OIL: Crude Rallies As US Looking At Increasing Pressure On Russia

Oil prices fell sharply on Friday following the significantly weaker-than-expected July US payroll data and have started today’s trading down again with another increase in OPEC production adding further pressure. There had been a strong rally through the first three days of last week driven by US threats against Russia and those who buy its oil and so benchmarks were still higher over the week. 

• WTI fell 2.9% to $67.26/bbl after reaching a low of $67.05 and is currently trading around that level off an earlier low of $66.56. It was still up 3.2% last week. It continues to hold above initial support at $65.37, 50-day EMA. Initial resistance is at $70.96, a retracement point.
• Brent was down 3.2% to $67.85/bbl off the intraday low of $67.74 but still 1.8% higher on the week. It is currently around $67.72, below initial support at $67.95, 50-day EMA.
• OPEC agreed to increase output by 547kbd in September, above the 411k agreed for August. This unwinds the 2023 voluntary-cuts made. There is still another 1.66mbd of reductions not due to be unwound until 2026 but OPEC says it is keeping its options open, according to Bloomberg.
• The supply outlook for now looks ample and may weigh on prices but uncertainty is elevated. Last week’s rally was driven by market concerns that “secondary tariffs” against countries buying Russian fuel could seriously impact global supplies. These penalties could come into effect as early as August 8 but India is yet to instruct refineries to stop Russian purchases (Bloomberg).
• US July payrolls not only printed below expectations but downward revisions to the previous two months were a significant 258k resulting in May/June outcomes of 14k and 19k respectively. The unemployment rate ticked up only 0.1pp to 4.2%, around where it has been for the last year. Oil will be worried that this signals a weaker demand outlook.

• South Korea to Sell KRW1.25tn 2-Year Bonds
• Bank of Korea to Sell KRW700bn 91-Day Bonds
• South Korea to Sell KRW1.25tn 2-Year Bonds
• Philippines To Sell PHP 8.5Bln 182D Bills (PH0000059909)
• Philippines To Sell PHP 7.0Bln 91D Bills (PH0000059529)
• Philippines To Sell PHP 9.5Bln 364D Bills (PH0000060915)

The NZD/USD had a range Friday night of 0.5857 - 0.5929, Asia is trading around 0.5915. US Yields collapsed in response to the NFP data which sparked a kneejerk response lower in the USD. This was also a very bad day for US stocks which finally look to be pulling back from elevated levels. The question for the NZD going forward is does the USD see sellers quickly return in response to the move in rates, or can the USD rise from the ashes and return as a safe haven. NZD/USD bounced nicely off its 0.5850 support but would suspect sellers to return back toward 0.6000 as the market decides how best to trade the USD.

• (Bloomberg) -- Smaller economies including New Zealand, Costa Rica and Bolivia saw US import tariffs rise to 15% — up from the 10% baseline released on April 2 — as part of a sweeping effort to penalize countries running trade surpluses with the US.
• “We will be making the case about why this shouldn’t have happened and engaging very, very quickly with US officials to clarify this and to seek changes,” New Zealand Trade Minister Todd McClay told Radio New Zealand on Friday in Wellington. 
• The surplus is “really not significant or meaningful,” McClay added. “We have made the case and we’ll make it again that actually the trade is very well balanced.”
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5970(NZD3496m Aug 7). - BBG
• CFTC Data shows Asset Managers again reduced their newly built longs in NZD +3903(Last +5034), the Leveraged community did the same reducing their shorts slightly -6250(Last -7328).
• Data/Event : 

Fig 1: NZD/USD Spot 120min Chart

Source: MNI - Market News/Bloomberg Finance L.P