the same time, encouraging more hopes on rate cut moves during the year. Thus, the Fed is also trying to calm the markets with its other hand, while the prospect of cheaper oil in the summer driving season transforms further Wall Street recovery into even a more realistic scenario, even if the S&P 500 would temporarily dive under 5,000 before a new tidal wave comes to stock markets.
UK Brent Crude Oil
BRN is traded on the Intercontinental Exchange (ICE). Crude is a standartised exchange asset and is primarily traded on the commodity exchange. This commodity has very distinctive features:
- Prices of crude are largely affected by the demand that is driven by the economic situation on a global scale. A booming economy usually means more fuel consumption that pushes up crude prices. A slowdown of the economy, or a recession, usually means a decline of crude prices. The demand and supply of oil, along with forecasts, are regularly released by prominent international organisations, like the Organisation of Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA), and the U.S. Energy Information Administration (EIA);
- Prices are especially vulnerable to economic situations in the United States and China, which are the major consumers of oil. Thus, GDP, retail sales, industrial output, business activity indicators, unemployment, inflation, etc. in these countries affect crude prices and should be monitored carefully;
- Monetary policies of the U.S. Federal Reserve (Fed) and other major central banks also affect crude prices. Dovish monetary policies, especially by the Fed, foster economic expansion, increase the demand for oil and support prices. Higher interest rates suppress economic activity and limit the demand for oil;
- Crude oil is a risky asset. Thus, positive sentiment in the market, a rising appetite for risk, and rising stock indexes support crude prices. The CBOE Volatility Index (VIX) could serve as an indication of risk tolerance. The higher the index, the more pressure crude prices are facing. Alternatively, a lower index supports crude prices;
- The U.S. Dollar exchange rate directly affects crude prices as commodity prices are measured in Dollars. Moreover, the U.S. Dollar is a safe haven asset and its strengthening is also associated with rising risks, meaning that crude prices are under pressure as a risky asset. The U.S. Dollar Index (DXY) may serve as an indication of this criteria;
- From the supply side crude output level, changes of crude oil inventories and supply disruptions affect prices. For example, crude oil inventories in the United States, the data that is usually released every Wednesday by the EIA, may have an immediate short-term effect on prices, while agreements in crude production quotas of OPEC have more long-term effects on prices;
- Geopolitical tensions heavily affect crude prices. However, rising political tensions may push crude prices up. Which is quite different compared to other commodities. Rising political tension on oil-producing countries may have a strong impact on prices. Military tension in the Persian Gulf area, where vast oil production is located, may disrupt oil production and its transportation, which will result in rising crude prices;
- Oil price changes affect stock prices of oil production companies, gas prices as an alternative fuel, and other fuels. Lower or higher crude prices affect commodity-driven currencies like the Canadian Dollar (CAD), the Norwegian Krone (NOK), the Mexican Peso (MXN) and the currencies of other oil-producer nations.
| Ticker | BRN |
| Contract value | 1000 |
| Maximum leverage | 1:100 |
| Date | Short Swap (%) | Long Swap (%) | No data |
|---|
| Minimum transaction volume | 0.01 lot |
| Maximum transaction volume | 100 lots |
| Hedging margin | 50% |
| USD Exposure | Max Leverage Applied | Floating Margin |
|---|
