A drop in oil prices on a good day for the stock market

Author: Ahura Chalki

Wednesday, 03 August 2022 Number of words: 473 Study time: 3 Minutes Views: 593

Oil price analysis

Stock markets on Wednesday increased again while earnings lifted the market sentiment, but Service PMI numbers, despite beating expectations, fell under the expansion area, down to 47.3. On the other hand, ISM Non-Manufacturing PMI in July at 56.7 was much better than the 53.5 expectations and the previous month of 55.3. 

Great earnings diminish the effects of war

On the stock markets, sentiments are still confused between great earnings on the one hand and soaring inflation and tightening financial conditions. On the other hand, at least today, with green boards, we can understand that investors mostly trust earnings reports more than other data and news. 

Along with these increases, St. Louis Federal Reserve President James Bullard again supported another rate hike, saying that US central bank will be steadfast in raising interest rates to control inflation and take it back to its target at 2%. This comes while China and Eurozone's weakness in the latest published data is increasing the concerns about a global recession.

 In reaction, at the time of writing and just a few hours after the US market opened, the Dow Jones Industrial Average was up 420 points, or 1.3%, at 32,822, the S&P 500 was up 65 points, or 1.6%, at 4,157, and the Nasdaq Composite was up 310 points, or 2.5%, at 12,658.

Usually, stock market positive sentiment must be encouraging for the Oil price. However, today after these changes in the markets, the WTI price ignored the sentiment and continued falling lower towards $90. For Oil price, we had two other market drivers today. After yesterday's API data which showed more than a 2Mb increase in the privet sector inventories, today's EIA weekly report also showed a 4.5 million barrels raise in the US crude stocks last week to 426.55 million barrels, despite 600,000 barrels falling estimates. 

Today we also had the OPEC+ meeting, where members decided to raise the oil output target by only 100,000 barrels per day (bpd). As a reaction, Brent crude futures were down $3.26 or 3.3%, at $97.25 a barrel at the time of writing. West Texas Intermediate (WTI) crude futures also slipped by $3.28, or 3.5%, to $90.60. 

With these prices, oil testing three months low, indicating concerns over tight supply are abating. At the same time, "ahead of the meeting, OPEC+ trimmed its forecast for the oil market surplus this year by 200,000 bpd to 800,000 bpd, three delegates told Reuters."

And finally, the last news that decreased the supply concerns was resuming of Iran-US negotiations over the Iranian nuclear program that can help Iran's oil return to the markets. 

Anyway, if we put the numbers and news together, we can understand that with overall caution sentiment across the markets, expecting higher oil prices is a bit unlikely. On the flip side, we have too many tensions around the globe that will not let the bears go too deep. 

Oil price analysis

Source: IFC Markets
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