An Unstoppable Pump. All Market Sectors Are Drowning in US Oil

Tuesday’s oil market continued a streak of bad days and was trading deep in the red on the evening of June 20. Yesterday’s Brent crude numbers, which had been trying to get past the $47.50/barrel mark, were left far behind, and the benchmark black gold is now trading slightly above the $45.50 mark. North American oil is gradually drifting toward the $43/barrel mark, creating a negative environment for the US energy sector.
The key to the situation is again global overproduction and in investors’ worries over a possible long oil glut. The number of US drilling rigs has been rising for 22 weeks in a row, but North American oil companies now have something to think about. Although the break-even price for a barrel of WTI oil is around $25, this is currently hardly the case for all fields. The worst outcome will be a decline in the WTI price to $40, since it will force US companies to gradually curtail oil production to previous amounts. But for now, apparently, we should all expect Brent crude to go for $40-45.

Some indexes and the stocks of a number of companies fell in price on the bad news in the commodity sector. Asia-Pacific indexes closed mixed. Only Japan’s Nikkei 225 remained positive (+0.81%), strengthening on growth in the shipbuilding, transportation equipment, and mineral production sectors. The dollar remained almost unchanged against the Japanese yen. At the time of this writing, the USD/JPY pair is still trading close to the 111.62 mark. The EUR/JPY is trading at 124.30, a slight decline.
The remaining Asian indexes closed moderately down, confirming the previous prediction of possible partial profit-taking and investors’ caution over the current situation on the commodities market. Instability in the Middle East and the US step-up in combat against the Syrian coalition are making their contribution along with everything else.
Hong Kong’s Hang Seng fell 0.31%, South Korea’s Kospi remained almost unchanged (-0.07%), and the Shanghai index lost about 0.14%. Overall, technically there is room for the indexes to rise on Wednesday, but many investors will probably be watching for the release of US statistics on crude oil inventories, which might dampen their activity and cause a local decline in the indexes. Uncertainty over the US dollar will also keep the Japanese yen from weakening further, which may drive the USD/JPY pair to the 110.60-110.85 mark.

European trading was also gloomy: by the looks of it, investors decided to lock in yesterday’s results, and this was a factor in the decline in European stock indexes. General restraint after news of the success of the initial Brexit negotiations and the adverse trend in commodities also played a role in this.
European indexes lost about half a percent during trading, and Germany’s DAX, which set a record during the day, fell 0.32%. The energy sector again turned out to be among the leaders in the decline, including Total stock, which lost about 1.4%. Also noteworthy was the fall in the Adidas stock price, which lost about 1.2%. The support of growth leaders, including Danone (+1.5%) and Volkswagen (+0.85%), was not enough to alter the overall trend.
European currencies also ended up in a kind of parity: The EUR/USD tried to rise in European trading, but again ended up far from the 1.1140 mark by the close. It appears that the pair will continue to trade within 1.1161 - 1.1125 in attempts either to again approach the 1.12 mark or fall to 1.11
The GBP/USD continues its robust decline after the head of the Bank of England stated that an interest rate hike is premature. It appears that this will contribute to the formation of a descending trend for the pound sterling before the end of the current week, since investors will be listening to the never-ending speeches of Federal Reserve System representatives. A test of the key support at 1.26 seems possible even Tuesday evening, but it is entirely likely that on Wednesday the pair will test this level and go on to the next mark at 1.2555.

Yuri Prokudin, Olymp Trade analyst

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