saudi arabia

Scream correction. 

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

US crude plummeted 4% yesterday and sank below the $70pb mark and Brent slipped below $75pb. Momentum traders and falling volumes worsened crude's recent plunge while OPEC's latest announcement of output cuts and Saudi's additional threats that they will extend their solo cut beyond Q1 went totally unheard. Worse, as the bears saw that investors ignored the supply cuts and threats, they feel more confident to increase their bets against crude. And indeed, the cartel's shrinking share of global output and frictions among members regarding the supply cut strategy mean that either the supply cuts don't make much difference, or further action will be difficult and perhaps too costly. Add the global slowdown woes into that mix, the dwindling falling interest and algorithmic trades' lack of emotion regarding the OPEC news, you understand why the barrel of crude is below $70pb and not above $100pb this December,

Volume Of Crude Oil Rose For The Second Session In A Row

The Cheapest Oil In Six Months!!! How Will It Affect The Global Economics?

Conotoxia Comments Conotoxia Comments 16.08.2022 11:55
The price of WTI crude oil remained below $90 per barrel at the beginning of the week, the level before Russia's attack on Ukraine. Oil today is the cheapest in six months. It seems that the topic of a global economic slowdown or recession and how long it may last may be important for the oil market. Chinese and U.S. economic data seem to show a weaker condition in both economies and thus could affect the decline in oil demand. This, in turn, could put downward pressure on prices. According to published data, factory activity in China declined enough in July to force the central bank to cut lending rates to keep demand from collapsing. In the United States, on the other hand, the market may have been taken by surprise by the second-largest drop in the history of the New York Empire State Manufacturing Index. The above indicators may affect the market from the demand side, but this is only one part of the puzzle. On the supply side, long-awaited changes may be brewing. Once the embargo is lifted, oil from Iran may start flowing into the market again. Iran has responded to the European Union's proposal. It may seek to re-implement the 2015 nuclear agreement. The EU is also calling on the US to show more flexibility in implementing the agreement. Saudi Arabia may also be preparing to increase its oil supply. The chairman of Saudi Aramco, the state-owned oil giant, stated over the weekend that his company is ready to increase production to 12 million barrels per day, the company's current production capacity limit. Only a decision by the Saudi Arabian government is needed to increase production. According to the EIA agency's forecast, the United States can also increase its production. US oil production in the August forecast averages 11.9 million barrels per day (b/d) in 2022. It could rise to 12.7 million b/d in 2023. If this forecast comes true, the US could set a production record next year. The current one is 12.3 million b/d and was set in 2019.   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Oil near six-month lows
Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

Assessing the 50-50 Risk: USD's Outlook and Market Expectations for a June Fed Hike

ING Economics ING Economics 05.06.2023 10:17
FX Daily: Trading the 50-50 risk Despite the very strong headline US May payroll figure, rising unemployment and declining wage inflation are keeping markets from fully pricing in a June Fed hike (we expect a hold). Barring a big ISM services surprise today, the lack of other key inputs before next week’s CPI could keep the dollar capped. The RBA decision tomorrow is also a 50-50 decision     USD: Not enough to price in a June hike The blowout May headline payroll number added fuel to the narrative of an extra tight US labour market, but the coincidental rebound in unemployment to 3.7% and slowdown in wage growth kept markets from going all-in on a June rate hike by the Federal Reserve. As discussed in this note by our US economist, payrolls and the unemployment rate are calculated through different surveys: the former by employers, and the latter by households. In practice, firms and households conveyed very different messages about the direction of the US labour market in May.   We think that, when adding the cooling off in wage inflation, and considering the diverging views within the FOMC, the case for a pause at the 14 June meeting should prevail. The last big risk event before the rate announcement is the 13 June CPI reading, while today’s ISM services figures (the consensus expects a mild improvement) might have a somewhat contained impact on rate expectations, barring major diversions from expectations. The FOMC has already entered the black-out period.   Markets are currently pricing in a 25-30% implied probability of a hike in June, while 21bp are factored in by the end-July meeting. We suspect that the pricing may not vary considerably, or that the narrative of a “50-50” chance of a hike in June may prevail until the CPI numbers next Tuesday – and barring a surprise there – into the FOMC announcement itself.   With markets not having received enough compelling evidence from the May jobs report to price in more than a 50% probability of a June hike, we feel that two-year USD swap rates, which rebounded to 4.73% after having declined to 4.51% on Friday, may struggle to find much more support this week.   Add in a period of potential market sentiment stabilisation now that the debt-ceiling saga has ended and we think the dollar's bullish momentum may dwindle into the FOMC meeting.   We see a higher chance of DXY stabilising around 104.00 or pulling back to 103.00. Some pro-cyclical currencies could emerge as outperformers in this period: the Canadian dollar, for example, may stay supported now that Saudi Arabia announced another one million barrels a day of oil production cuts and even if the Bank of Canada stays on hold on Wednesday, as long as it keeps the door open for a potential hike down the road.    
OPEC+ Meeting: Saudi Arabia Implements Deeper Voluntary Cuts to Boost Oil Prices

OPEC+ Meeting: Saudi Arabia Implements Deeper Voluntary Cuts to Boost Oil Prices

ING Economics ING Economics 05.06.2023 13:58
OPEC+ meeting brings deeper Saudi cuts It hasn't been an easy OPEC+ meeting for members. The group failed to come to an agreement on deeper cuts, but production targets have been set for 2024 and voluntary cuts were extended. The Saudis have also decided to make further voluntary cuts.     What was agreed? The OPEC+ meeting was eventful. Heading into the meeting the expectation was that the group would announce further supply cuts – which was easier said than done. As Saudi Arabia struggled to convince other members to make deeper cuts, the group instead agreed to put in place a production target of 40.46MMbbls/d for 2024. This is lower than the 41.86MMbbls/d production target set back in October last year, which runs from November 2022 to December 2023. In addition to setting production targets for next year, members who announced voluntary supply cuts amounting to 1.66MMbbls/d back in April made the decision to extend them through to the end of 2024. The action taken by OPEC+ does little to help solve immediate concerns over demand. As a result, Saudi Arabia announced that it would make a further voluntary supply cut of 1MMbbls/d for July, which would leave Saudi output at around 9MMbbls/d. There's also potential for this additional voluntary cut to be extended if needed.     What does it mean for the market? In the lead-up to the meeting, Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman built expectations for further supply cuts – and it was therefore crucial that the group came away from the meeting with a cut of some sort. The extension of supply cuts through until the end of 2024 should not change the outlook drastically. However, the supportive factor in the immediate term is the further voluntary cut from Saudi Arabia. This should provide some limited immediate upside for the market, and it should also reinforce Saudi Arabia’s commitment to try to put a floor under the market. We're leaving our price forecasts unchanged for now and still expect ICE Brent to average US$96 over the second half of this year. The macro outlook continues to be a more important driver for prices than fundamentals at the moment.     Why are the Saudi's cutting? Our balance sheet continues to show a tight oil market for the remainder of 2023 with a deficit of almost 2MMbbls/d through the latter part of the year. From a fundamental point of view, the Saudis do not need to cut supply further. But it's clear that they're trying to push prices higher, and we expect that they'd like to see Brent trading above US$80/bbl. Given the increased spending we've seen from the Saudi government as it looks to diversify its economy, the fiscal breakeven oil price has edged higher in recent years. Saudi Arabia needs a little over US$80/bbl to balance its budget – and we believe this is the level they will target.  
Fed Rate Hike Expectations Wane, German Business Climate Declines

Market Update: Copper Inventory Withdrawals Tighten Spread, Saudi Arabia Raises Oil Prices

ING Economics ING Economics 06.06.2023 12:28
The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.
Worrying oil weakness against the news. Oil Faces Uncertainty: Worrying Weakness and Contradictory Signal

Worrying oil weakness against the news. Oil Faces Uncertainty: Worrying Weakness and Contradictory Signal

Alex Kuptsikevich Alex Kuptsikevich 13.06.2023 13:05
Oil lost more than 4% since the start of Monday, retesting the lower end of its range for the last three months. WTI briefly traded below $67.0 and Brent below $72.   On Tuesday, oil is enjoying buying at the lower end of the range, gaining more than 1.5% since the start of the day. However, there are big questions about whether the current rally can gain traction. Over the past three months, oil has repeatedly found itself close to current levels, from which it has bounced on technical factors (accumulated local oversold conditions) and several announcements of production cuts by OPEC+ members. More interestingly, the current sell-off in oil is going against the news. Prices peaked locally shortly after Saudi Arabia announced a voluntary production cut of 1m BPD and Russia's plans to cut production from next year. In addition, the US government announced at the end of last week that it would begin buying oil for the Strategic Petroleum Reserve. According to Baker Hughes data released on Friday, the number of active rigs (oil + gas) fell by a further 1 to 695.     More interestingly, the sharp fall in oil prices since mid-April has been accompanied by impressive demand for equities on the back of strong macro data. It is no coincidence that OPEC+ is so strongly defending current levels. The $65 area has acted as an important mode switch for oil. A break below triggered a bullish capitulation that halved the price before a steady move higher in 2008, 2014 and 2020. The ability to hold higher triggered a rally that doubled the price in 2007, 2010 and 2021.     The fact that the 200-week moving average is being fought over adds to the epochal nature of the current battle between the bulls and bears. And the persistent, repeated attempts to break below this line since February is more of a bearish signal. Graphically, it looks more like what we saw in 2008. And that is an argument for oil to head towards $30 now, although it would still be prudent to wait for consolidation below $60 to gain more confidence in a downside move.  
Market Sentiment and Fed Policy Uncertainty: Impact on August Performance

The Commodities Feed: Implications of Positive US Macro Data on Oil Prices and Brent-Dubai Spread

ING Economics ING Economics 28.06.2023 08:03
The Commodities Feed: Positive US macro data increases likelihood of further rate hikes Oil prices came under pressure yesterday despite better-than-expected macro data from the US. The oil market instead is focused on the implications of this stronger data - the potential for further rate hikes.   Energy - Brent-Dubai spread flip The oil market sold off quite aggressively yesterday following a raft of stronger-than-expected data from the US with durable goods orders surprisingly climbing in May. New home purchases also came in much better than expected, whilst consumer confidence rose to its highest level since early 2022. This strong set of data once again suggests that the Fed will likely have to hike rates further, which is obviously aligned with Jerome Powell’s testimony last week. Equity markets took the data as a positive sign. However, the oil market did not. ICE Brent settled almost 2.6% lower yesterday.   Overnight the API released weekly US inventory numbers which showed that US crude oil inventories fell by 2.41MMbbls over the last week, which is more than the roughly 1.5MMbbls decline the market was expecting. As for refined products, gasoline inventories fell by 2.85MMbbls, while distillate fuel oil stocks increased by 780Mbbls. The more widely followed EIA report will be released later today.   The Brent-Dubai spread has continued to see significant weakness over the last month  - a trend that has been at play since late last year. However, the spread now sees Brent trading at a discount to Dubai. This is fairly unusual, as the Dubai benchmark reflects a lower quality of crude oil relative to Brent. OPEC+ supply cuts have played an important role in the narrowing of the spread, while the expectation that Saudi Arabia may extend its additional voluntary cut of 1MMbbls/d beyond July will also be contributing to the relative strength in Dubai. However, the move in the spread should see Asian buyers looking to the Atlantic Basin for cheaper barrels.    
Romania's Economic Growth Slows in Q2, Leading to Lower 2023 Forecasts

Saudi Arabia Commits to Extended Production Cut, Russia Reduces Oil Exports; US Manufacturing Activity Drops

Ed Moya Ed Moya 04.07.2023 08:38
Saudi Arabia commits to extending voluntary cut of 1 million bpd Russia to reduce oil exports by 500K bpd US Manufacturing Activity drops the most in 3 years Oil The bottom is in place for oil after the Saudis and Russians play nice.  The oil market got a boost after the Saudis extended their production cuts and Russia surprised everyone with an export cut announcement of 500,000 bpd.  The Saudi extension should have been expected by everyone, but the Russian export cut news did surprise many energy traders.  Russian oil exports hit pre-war levels in April and Asian demand kept on taking advantage of the Russian discounts.  Russia has hardly been crippled by Western sanctions as they have been able to sell its crude to India, China, and Turkey.  WTI crude seems poised to make some higher lows here even if a stronger dollar emerges on fears the Fed will be taking rates much higher.  OPEC+ is saying what it needs to keep supplies tight, whether they, the Russians follow on those pledges is another story. The global growth outlook won’t be improving anytime soon given the latest global PMIs, but the US and China outlooks should remain upbeat for the next few months.  US economic resilience will likely remain before we see the slowdown and China will steadily provide more support to their economy.  Given the shortened trading day, oil price gains might be limited until after the July 4th holiday. WTI crude pared back some gains following a softer ISM manufacturing report.        
Inflation Outlook: Energy Prices Drive Hospitality, Food Inflation Eases

Oil's Momentum Falters Despite Output Curbs, Raises Doubts for Breakout

Craig Erlam Craig Erlam 05.07.2023 08:35
Oil quickly loses momentum despite output curbs Oil prices are rising again today after giving back all of Monday’s early gains and more as the session progressed. Buoyed by the news of Saudi Arabia extending its voluntary one million barrel output cut by a month to August, alongside Russia cutting exports by 500,000 in the same month, Brent crude rallied more than 1% and looked on course to increase its winning streak to four sessions but that’s not how it turned out. Now prices are rising again but remain shy of yesterday’s peak and if it falls short today then doubts may grow around its ability to take the next step and even break above its recent trading range. That range has consolidated over the last couple of months but not to any significant degree that suggests a breakout is imminent, with prices recently fluctuating between $72 and $77.   A big hurdle to overcome for gold The gold recovery is continuing into a fourth day although so far it hasn’t been particularly inspiring. We’ve seen a modest rebound since the yellow metal slipped below $1,900 and nothing has really improved fundamentally that would warrant any more. Central banks are still desperately trying to gather any evidence that inflation is on a sustainable path back to target and falling short. The price has moved back towards a region that was a key area of support in May and early June and this could represent the first big test of the recovery. A move above the $1,930-$1,940 zone could be a bullish signal, at least in the short term, at which point $1,960, $1,980 and $2,000 could come back into focus. But that’s a big hurdle to overcome first.  
Tightening Oil Market: Macro Uncertainty and Supply Dynamics Impact Prices

Tightening Oil Market: Macro Uncertainty and Supply Dynamics Impact Prices

ING Economics ING Economics 06.07.2023 13:11
Tighter oil market over the second half of 2023 Fundamentals are not dictating oil prices at the moment. Instead, macro uncertainty and concerns over the China recovery are proving an obstacle to oil prices moving higher. In addition, expectations for a more hawkish US Fed will certainly not be helping risk appetite. Speculators have reduced their positioning in the market considerably in recent months. ICE Brent has seen the managed money net long fall from a year-to-date high of around 300k lots in February to around 160k lots in the last reporting week. This has predominantly been driven by longs liquidating, although there has also been a fair number of fresh shorts entering the market. We still expect global oil demand to grow by around 1.9MMbbls/d in 2023, and while this may appear aggressive in the current environment, it is more modest than some other forecasts – for example, the International Energy Agency forecasts demand to grow by 2.4MMbbls/d this year. Whilst we believe that our demand estimates are relatively modest, there are still clear risks to this view. The bulk of demand growth this year (more than 50%) is expected to be driven by China. So far this year, indicators for Chinese oil demand have been positive, as the economy has reopened. However, the concern is whether China will be able to keep this momentum going through the year. The risk is that the growth we have seen in domestic travel starts to wane as the effects of 'revenge' spending ease. Supply-side dynamics continue to provide a floor to the market. OPEC+ continues to cut and we have seen Saudi Arabia announce further voluntary supply cuts through the summer. Recently-announced cuts from Saudi Arabia, Russia and Algeria amount to a reduction of a little over 1.5MMbbls/d in supply over August 2023. Although, there are doubts over whether the 500Mbbls/d of cuts recently announced by Russia will be followed. It doesn’t appear as though Russia has stuck to a previous cut of 500Mbbls/d when you consider that Russian seaborne crude oil exports have been strong for most of the year. Drilling activity in the US has also slowed this year with the number of active oil rigs in the US falling from a year-to-date peak of 623 in mid-January to 545 recently, which is the lowest level since April 2022. While supply growth is still expected from the US, and output is set to hit record levels, the growth will be much more modest than in previous years. For 2023, US oil output is expected to grow in the region of 600-700Mbbls/d, while for 2024 growth is expected to be less than 200Mbbls/d. Higher costs, a tight labour market and an uncertain outlook all contribute to this more tepid growth. While the broader theme we have seen from US producers in recent years is to also be more disciplined when it comes to capital spending. We have revised lower our oil forecasts for the latter part of the year. A more hawkish Federal Reserve, limited speculative appetite (given the uncertain outlook), robust Russian supply and rising Iranian supply all suggest that the market will not trade as high as initially expected. We still forecast that the market will be in deficit over the second half of the year and so still expect the market to trade higher from current levels. We forecast ICE Brent to average US$89/bbl over 2H23.  
Market Sentiment and Fed Policy Uncertainty: Impact on August Performance

Oil Retreats Despite Positive Momentum, Gold's Rebound in Jeopardy

Craig Erlam Craig Erlam 07.07.2023 09:00
Despite positive momentum, oil falls short once more Oil prices are retreating in risk-averse trade today. The ADP report has clearly had a negative impact given it likely means we’re facing another red-hot jobs report tomorrow and the prospect of higher rates for longer. It also came at an opportune time, with the price flirting with the peak from two weeks ago, only to turn south having fallen just shy of surpassing it. That means we’re seen yet another failed new high or low in recent weeks and the gradual consolidation, roughly between $72-$77 is still in play. This time it was close and there was good momentum going into the ADP release but it seems the jobs number was just too big. A repeat performance tomorrow could cement that and undo the efforts of the Saudis and Russians earlier this week in seeking to drive the price higher.   Is gold vulnerable to another big break? Gold’s brief rebound is seemingly over, with the price already struggling around $1,930-$1,940 before ADP delivered a hammer blow to it. The yellow metal is back trading just above $1,900, a level that’s now looking very vulnerable ahead of tomorrow’s jobs report. If it manages to hold above in the interim, a hot report could be the straw that breaks the camel’s back. Suddenly it will become a question of whether another hike in September is unavoidable against the backdrop of such a hot labour market. These aren’t the only figures that matter but they do significantly weaken the case for another pause.
Oil Prices Show Resilience Despite Setbacks, Gold Holds Above $1,900 Ahead of US Jobs Report

Oil Prices Show Resilience Despite Setbacks, Gold Holds Above $1,900 Ahead of US Jobs Report

Craig Erlam Craig Erlam 10.07.2023 12:42
Oil continues higher despite setbacks this week Could we finally be about to see a breakout in oil prices after two months of consolidation? The rally over the last week or so from the range lows has been quite strong and backed by momentum – as well as fresh cuts from Saudi Arabia and Russia – and despite being pushed back from the recent highs over the last couple of days, it’s continued to drive higher in a way that could see the upper boundary buckle. Yesterday’s ADP number appeared to wipe out any momentum that had built up but a rally late in the day saw it end the session in the green and come within a whisker of 21 June peak. A failure to overcome that could further confirm the continuation of the gradual consolidation we’ve seen over the last couple of months, whereas a break above could be a very bullish signal.   Can gold hold onto $1,900 after the US jobs report? Gold came under pressure in the aftermath of yesterday’s ADP report but managed to hold above $1,900 and even recoup some of its losses. It’s trading marginally higher today but whether it will be able to hold onto those gains, and remain above $1,900, will probably depend on what kind of jobs report we get. Can it cling on if we get another red-hot report? Another strong report is looking increasingly likely on the back of yesterday’s ADP number, although as we’ve seen in the past it isn’t always that reliable a barometer. A cooler report could propel it higher given expectations have now undoubtedly risen. It’s still almost 8% from its highs and a cooler report could offer the opportunity for a corrective move which we’ve barely seen so far.  
Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

The Commodities Feed: Key US CPI Release and Oil Market Outlook

ING Economics ING Economics 12.07.2023 09:02
The Commodities Feed: Key US CPI release The oil market rallied more than 2% yesterday, leaving it at the top end of its recent trading range. US CPI data later today will be key for price direction in the immediate term.   Energy: Oil looking to breakout Oil prices pushed higher yesterday with ICE Brent trading to its highest level since early May and leaving it within striking distance of US$80/bbl. A break above US$80/bbl would see the market finally breaking out of the US$70-80/bbl range that it has been stuck in for more than two months. The market appears to be finally starting to reflect the tighter fundamentals that we see over the second half of 2023. Obviously, additional cuts announced by Saudi Arabia last week will be helping, while hopes of support measures for China’s economy will be offering some further optimism. However, macro developments are still likely to be key for the market in the near term. And today there will be plenty of focus on US CPI numbers. Expectations are for a print of 3.1% year-on-year for June, down from 4% in the previous month. We will need to see the number come in well below consensus to see any significant change to current expectations for the Federal Reserve to hike at its next meeting. API numbers released overnight were more bearish than expected, with US crude oil inventories increasing by 3MMbbls, while gasoline and distillate stocks also increased by 1MMbbls and 2.91MMbbls, respectively. The market had been expecting some small draws across crude and products. The more widely followed EIA inventory report will be released later today, but obviously, it is likely to be overshadowed by the US CPI release. Bloomberg ship tracking data shows that Russian seaborne crude oil exports fell by a little more than 1MMbbls/d WoW to 2.86MMbbls/d for the week ending 9 July. This also drags the four-week rolling average down to a little over 3.2MMbbls/d, which is the lowest level seen since January. The market will be watching Russian exports closely, as up until now there have been doubts over whether Russia is actually making the full supply cuts it announced earlier in the year. Yesterday, the EIA released its latest Short Term Energy Outlook, in which it forecasts 2023 US crude oil production to grow by 680Mbbls/d YoY to average a record 12.56MMbbls/d. Meanwhile, for 2024, supply growth is expected to slow to a little over 280Mbbls/d YoY, which would see output averaging 12.85MMbbls/d. This ties in with the slowdown in drilling activity that we have seen for much of this year. The number of active oil rigs in the US has fallen from a year-to-date high of 623 in January to 540 last week.
Oil Prices Soar on Prospect of Soft Landing, Eyes Set on $80 Breakout

Oil Prices Soar on Prospect of Soft Landing, Eyes Set on $80 Breakout

Craig Erlam Craig Erlam 13.07.2023 11:22
The prospect of a soft landing lifts oil prices Rally builds on efforts by Russia and Saudi Arabia to boost prices A break of $80 could be another big step Oil prices have been understandably lifted by the US inflation release today as it could be seen to increase the possibility of a soft landing. Brent was already trending higher though and is now at its highest point since April, having already broken out of the range it traded within for the last couple of months. ​ The next level for Brent to overcome is $80, which would be a big psychological leap. That may also see WTI break above its June high following the spike on the 5th. The move higher also suggests the latest efforts of Saudi Arabia and Russia are working in tightening the markets and boosting prices after multiple failed efforts.   A bullish breakout in Brent? Not only would a significant break of $80 be a big psychological move, but it would also come on the back of a break above the 55/89-day simple moving average band and the descending channel it traded mostly within over the last couple of years.     The next major resistance zone above here could come around $83-$84.50 where the price could come into contact with the 200/233-day SMA band. As far as support is concerned, the mid-May and June highs around $78.70-$78.80 could be interesting, as could the 55/89-day SMA band which coincides roughly with the peak a few weeks ago. A rebound off either of these could be viewed as bullish confirmation of the initial breakout.    
EUR Under Pressure as July PMIs Signal Economic Contraction

Crude Prices Surge on Output Cuts and Inflation Data, Potential Resistance at $83-$84 - 17.07.2023

Craig Erlam Craig Erlam 17.07.2023 09:12
Output cuts and inflation data continue to boost crude prices Temporary disruptions could add to the bullishness Potential resistance around $83-$84   Oil is trading relatively flat today but has made tremendous gains over the last couple of weeks and could still add to that over the coming sessions. The price has risen more than 13% from the lows on 28 June and, despite appearing to struggle at times yesterday, still has plenty of momentum. The break above $80 was very significant after multiple efforts by Saudi Arabia and its allies to manipulate the price to more sustainable levels, from their perspective. Temporary output disruptions, like those currently in Libya and Nigeria, could further lift prices in the short term as potential tightness in the market on the back of cuts and economic resilience boost demand.   Key Resistance Lies Ahead Brent could face an interesting test around $83-$84 if it keeps rallying, with the boost from US inflation data and Saudi/Russian cuts potentially giving it an additional boost, as well as the psychological lift from this week’s breakout.     The 200/233-day simple moving average has been a key zone of support and resistance previously and could prove to be so again. It hasn’t traded above here in more than a year so a break above would be significant. A move lower could draw attention back to $80 and whether we’ll get that confirmation of the initial breakout. A move below here wouldn’t necessarily be a particularly bearish move, with the 55/89-day SMA band around $76-$78 arguably more important, falling around the upper end of the descending channel. It could also fall around a key fib level depending where the price peaks first.       
US Retail Sales Boost Prospects for 3% GDP Growth, but Challenges Loom Ahead

Commodities Update: Copper Supply Tightness and Stable EU Gas Inventory

ING Economics ING Economics 31.07.2023 15:53
The Commodities Feed: Supply tightness could support copper Codelco has lowered its copper production guidance for the year due to production disruptions that could tighten the market. Meanwhile, copper inventories at LME and SHFE remain low.   Energy: EU gas inventory continues to increase at a stable pace Crude oil prices continued positive momentum on Friday and ended the week on a high note with ICE Brent rising to around US$85/bbl while NYMEX WTI also strengthened to US$80.6/bbl. Market expectations of an extension of the supply cut by Saudi Arabia remain supportive of oil prices in the immediate term. The price discount for Western Canada Select (WCS) crude oil over the WTI increased to around US$15.3/bbl last week as an unplanned outage and advanced maintenance schedule at BP’s Whiting refinery fuelled pessimistic sentiment. BP had to shut the 100Mbbls/d cat feed hydrotreater plant on Friday, which could push the maintenance schedule for the refinery from September to August. The 435Mbbls/d Whiting refinery is one of the major refiners of Canadian crude and early maintenance at the plant could result in lower demand for Canadian crude in the short term. Higher discounts also reflect the additional cost of transportation as the crude travels further for refining. TTF gas prices retreated to below €26/MWh on Friday after increasing to €32.6/MWh earlier in the week. The supply side remains healthy, as reflected by inflows of gas into storage tanks. The EU gas inventory increased by another 22.6TWh over the week, taking the gas storage to 85.4% full as of 29 July. European gas storage currently is comfortably above the five-year average of around 70% for this point in the season. The gas injection has been consistent at around 20-23TWh per week for the last two months and at this rate, European gas storage could reach near-full capacity by the end of September 2023. Meanwhile, the discount of European gas prices compared to Asian LNG prices increased to an average of around US$2.1/MMBtu in July compared to an average of around US$0.3/MMBtu in June 2023. The higher discount in the European gas market could help divert more LNG cargoes towards Asia and reduce the supply glut in the European market.    
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Manufacturing PMIs and RBA Rates in Focus: European and US Markets Show Resilience

Michael Hewson Michael Hewson 01.08.2023 10:14
Manufacturing PMIs in focus, as RBA keeps rates unchanged     European markets finished the month of July on a rather subdued note, even allowing for another month of solid gains, although we did see another new record high for the DAX, while the CAC 40 posted a record monthly close. The euro Stoxx 50 also posted its highest monthly finish since October 2007. Both the FTSE100 and FTSE250 also fared reasonably well, with the FTSE100 closing at a 2-month high, helped by a rebound in house builders on the back of easing interest rate rise expectations. US markets also started the final day of July on the front foot before slipping back from their intraday highs, on the back of some end of month profit taking, drawing a line under a 5th successive month of gains. While there is a growing degree of confidence that last week's rate hikes from the Federal Reserve and the European Central Bank might be the prelude to a lengthy pause, there is rising realisation that rates may well have to stay at current levels for quite a while yet.     Nonetheless, despite this apprehension Asia markets have seen a positive session, despite weaker Chinese PMI numbers and this looks set to translate into a modestly positive start for markets in Europe this morning. This week we can expect the Bank of England to follow suit with another rate hike of its own, while this morning the RBA took the decision to keep rates unchanged at 4.1%. The decision was finely balanced with many expecting a rate hike, however the Australian central bank appears to have erred on the side of caution, given last week's weaker than expected Q2 CPI reading, and the weakness in recent PMI numbers.     The RBA went on to alter their inflation forecast to predict that prices would return to target in late 2025, while also revising up their GDP growth targets for this year and next year. The central bank did keep the door open to further hikes in the future. The Australian dollar slid back giving up some of the gains it made yesterday, while the ASX200 pushed back up towards its recent highs.     Today's economic agenda shifts the focus back to the weakness of the manufacturing sector, as well as the resilience of the US labour market, as we look to a flat open. In Germany especially, the performance of the manufacturing sector has been dire with July manufacturing PMI expected to be confirmed at 38.8, the lowest level since the manufacturing sector was shut down due to Covid. In France, manufacturing PMI is expected to slow to 44.5, while only modest improvements are expected in Spain and Italy of 48.3 and 44.3. The UK manufacturing numbers are expected to slow to 45, from 46.5.     Even the US economy hasn't managed to escape the manufacturing slump with the latest ISM manufacturing survey for July expected to show a modest improvement from 46 to 46.9, with prices paid expected to see a modest improvement to 44, from 41.8. It is clear that the manufacturing sector is experiencing a clear deflationary impulse which is likely to continue to act as a drag on prices in the coming months. The bigger question is whether this translates into a similar drag on the services sector, and here prices are proving to be slightly stickier.     One major concern to the slowing prices narrative has been the recent gains in oil prices, which yesterday saw their biggest monthly gain in over a year, over concerns that Saudi Arabia will go further and extend their production cuts into September. This rise in prices over the last 4 weeks is already feeding into higher prices at the fuel pumps, which if sustained could impact on consumer demand in the coming weeks.      We also get an insight into the US labour market with the latest JOLTS job openings numbers for June which are expected to show a fall from 9.82m vacancies to 9.6m, which would be a 2-year low. While such a move would be welcome it's also important to remember that vacancies are still over 2m higher than they were at their pre-pandemic peaks, back in mid-2018. This number needs to come down a lot further before we can infer that the falls in vacancies might lead to a moderation in wage growth.     EUR/USD – currently have support at the 1.0940 lows from last week with further support at the 50-day SMA as well as the 1.0850 area. Resistance currently at last week's high at 1.1150.     GBP/USD – support currently at the 1.2750 area as well as trend line support from the March lows at 1.2710, and the 50-day SMA at 1.2700. While above this key support the uptrend from the March lows remains intact. Resistance at the 1.3000 area.         EUR/GBP – currently range trading between resistance at the 0.8600 area, with the risk of a return to the recent lows at 0.8500/10. Above the 0.8600 area targets the July highs at 0.8700/10.     USD/JPY – broken above the 142.00 area, opening up the risk of a move back to the previous peaks at 145.00. We need to see a move back above 142.60 for this to unfold. Support comes in at yesterday's lows at 140.70.     FTSE100 is expected to open 3 points higher at 7,702     DAX is expected to open 13 points higher at 16,459     CAC40 is expected to open 5 points higher at 7,502     By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Oil Prices Rise as OPEC Cuts Output and API Reports Significant Inventory Drawdown

Oil Prices Rise as OPEC Cuts Output and API Reports Significant Inventory Drawdown

ING Economics ING Economics 02.08.2023 13:41
The Commodities Feed: Tight supplies lift oil prices OPEC oil output dropped by around 0.9MMbbls/d in July due to production cuts from Saudi Arabia and Nigeria. Meanwhile, the American Petroleum Institute (API) reported the biggest weekly drop in oil inventory in years.   Energy – OPEC crude output falls The oil market edged higher this morning with prices of both ICE Brent and NYMEX WTI gaining more than 1% day-on-day, following a bullish inventory report from the API and lower OPEC output in July. The API reported that US crude oil inventories decreased by 15.4MMbbls over the last week, significantly higher than the market expectations of around 1.4MMbbls. If confirmed by the Energy Information Administration's (EIA) report later today, this will be the largest weekly inventory drawdown since 1982. Cushing crude oil stocks are reported to have decreased by 1.8MMbbls. On the products side, API reported that gasoline and distillates inventories fell by 1.7MMbbls and 0.5MMbbls respectively, over the week ending 28 July. Meanwhile, preliminary OPEC production numbers for July are starting to come through and it is no surprise that the group reduced output over the month as some members agreed to implement voluntary production cuts. According to a Bloomberg survey, OPEC output declined by 0.9MMbbls/d month-on-month to 27.8MMbbls/d last month, the lowest since 2020. Saudi Arabia led the decline with its production falling by 810Mbbls/d to 9.15MMbbls/d followed by Nigeria trimming the output by 130Mbbls/d to 1.26MMbbls/d. Production in Libya also declined by 50Mbbls/d to 1.1MMbbls/d as a protest briefly disrupted production at its Sharara oil field. The output cuts were partially offset by recovering production in Iraq (+70Mbbls/d), Angola (+40Mbbls/d) and the UAE (+20Mbbls/d). On the products side, recent reports suggest that Petroleos Mexicanos shut down the nation’s largest oil-exporting terminal following an operational issue. Bloomberg reported that the FPSO Yúum K’ak’ Náab in the Gulf of Mexico was shut on Sunday because of a crude leak in one of its hose trains. Prior to this, Pemex halted its Salina Cruz terminal last month following a fire incident and unfavourable weather conditions. The export disruptions from Mexico could help increase demand for the US refined products in the domestic market in the short term.
European Markets Anticipate Lower Open Amid Rate Hike Concerns

Canadian Job Losses and Oil Rally Influence USD/CAD and Commodity Markets

Ed Moya Ed Moya 07.08.2023 09:10
Canada lost 6,400 jobs in July as the unemployment rate rose for a third straight month Canadian wage pressures jump to 5.0%, which might not let policymakers signal that the peak in rates is in place Crude prices rally for a sixth straight week on OPEC+ determination to keep oil market tight   USD/CAD The past few weeks have not been kind to the Canadian dollar, but that could be changing.  The general rise in the dollar has stemmed from concerns over the US debt situation.  With both the Fed and BOC in similar positions when it comes to their respective tightening cycles, the Canadian dollar seems like it might be better positioned over the short-term as traders unwind their US dollar bets.  The USD/CAD shows the correlation with rising oil prices has not provided much support to the loonie, but that could be changing here.  If bearish momentum accelerates, further downside could target the 1.3300 handle.  The Canadian dollar could remain in oversold territory a while longer, which could support a further decline towards the 1.3250 region.  To the upside, the 1.3400 level provides major resistance.   Oil Crude prices are rising as the dollar drops following a mixed NFP report and as OPEC+ remains committed to keeping the oil market tight.  Saudi Arabia’s decision to extend a unilateral 1-million barrel oil cut did not surprise anyone. Energy traders however wanted to see if Russia would extend their export cut pledge and they did. Oil is at a 3-month high and starting to attract more buyers.  The crude price rally could continue since the US economy remains resilient and if China’s data next week confirms that part of the world’s crude demand is growing. The $85 level should provide key resistance for WTI crude, but if that doesn’t slow the rally, every trader will have their eyes on the $90 level.   Gold Gold prices are rallying as the bond market selloff ends following a mixed NFP report that did not derail some expectations that the Fed is still probably done raising rates.  This jobs day still suggests a soft landing is obtainable but if wage growth remains strong over the next couple of months that could create some problems.  Higher rates for longer is still an environment that gold can thrive in, especially if Wall Street becomes fixated over the deficit
Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

ING Economics ING Economics 07.08.2023 14:01
The Commodities Feed: Russia-Ukraine tensions add to oil supply risks The Ukrainian drone attacks on Russian oil tankers in the Black Sea region have added to supply risks for the crude oil market. Meanwhile, the Joint Ministerial Monitoring Committee (JMMC) meeting of OPEC+ countries ended without any recommendation to change oil output levels for now.   Energy – Ukrainian drone attacks on Russian oil tankers ICE Brent settled above US$86/bbl on Friday as tensions in the Black Sea region increased further after Ukraine declared Russian ports in the Black Sea as ‘war risk’ areas and cautioned ships against using them. Ukrainian drones also attacked a Russian oil tanker over the weekend reflecting heightened tension within the region. The Black Sea route accounts for nearly 15-20% of the oil that Russia sells daily on global markets and is also a major transit corridor for Kazakh crude. In the recent JMMC meeting, the OPEC+ group noted its satisfaction regarding the compliance with the output levels by member countries and made no recommendation for any change in production strategy at this stage. The committee recognised the additional voluntary cuts from Saudi Arabia and Russia to balance the oil market. The group has changed the frequency of meetings from once a month to once every two months, with the next meeting scheduled for the first week of October. Saudi Arabia increased its official selling price for Asia and Europe for September deliveries following its decision to also extend the output cuts for the month. Saudi Aramco has increased the premium of Arab Light crude for Asian buyers by US$0.30/bbl to US$3.5/bbl for September deliveries. The increment was much steeper for European buyers with the new premium set at US$5.8/bbl compared to US$3.8/bbl for August deliveries. The premium for US buyers was left unchanged at US$7.25/bbl. The latest data from Baker Hughes shows that the US oil rig count declined by four for an eighth consecutive week to 525 over the last week. This is the lowest number of active rigs seen since 18 March 2022. The recent strength in oil prices should have seen higher capital expenditure and increasing rig count in the country, however, the oil exploration companies appear to still be assessing the stability of the current market strength. Lastly, the latest positioning data from CFTC show that speculators increased their net long position in NYMEX WTI for a fifth consecutive week by 13,855 lots over the last week, leaving them with net longs of 205,959 lots as of 1 August 2023, the highest since the week ending on 18 April 2023. Meanwhile, money managers increased their net longs in ICE Brent by 18,728 lots over the last week for a second consecutive week, leaving them with 215,368 lots as of last Tuesday.    
China's Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

China's Ninth Straight Month of Gold Holdings Increase; Oil Resilient Despite Russian Tanker Incident; Dollar Supported by Bond Supply Concerns

Kenny Fisher Kenny Fisher 08.08.2023 08:48
China increased gold holdings for a ninth straight month in July Oil unfazed as Ukraine sea attack Russian oil tanker didn’t lead to a major disruption Dollar supported amidst bond supply concerns; 10-year Treasury yield rises 3.8bps to 4.074%   Oil Crude prices are lower following a surge in the US dollar and as Saudi Arabia anticipates a bumpy road for the crude demand.  The Saudis are raising prices across most of Asia and Europe, with the Arab light crude only being boosted by 30 cents, which was less than the 50-cent rise expected by traders. The initial rally from news that a Russian oil tanker was damaged  only provided a brief rally on Sunday night.  Unless we see a meaningful disruption to crude supplies, prices will remain  Also dragging oil prices down is the rising expectations that the US will see a recession by the end of 2024.  A Bloomberg investor poll showed two-thirds of 410 respondents expect a recession by the end of next year and 20% see one by the end of this year.    Gold Gold prices are struggling here on a strong dollar and as global bond yields rise and after an early round of Fed speak are still supporting the case for one more hike by the Fed. Wall Street is playing close attention to fixed income at the start of the trading week, which saw the bond market selloff cool at the end of last week after a mixed nonfarm payrolls report. If Treasury yields rally above last week’s high, that could trigger some technical buying and that could be very negative for gold prices.  For many traders, this week is all about inflation data and any hot surprises could prove to be short-term bearish for gold.  As earnings season wraps up, stocks have mostly posted better-than-expected results (excluding Apple) and that has hurt the gold’s safe-haven appeal.  At some point over the next few weeks, if the stock market rally can’t recapture the summer highs, a decent pullback could help trigger a big move back into gold.     
The Challenge to the Dollar: De-dollarisation and Geopolitical Shifts

The Challenge to the Dollar: De-dollarisation and Geopolitical Shifts

ING Economics ING Economics 17.08.2023 09:24
The challenge to the dollar The war in Ukraine and freezing of Russian FX reserves in 2022 have prompted much discussion on the ‘weaponisation’ of the dollar, the splintering of geopolitical blocs and ultimately the “inexorable” decline in the use of the dollar – or ‘de-dollarisation’. An integral part of this debate will not only be how those geopolitical groupings develop, but also whether other currencies can challenge the dollar’s international role. We suspect the subject of de-dollarisation might gain some traction this summer when senior leaders of the BRICS nations meet in South Africa on 22-24 August. At the top of the summit’s agenda is the proposed expansion of this geopolitical grouping and perhaps some proposals relating to a common payment system in BRICS currencies. Regarding BRICS expansion, speculation is rife as to how many countries, if any, will join the club – for the first expansion in a decade. The focus here tends to be on countries that have already joined the BRICS-sponsored New Development Bank (NDB). These include countries such as the United Arab Emirates, Egypt, and Bangladesh.   The proponents for accelerated change argue that some of the major oil exporters like Saudi Arabia, Iran and Nigeria might be included, too. Experts, however, warn that friction between China - a proponent of expansion - and the more reticent India make the subject highly uncertain. Why this is important to the de-dollarisation debate is that the speed of expansion in BRICS could well determine the speed with which this bloc adopts commercial and financial systems outside of the dollar sphere. There are also suggestions that this summit could re-introduce the subject of a BRICS currency. Far from abandoning their own national currencies, we presume this venture could be pursued along the lines of a new ‘Unit of Account’ – similar to the IMF’s Special Drawing Rights (SDR). For example, the NDB or other commerce being conducted in ‘BRICS’ could require users to hold more of these currencies and potentially gravitate away from the dollar.   The link to de-dollarisation here is that the creation of a BRICS unit of account could increase these currencies’ shares in FX reserves of BRICS users – in the same way that China’s 2015 entry into the SDR basket was meant to increase interest in the renminbi. Away from the speculation over the future of BRICS, our article examines evidence of dedollarisation seen so far. There are a whole host of scholarly articles on this subject and perhaps one of the best definitions of what makes an international currency is outlined in Figure 1. Here, the function of an international currency is assessed through the prisms of both the public and private sectors.  
Senior Fed Officials Signal Rate Hike Pause as Key Economic Indicators Awaited

Tightening Grip on the Oil Market: Prospects, Prices, and Challenges

ING Economics ING Economics 17.08.2023 12:01
Tightness takes hold of the oil market The last month has seen the oil market convincingly break out of the range it has been stuck in since early May. Tightening fundamentals and prospects for a softer-than-expected landing for the US economy have pushed the market higher. Constructive fundamentals should mean more strength in the months ahead.   Oil prices still have more upside While the oil market has seen quite a bit of strength in recent weeks on the back of tightening in the physical market, we believe that there is still room for the market to move higher. Our balance sheet suggests that the oil market will continue to tighten as we move through the second half of the year with a deficit in the region of 2MMbbls/d. We have left our forecasts for the remainder of the year unchanged. We still expect ICE Brent to average US$86/bbl over 3Q23 and US$92/bbl over 4Q23. Our balance shows that the market will remain in deficit over 2024. However, this deficit is heavily skewed towards the second half of 2024. In fact, we see a small surplus in 1Q24, which suggests that prices could pull back early next year, before moving higher once again. While we still expect Brent to average US$90/bbl over 2024, we have revised the profile. The assumption behind our 2024 forecasts is that OPEC+ sticks to its planned production targets, whilst the 1.66MMbbls/d of additional voluntary cuts from a handful of OPEC+ producers also continue through 2024.   Oil market set to remain tight through 2024 (MMbbls/d)   Saudi cuts intensify market tightening It was largely expected that the oil market would tighten over the second half of 2023 due to OPEC+ supply cuts and further demand growth. OPEC+ has a production target of 41.86MMbbls/d through until the end of this year and 40.63MMbbls/d for 2024. However, in reality, we are seeing much deeper cuts from OPEC+. Firstly, a handful of OPEC+ members have made additional voluntary supply cuts of 1.66MMbbls/d. These are currently set to continue through until the end of 2024. In addition to this, Saudi Arabia announced a further voluntary cut of 1MMbbls/d for July but has since rolled this over in August and more recently into September. Saudi Arabia will want to be careful with how it goes about unwinding this. The ongoing cuts have finally had their desired effect for OPEC+ and specifically Saudi Arabia. Relaxing them too soon or too quickly will obviously have an unwanted impact on prices. This is particularly the case at the moment, where concerns are growing over the state of the Chinese economy with it clearly not recovering at the pace many had expected.     OPEC+ cuts and crude quality The scale of cuts we are seeing from OPEC+ might have taken time to be reflected in outright prices as well as time spreads. However, where it has been much more evident for several months, and only becoming increasingly more apparent, is in quality spreads. OPEC+ cuts have led to a reduction in medium sour crudes, whilst the supply growth we are seeing will be largely driven by lighter sweet crudes. This trend is well reflected in the Brent/Dubai spread which is seeing Brent trading at an unusual discount to Dubai. In fact, the spread has traded to deeper discounts than seen in 2020, where we saw 10MMbbls/d of supply cuts from OPEC+. The move in the spread suggests that we should be seeing Asian buyers turning increasingly to cheaper Atlantic Basin crudes. It is difficult to see a quick reversal in the Brent/Dubai spread, at least until we start to see Saudi and other OPEC+ members unwinding supply cuts. In the absence of this, we would likely need to see a tightening in the light sweet market. The tightness in the medium sour crude market is having an impact further downstream as well, with it leading to a tightening in the high sulphur fuel oil market. And in fact, in NW Europe this has seen the HSFO crack briefly trade at an unusual premium.   Russian oil supply risks Since Russia’s invasion of Ukraine, there has clearly been plenty of uncertainty over how Russian oil flows would evolve. However, Russia has surprised many in the market with how stubborn its export volumes have been. Large discounts have ensured that there have been willing buyers for this crude. Although, admittedly seaborne exports have been trending lower more recently, and the four-week rolling average has fallen below 3MMbbls/d, which is the lowest level seen since the start of the year. The supply cuts previously announced by Russia finally appear to be feeding through to lower export volumes. Although, it’s also worth pointing out that with Urals now trading above the G7 price cap, Western shipping and insurance cannot be used, although Russia seems to have built a fleet large enough to get around the price cap. There has also been an increase in tensions between Russia and Ukraine after Russia pulled out of the Black Sea Grain Initiative and threatened that any vessels calling at Ukrainian Black Sea ports could be treated as a potential military target. This development has only increased risks in the Black Sea with Ukraine retaliating with a similar threat. This obviously poses a potential risk to Russian crude oil exports from Novorossiysk with exports in the region of 500Mbbls/d. However, this is not the only volume exported from Russian Black Sea ports, Kazakhstan also exports in the region of 1.3MMbbls/d from the CPC terminal in Novorossiysk.   For now, though, the risk to this supply is thought to be low. Whilst Ukraine has targeted two Russian vessels recently, it has ]refrained from targeting commercial vessels. Any disruptions to energy or food supplies from the region will likely not be well received by Western allies.    US drilling activity continues to slow The number of active oil rigs in the US has fallen by a little more than 15% since the start of the year to 525, according to Baker Hughes, which has left oil rigs at their lowest levels since March 2022. This slowdown in drilling activity will unsurprisingly have an impact on the supply outlook, specifically over 2024. US crude oil supply is expected to grow by a little over 200Mbbls/d between July and December this year, whilst in 2024, average annual supply is expected to grow by a little more than 300Mbbls/d year-on-year. While more modest supply growth is expected, the US is still forecast to produce record levels of crude oil this year as well as in 2024. As for US inventories, commercial inventories continue to trend lower, having fallen by close to 42MMbbls since mid-March to a little under 440MMbbls currently. Stocks are at their lowest levels since early January, and whilst they are above the levels seen at this stage last year, they are trending just below the five-year average (a number which is admittedly inflated by 2020 inventory numbers). We are likely to see crude inventories continue to trend lower until September, which is when we should start to see refinery run rates fall due to refinery maintenance.     Global oil demand growth dominated by China (MMbbls/d)   Demand concerns linger Despite lingering demand concerns, global oil demand is still set to grow by around 1.9MMbbls/d this year to a record 101.8MMbbls/d. More than 60% of this growth is driven by China. Therefore, it is not too surprising to see that the oil market is nervous given the weaker-than-expected Chinese macro data that we have seen recently. However, despite this weaker data, the oil-related numbers remain largely supportive. Crude oil exports so far this year average 11.26MMbbls/d, up 12.4% YoY. Refinery activity has hit record levels this year, with a record 14.94MMbbls/d processed in March, whilst activity in July was the second highest on record. Finally, apparent oil demand has also hit record levels this year with the post-Covid rebound. Obviously crucial for the market is whether these numbers are sustainable over the second half of the year, given the slowdown we are seeing in other parts of the economy. The US for much of the year has also been a concern for the market. Given the pace of rate hikes, market participants were expecting a fairly aggressive slowdown in the latter part of 2023. However, the market is coming around to the idea that the US may be able to pull off a soft landing. We are still assuming that US oil demand will be largely flat year-on-year, but this may be too conservative, given that implied gasoline demand has been tracking above last year’s levels for much of the year. Implied US gasoline demand so far this year has averaged 8.88MMbbls/d, up by 1.4% YoY.   Speculators still holding a fairly neutral position in ICE Brent (000 lots)   Speculators holding back Speculative activity in oil, as in most commodities, continues to be relatively muted. This is despite constructive oil fundamentals for the remainder of the year. Speculators appear to be reluctant to carry too much risk at a time when China's recovery is clearly not going to plan, while there has also been plenty of uncertainty over how much more tightening we could see from central banks. When you combine these uncertainties along with higher rates, speculators may be less willing to hold too large an exposure in oil. However, any change in speculative appetite, combined with the current supportive fundamentals, could propel prices higher. From a historical perspective, speculators still have plenty of room to increase their positioning.     ING oil forecasts
Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

ING Economics ING Economics 22.08.2023 08:48
FX Daily: Manning the renminbi barricade In quiet summer FX markets, the top story remains Chinese authorities' defence of the renminbi, This stands to be a long campaign given that USD/CNY is trading near 7.30 for good reason. Elsewhere, tech stocks are making US equities look bid even though steadily higher US Treasury yields pose a challenge. And looks out for BRICS expansion news today.   USD: 'We've got tech stocks' US equity markets continue to outperform. This seems largely down to the rally in tech stocks on the AI bandwagon, where Nvidia's 2Q results are widely anticipated for tomorrow. US equity performance is adding to the sense of 'US exceptionalism', backed also by better growth numbers and a central bank that has more reason than most to stay hawkish late into its tightening cycle. There is only second-tier US macro data today, but with US Treasury yields continuing to push higher, headwinds to the equity rally are growing, and temporarily parking funds in the dollar paying 5.30% in overnight rates doesn't seem like a bad idea. Equally, we expect the dollar to stay largely bid into Friday's Jackson Hole speech from Fed Chair, Jay Powell. Two other highlights today. The first is the People's Bank of China's battle to keep USD/CNY under the 7.30 area. In addition to representing their displeasure with USD/CNY levels by printing very low onshore fixings (7.1992 last night), yesterday it seemed as though the focus was on the funding side where 1m CNH implied yields spiked over 5% (the highest since 2018) making it more expensive to run CNH short positions. As mentioned recently, Chinese FX intervention is opaque, but another measure to support the renminbi would be cutting the required reserves on FX deposits. Brief dips in USD/CNH see the dollar offered across the board, but with Chinese authorities cutting official interest rates, we suspect any CNH gains will be limited and temporary. Also today we see the start of the BRICS summit in South Africa. Expansion tops the agenda and names in the frame we think could be the United Arab Emirates, Egypt, and Bangladesh - all of which joined the BRICS New Development Bank in 2021. It would be a massive surprise were Saudi Arabia to join the grouping - which would inevitably lead to speculation over oil being priced in non-dollar currencies and a headline that may temporarily hit the dollar. DXY looks very comfortable within the 102.70-103.70 range.
Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

BRICS Expansion: Saudi Arabia's Surprise Entry Fuels De-Dollarization Debate

ING Economics ING Economics 24.08.2023 14:04
BRICS expansion: The Saudi surprise adds momentum to the de-dollarisation debate The big surprise from the BRICS summit in South Africa is that Saudi Arabia has been invited to join the group of major emerging countries. And that’s adding fresh impetus to the de-dollarisation debate, which is a potential challenge to the dominance of the US dollar in global trade.   Accelerated expansion We knew that the expansion of the BRICS grouping was top of the agenda at this 15th BRICS summit in South Africa. We had thought that the United Arab Emirates (UAE), Egypt and Bangladesh would be invited to join given they were already part of the BRICS’s New Development Bank. In the end, it was not only the UAE and Egypt invited to join, but also Saudi Arabia, Iran, Argentina and Ethiopia. The biggest surprise is Saudi Arabia. It had been rumoured that the country wanted to enter the group, but the geo-political situation – given tense relations with the West – raised doubts about whether Saudi Arabia would formalise political and economic ties with the BRICS.     Together with fellow oil and gas exporters Iran and the UAE, the admission of Saudi Arabia to the BRICS grouping will inevitably focus debate on the use of non-dollar currencies in trade. As an aside, at this conference, Brazil proposed to Argentina that Brazil would guarantee Argentine payments for Brazilian exports in renminbi. This is perhaps a reflection of Argentina’s ability to tap renminbi swap lines and expose the scarcity of dollars. Additionally, Argentina remains in dire financial straits as it struggles to source hard currency to service largely dollar-denominated debt.     Oil production split - BRICS vs Rest of World, and Saudi crude exports by destination (%, 2022)   Saudi switch to non-dollar invoicing? The recently-announced news that a handful of countries, including Saudi Arabia, the UAE and Iran have been invited to join BRICS increases the energy dominance of the group, specifically when it comes to crude oil. As it stands, BRICS members make up around 20% of global oil output. The addition of Saudi, the UAE and Iran would see the BRICS group make up almost 42% of global crude oil output. As for Saudi Arabia, it is the largest crude oil exporter. In 2022, the Kingdom exported around 7.3m b/d of crude oil, which makes up a little more than 17% of global crude oil exports. The bulk of these exports (76%) go to Asia, of which 35% go to BRICS members China and India. Therefore, given the ambitions of the BRICS to de-dollarise, there certainly will be increased speculation that this latest move could see Saudi Arabia increasingly switching to non-dollar-denominated currencies for oil trade. To some, it might make sense that Saudi Arabia starts accepting the Chinese yuan and Indian rupee from China and India for its crude oil. And there has been plenty of noise and reportedly discussions between Saudi Arabia and China on the matter. However, up until now, it does not appear as though the Saudis have been willing. The fact that the Saudi riyal is pegged to the US dollar might mean that the Saudis are reluctant to start making the shift.  However, where we have seen a shift is obviously in relation to Iran. Given sanctions, any buyers of its crude will be paying in non-dollar currencies. China is the largest buyer of Iranian oil at the moment and is reportedly paying in yuan.      Will BRICS expansion accelerate de-dollarisation? In our recently published report, we speculated on which countries could join BRICS and also examined all the evidence of de-dollarisation to date. We concluded that de-dollarisation had been very slow and that where market share had been lost by the dollar, it had largely been taken by the Chinese renminbi in the Asia space. News of this faster expansion – especially among the oil exporters – clearly adds some momentum to the de-dollarisation debate. We would reiterate, however, that energy only comprises 15% of global trade and that Saudi pricing oil exports to China and India in non-dollar currencies does not spell the end of the dollar as the international currency of choice.   As we argued, the liability role of an international currency is crucially important. Until international issuers and investors are happy to issue and hold international debt in non-dollar currencies – and the take-up of CNY Panda bonds has been very slow indeed – we suspect this will be a decade-long progression to a multi-polar world, a world in which perhaps the dollar, the euro and the renminbi become the dominant currencies in the Americas, Europe and Asia respectively.     The Saudi peg question Away from the implications of how quickly the dollar’s role as the only international currency is challenged, we are also interested in what this all means for the Saudi riyal, which has been pegged to the dollar at SAR3.75/USD since the 1980s. Any occasional bouts of speculation against the riyal – largely through the FX forwards market – have been quickly fought off by Saudi authorities. Should the Saudis start to de-dollarise their economy through increasing receipts on non-dollar currencies, investors may start to question whether changes will be coming to the peg – e.g. should the riyal be managed against a basket of currencies rather than against the dollar alone?     Presumably, Saudi authorities will not welcome this speculation, but expect investors to now keep a close eye on the 12-month USD/SAR forward, currently trading at 3.7570 and very close to the peg. This 12m forward can trade over 3.85 at times of speculation over a weaker riyal.   BRICS expansion in the context of global trade Putting the proposed expansion of BRICS into the global context, it appears that the new invitees can have a moderate impact on the structure of global trade. Currently, the core BRICS countries control around 23% of global exports and 19% of global imports, and the new members would add 3.7% and 3.0% to that, respectively, with Saudi Arabia being the biggest individual new member in terms of exports and the UAE the biggest new importer. Overall, the new additions would expand the weight of BRICS in global trade by around 16%.   New BRICS invitees account for 3.7% of global exports...   ..and 3.0% of global imports   New members have been increasingly focused on trade with BRICS lately Looking at the structure of international trade by the new members, their inclusion seems to reflect the growing trade ties with the original BRICS countries. Over the last few years, the share of core BRICS in the new invitees' imports increased from 23% to 30%, replacing the euro area, USA, and other developed economies. The share of core BRICS in the new additions' exports also increased but more modestly, from 25% to 28%. The growing trade interconnectedness seems to be providing some fundamental ground for political announcements.   Core BRICS countries have been gaining a role in the new member's imports...   ...and exports    
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BRICS Expands: A New League of Major Oil Producers Emerges

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.08.2023 09:21
A few more BRICS By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   BRICS – which includes the world's major energy-hungry nations like China and India, invited five countries - which happen to be the world's top oil producers Saudi Araba, Iran, UAE, Egypt and Argentina - to join the bloc. This means that the world's biggest oil producers and consumers will be forming a league within which – they are not necessarily willing to invent a gold-backed common currency – but where they will certainly be willing to settle their trades in terms of member-state currencies. The Chinese yuan could be a good candidate, the Indian rupee could be another alternative, or why not, the Russian ruble could also do the trick.   This is an important step towards weakening the petro-dollar, which is the outcome of an agreement back in the 1970s between Nixon administration and Saudi Arabia to trade oil exclusively in dollars in exchange for security guarantees from the US. Since then, OPEC has been selling its oil in USD terms. If we shift towards a new world order where oil and energy are no more traded in US dollars, that would be a major blow to the dollar as base and reserve currency, and that could also have major implications for the US economy's exploding debt that the rest of the world would not want to finance anymore, and the risk-free-ness of the US treasury.   But we won't reach that point tomorrow. First, China and India should end the conflict at their border. Second, a political alignment of EM countries with China and Russia is less evident than it sounds. India, for example, is not willing to make the US an enemy. PM Modi is the first foreign minister to address the US congress twice in the history of the United States, and many investments that leave China go to India.   But something is cooking in the EM kitchen and it's worth watching.   
The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

The Commodities Digest: US Crude Oil Inventories Decline Amidst Growing Supply Risks

ING Economics ING Economics 31.08.2023 10:15
The Commodities Feed: US crude oil inventories drop The oil market edged higher yesterday, though the move was fairly modest when you consider the large draws seen in US crude oil inventories along with growing supply risks in West Africa.   Energy - Large US crude draw The latest EIA numbers show that US commercial crude oil inventories fell by 10.58MMbbls over the last week, which leaves total crude oil inventories at 422.94MMbbls - the lowest level since December 2022. Crude oil inventories at Cushing also saw further declines, falling by 1.5MMbbls, which takes crude oil stocks at the WTI delivery hub to below 30MMbbls and to a level last seen in January. Lower imports and higher exports were largely behind the large draw. As for refined products, gasoline inventories fell by 214Mbbls over the week, whilst distillate fuel oil stocks increased by 1.24MMbbls. This build was despite refiners reducing their run rates over the course of the week. Gasoline demand was stronger over the week, with implied demand increasing by 158Mbbls/d WoW, taking it back above 9MMbbls/d. This might be short-lived, with hurricane activity in Florida this week possibly weighing on demand. Elsewhere, there are growing supply risks after a military coup in Gabon. The West African country is an OPEC member and produces around 200Mbbls/d. While the volumes are relatively small, clearly any disruption in what is already a tight market does not help. However, up until now, there have been no reports of disruptions to the oil supply. In the coming days, the market should receive more clarity on what Saudi Arabia will do with its additional voluntary cut of 1MMbbls/d. This cut was first implemented in July for a month, but the Saudis have rolled it over a couple of times already. Our expectation is that Saudi Arabia will extend this cut through into October. There are clearly still some broader demand concerns and returning this supply to the market could see Brent back below US$80/bbl - something the Saudis would prefer not to see.  
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Global Energy Markets: Oil Strengthens, Natural Gas Volatile, and Metal Concerns Loom

ING Economics ING Economics 01.09.2023 09:54
Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal.   Oil market tightness to persist Oil prices have strengthened over the summer, with ICE Brent convincingly breaking above US$80/bbl. The strength in the flat price has coincided with strength in time spreads, reflecting a tightening in the physical oil market. OPEC+ cuts, and in particular additional voluntary cuts from Saudi Arabia, mean that the market is drawing down inventories. We expect this trend will continue until the end of the year, which suggests that oil prices still have room to move higher from current levels. While the fundamentals are constructive, there are clear headwinds for the oil market. Firstly, it is becoming more apparent that the Fed will likely keep interest rates higher for longer and that, along with renewed USD strength, is a concern for markets. Secondly, Chinese macro data continues to disappoint, raising concerns over the outlook for the Chinese economy and what this ultimately means for oil demand. That said, up to now, Chinese demand indicators remain pretty strong. We expect the tight oil environment to persist through much of 2024 with limited non-OPEC supply growth, continued OPEC+ cuts and demand growth all ensuring that global inventories will decline. However, we could see some price weakness in early 2024, with the market forecast to be in a small surplus in the first quarter of next year before moving back into deficit for the remainder of 2024, which should keep prices well supported. The risks to our constructive view on the market (other than China demand concerns) include further growth in Iranian supply despite ongoing US sanctions and a possible easing in US sanctions against Venezuela, which could lead to some marginal increases in oil supply.  
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Oil Market Approaches $90/bbl Amid Saudi Cuts

ING Economics ING Economics 04.09.2023 10:44
The Commodities Feed: Oil cuts and LNG supply risks The oil market continues to move closer to US$$90/bbl. A possible rolling over of Saudi cuts could see it finally break this level. Gas markets will get some more clarity this week on Australian LNG with workers at 2 facilities set to go on strike as soon as this Thursday if unions and Chevron fail to come to a deal.   Energy - Saudi oil cuts The oil market had a strong week last week with ICE Brent managing to settle 4.82% higher, which also saw the market almost hit US$89/bbl and trading to its highest level since January. Support would have come from growing expectations that the Fed could be done with its hiking cycle. In addition, fundamentals remain constructive with the oil market set to continue to tighten for the remainder of the year. This tightening is largely due to OPEC+ supply cuts. However, whilst OPEC continues to cut, there are some producers within the group who continue to see output edge higher (Iran, Libya and Venezuela - these members are exempt from current supply cuts). Preliminary OPEC production data for August is starting to come through and the Bloomberg survey shows that the group increased output by 40Mbbls/d MoM to 27.82MMbbls/d. While Saudi output is estimated to have fallen by 130Mbbls/d to 8.98MMbbls/d, this was offset by increases from Iran and Nigeria. Iranian output is estimated to have increased by 90Mbbls/d to 3.07MMbbls/d. Nigerian output increased by 80Mbbls/d to 1.34MMbbls/d. This week the oil market will be focused on what Saudi Arabia decides to do with its additional voluntary cut of 1MMbbls/d. The Saudis will need to decide whether to roll this cut into October, let it expire at the end of September or gradually ease the cut from next month. We believe that the Saudis will likely roll over the cut into October, as they will not want to put any renewed downward pressure on the oil market, although fundamentally, the market should be able to absorb the return of these barrels, given the large deficit forecast for the rest of the year. The latest positioning data shows that speculators reduced their net long in ICE Brent by 15,544 lots over the last reporting week, leaving them with a net long of 202,227 lots as of last Tuesday. However, given the move in the market since then, along with the increase in open interest, the actual speculative net long has likely increased. Natural gas prices also remain fairly well supported with a combination of continued supply risks around Australian LNG as well as reduced Norwegian gas flows due to ongoing maintenance at fields. Strike action at the Gorgon and Wheatstone LNG facilities in Australia could start as soon as this Thursday if unions and Chevron do not come to an agreement.  
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The Commodities Feed: Oil Strengthens, LNG Labor Talks Escalate

ING Economics ING Economics 05.09.2023 11:26
The Commodities Feed: Oil spreads strengthen Sentiment in the oil market remains constructive. Price direction in the immediate term will be dictated by what Saudi Arabia and Russia decide to do with their supply cuts.   Energy- Further escalation in LNG labour talks The oil market managed to edge higher yesterday with ICE Brent settling at US$89/bbl, although trading volumes were relatively subdued owing to a public holiday in the US. Sentiment in the oil market remains largely constructive, particularly with a largely bullish narrative coming out of the ongoing APPEC week in Singapore. In addition, the oil market is waiting and expecting Saudi Arabia to extend its additional voluntary supply cut, while Russia is also expected to extend its cuts. Given market expectations, it is unlikely that the two producers would stray away from an extension and so risk a sell-off in the market. The strength that we have seen in the flat price over the last week has been accompanied by stronger time spreads, with the prompt spread strengthening to a backwardation of US$0.75/bbl, up from US$0.39/bbl at the start of last week. Meanwhile, the Dec’23/Dec’24 spread is now trading above US$6/bbl. These stronger spreads suggest that we will continue to see a tightening in the physical market, something which our balance sheet also shows through until the end of this year. Given that the market is only expected to tighten further, this suggests that there is room for further upside in both the flat price and time spreads. As for natural gas, negotiations between Chevron and unions do not appear to be progressing well. Partial strike action at the Gorgon and Wheatstone LNG facilities in Australia is set to commence on 7 September. However, the Offshore Alliance has now said it has served Chevron with a further notice for full rolling stoppages from 14 September. This is likely to provide some support to gas prices today and comes at a time when there is ongoing maintenance work at the Norwegian gas field, Troll, which has seen flows from Norway falling to around 130mcm/day, compared to more than 300mcm/day in mid-August.
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Brent Crude Prices Approach $90 with Continued Momentum

Kelvin Wong Kelvin Wong 05.09.2023 11:46
Brent rally cools after another strong week Tight market continues to support price No sign of technical divergence near $90 in Brent Oil prices are a little flat today after rallying another 5% last week. Brent hit a new high for 2023 in the process and, despite paring earlier gains today, there still appears to be plenty of momentum in the rally. That there is still plenty of momentum so close to $90 a barrel may suggest we could see a strong push to break above which would represent a big shift in the market dynamic in quite a short period of time. Saudi Arabia and Russia have been managing additional voluntary cuts on a monthly basis and could withdraw them at any point but I can’t imagine they’ll be in any rush and risk sending the price tumbling again.   Can Brent break $90? From a technical perspective, the most striking thing is the MACD and stochastic, both of which are continuing to trend higher alongside price.   Source – OANDA on Trading View When approaching areas of resistance, divergences between price and these momentum indicators can indicate the trend is weakening but so far that isn’t clear. Even on a lower timeframe chart, like the 4-hour, the last rally was matched with higher highs. So despite trading at the highest level this year and near $90, there is still plenty of momentum that could aid a powerful push against this resistance zone.   BCOUSD 4-Hour    
Crude Conundrum: Will Oil Prices Reach $100pb Amid Supply Cuts and Inflation Concerns?

Crude Conundrum: Will Oil Prices Reach $100pb Amid Supply Cuts and Inflation Concerns?

Ipek Ozkardeskaya Ipek Ozkardeskaya 06.09.2023 12:13
More cuts  Brent crude rallied past the $90pb yesterday, as US crude advanced above the $88pb mark as Saudi Arabia and Russia announce that they prolong their supply cuts. Saudi Arabia will continue reducing its own unilateral supply by 1mbpd to the end of the year, while Russia will be cutting 300'000 bpd. The kneejerk reaction to the news was a sharp jump in oil prices but the news was not a shocker per se, investors knew that something was cooking. What surprised the market, however, is the timeline: cuts are announced for another 3 months.   The million barrel question now is: is $100pb back on the table? It's unsure, and the road that could lead crude oil prices toward the $100pb psychological mark will likely be bumpy, because higher energy prices have already started being reflected in inflation and inflation expectations. As a result, the central banks, including the Fed, will have little choice but to keep their monetary policies sufficiently tight to prevent an uptick in inflation. That could mean further rate hikes, or keeping the rates at restrictive levels for longer, in which case, oil prices make a U-turn and cheapen due to recession and global demand concerns.   And when global demand worries kick in, and prices cheapen, Saudi will be losing money considering that the kingdom is shouldering the supply cut strategy for OPEC alone. For now, the demand outlook remains strong despite the slowing China and suffering Europe, but if it weakened, Saudi could easily change its mind, and the kingdom has a history of making sharp U-turns on its decision when winds turn against them. 
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Oil Market Surprises: Saudi and Russian Supply Cuts Extended

ING Economics ING Economics 06.09.2023 12:16
The Commodities Feed: Saudi and Russian oil cuts The oil market had largely expected the Saudis and Russians to extend supply cuts. What was unexpected was extending these cuts through until year-end.   Energy – Saudi extends cuts The oil market moved higher yesterday, with ICE Brent settling above US$90/bbl for the first time since November. Saudi and Russian supply cuts were the catalyst for the move higher. Saudi Arabia announced that it would extend its voluntary supply cut of 1MMbbls/d until the end of the year. Similarly, Russia said that it would extend its export cut of 300Mbbls/d through to year-end. While it was largely expected that these voluntary cuts would be extended, expectations were for a one-month extension rather than three months. This does leave the market with a deeper than expected deficit over the fourth quarter of 2023, which should continue to support prices. For now, we are reluctant to revise higher our price forecasts on the back of this extension, as demand concerns continue to linger and Iranian supply is rising. Iran is producing close to 3.1MMbbls/d and plans to pump around 3.4MMbbls/d. Meanwhile, our oil balance shows a small surplus in the first quarter of 2024, which should limit prices moving significantly higher. We continue to forecast that Brent will average US$92/bbl over the fourth quarter of this year. Looking further ahead, we would not rule out a further extension of these cuts (fully or partially) into early next year, given that our balance sheet shows that the oil market will be in a small surplus over the first quarter of next year. Any cuts will obviously depend on where oil is trading towards the end of the year and whether demand worries are still present.
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Loonie Strengthens Amidst Oil Price Surge; Potential for $100 Oil Risk Remains

Kelvin Wong Kelvin Wong 06.09.2023 13:10
Loonie pares losses alongside oil price surge Oil rises on OPEC+ action, but may remain a choppy trade on global growth concerns and rising Non-OPEC production $100 oil risk will remain on table throughout the winter   USD/CAD Daily Chart   After having its worst slide in a month, the Canadian dollar continues to weaken as investors digest the surprise Canadian contraction in the second quarter.   BOC rate hike bets are fading away but an outperformance with European currencies could limit the downside in the loonie.  Against the dollar, the Canadian currency might have an uphill battle.  Price action on the USD/CAD daily chart has extended above the 1.3600 level and is approaching key resistance at the 1.3700 handle, which was respected in both April and May. The Canadian dollar benefited from the surge in oil prices, but that might not be sustained as traders might focus on the economic outperformance with the US to the Canadian economy.  The US might see 5% or higher growth in Q3 and possibly above 2% growth in Q4, while Canada might be in the middle of a technical recession. The rally from 1.32 to 1.36 has been mostly a one-way move, so if sentiment changes for the US economy, a steep correction could quickly emerge.  The 1.3465 region would provide major support, followed by the psychological 1.3400 level. Oil   While global growth concerns intensify, OPEC+ appears to be committed to keeping the oil market tight no matter the cost to the global economy.  Brent crude surged above the $90 level after OPEC+ producers extended supply curbs until year-end. It looks like the Saudis and Russians are on the same page about keeping the oil market tight, with the Saudis extending their voluntary 1 million bpd cut to the end of the year, while the Russians will extend their 300,000 bpd oil export cut.     While the mood of markets was downbeat given the soft China and European PMIs, oil was only down modestly.  Expectations remain elevated that the US economy will have a solid third quarter and decent fourth quarter, which means recession risks will have to wait possibly till next year. China, the world’s second largest economy is adjusting to the end of easy money alongside subdued growth. The political landscape has made China less investable and that is hampering the growth outlook. With a mixed demand outlook heading towards the winter, the risks are still to the upside for oil prices.  The International Air Transport Association is seeing shorter delivery times, which could be a good sign that economic activity is increasing. WTI Crude Daily Chart   The supply side currently supports prices to remain capped around the $90 a barrel level as non-OPEC output rises, offsetting a good portion of OPEC’s extended cuts.  But if any supply outages emerge or if expectations grow for a cold winter, we could see $100 oil rather easily.
The Commodities Feed: Delayed LNG Strike Action and Tightening Oil Market Fundamentals

The Commodities Feed: Delayed LNG Strike Action and Tightening Oil Market Fundamentals

ING Economics ING Economics 08.09.2023 10:17
The Commodities Feed: LNG strike action delayed The oil market has shrugged off the weakness seen in equity markets with strong fundamentals continuing to support prices. Meanwhile, European gas prices came under pressure yesterday with delayed strike action at Australian LNG facilities raising hopes that parties could come to a deal.   Energy - Saudis increase prices into most regions Sentiment in the oil market remains constructive after Saudi Arabia and Russia decided to extend their voluntary supply cuts by three months. ICE Brent managed to edge higher yesterday, settling at US$90.60/bbl, whilst the Brent Dec’23/Dec’24 spread continues to surge, settling at a backwardation of US$7.28/bbl, up from less than US$4/bbl in late August. The strength in time spreads is clearly indicating tightness in the oil market. Our balance sheet shows that the market remains in deep deficit through until year-end, before moving back into a small surplus in 1Q24. While this surplus may lead to some price weakness early next year, we believe that it will be short-lived with the market set to return to deficit over the latter part of 2024.   Following the extension of Saudi cuts and the tightness in the market, it was no surprise that Saudi Arabia increased its official selling prices (OSP) for most grades of its crude into most regions. The flagship Arab Light into Asia saw its OSP raised by US$0.10/bbl MoM to US$3.60/bbl over the benchmark for October - the highest level seen so far this year. All other grades into Asia also saw increases, while similar action was taken for grades into the US and Med. Europe was the only region which saw some relief, with OSP’s for all grades cut. API data released overnight was constructive, showing that US crude oil inventories fell by 5.5MMbbls, This is larger than the roughly 2MMbbls draw the market was expecting. In addition, crude oil inventories at the WTI delivery hub, Cushing, declined by 1.35MMbbls. On the product side, gasoline stocks fell by 5.1MMbbls, while distillate stocks increased by 300Mbbls. The increase in distillate stocks was marginal but will help ease some concern over low middle-distillate inventories as we head into the northern hemisphere winter. The more widely followed EIA inventory report will be released later today.   Natural gas prices came under significant pressure yesterday with TTF falling by almost 10%. This is after growing optimism that strike action at two of Chevron’s LNG facilities in Australia may be avoided. Partial strike action was meant to start at Gorgon and Wheatstone today. However, this has been delayed until tomorrow as the company and unions continue to work towards a deal. The two facilities make up around 6% of global LNG supply so the market continues to watch these developments closely. The European market will also have to deal with lower Norwegian gas flows for a little bit longer than originally anticipated. Field maintenance at several fields, including Troll has been extended by a couple of days. Total Norwegian flows are around 137mcm/day, compared to more than 300mcm/day in mid-August.
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Commodities or AI: Which Will Take the Spotlight in Finance?

Saxo Bank Saxo Bank 12.09.2023 11:22
Are commodities on the verge of becoming the hottest topic in finance again, or will AI remain in focus? A year-long commodity sector correction showing signs of reversing The commodity sector looks set to start the third quarter on a firmer footing after months of weakness saw a partial reversal during June. Multiple developments, some based on expectations and some on actual developments, have all contributed to the strong gains, the most important being renewed dollar weakness as interest rate gaps narrow, OPEC’s active management of oil production and prices, the not-yet-realised prospect for the Chinese government stepping up its support for the economy and, not least, the risk of higher food prices into the autumn, as several key growing regions battle with hot and dry weather conditions.  Despite continued demand worries led by recession concerns in the US and Europe, the energy sector is holding up – supported by Saudi Arabia’s unilateral production cut, rising refinery margins into the peak summer demand season and speculative traders’ and investors’ belief in higher prices being near the weakest in more than ten years, thereby reducing the risk of additional aggressive macroeconomic-related selling. Elsewhere, we are seeing hot and dry weather raising concerns across the agriculture sector, while also raising demand for natural gas around the world from power generators towards cooling. The precious metal rally ran out of steam during the second quarter, as surging stock markets reduced the need for alternative investments while central banks continued to hike rates in order get inflation under control. Inflation may fall further but we increasingly see the risk of long-term inflation staying well above the 2% to 2.5% target area, and together with a growing bubble risk in stocks, continued strong demand from central banks, and the eventual peak in short-term rates as the FOMC shifts its focus, we see further upside for precious metals into the second half of the year. From the recent price performance across the different sectors, we could be seeing the first signs of markets bottoming out, with current levels already pricing in some of the worst-case growth scenarios. Data on the US economy is still showing economic activity below trend growth but is also not showing recession dynamics, and earnings estimates have increased substantially, especially in Europe, since the Q1 earnings season started in mid-April. The potential for additional gains from here, however, will primarily depend on whether China can deliver additional stimulus, thereby supporting demand for key commodities from crude oil to copper and iron ore. Weather developments across the coming weeks across the Northern Hemisphere and their impact on crop production will also be key. Gold pausing but a fresh record high remains the target Following a strong run-up in prices since November, gold spent most of the second quarter consolidating after briefly reaching a fresh record high. Sentiment is currently challenged by the recent stock market rally and the prospect for additional US rate hikes, thereby delaying the timing of a gold supportive peak in rates. So while the short-term outlook points to further consolidation below 2,000 dollars per ounce as we await incoming economic data, we keep an overall bullish outlook for gold and silver, driven among others by: continued dollar weakness; an economic slowdown, making current stock market gains untenable, leading to fresh safe-haven demand for precious metals; continued central bank demand providing a floor under the market; sticky US inflation struggling to reach the 2.5% long-term target set out by the US Federal Reserve (and if realised, it will likely to trigger a gold-supportive repricing of real yields lower), and a multipolar world raising the geopolitical temperature. In addition, silver may benefit from additional industrial metal strength, which could see it outperform gold. Overall, and based on the expectations and assumptions mentioned, we see the potential for gold reaching a fresh record high above $2100 before year-end.  
Crude Oil Prices Continue to Rise Amid Tight Supply and Economic Uncertainty

Downside Risks Loom Over Global Economy as Oil Market Remains in Deficit

Craig Erlam Craig Erlam 13.09.2023 09:00
Downside risks to the global economy remain Output restrictions from Saudi Arabia and Russia push oil market further into deficit Oil accelerates higher after brief consolidation   Oil prices are creeping higher again on Tuesday, with Brent trading around $92 despite there being a mixed view on the economic outlook. As we heard from the European Commission yesterday, growth in the euro area is going to be relatively minor, with Germany struggling to avoid another recession. The UK has shown a lot more resilience than anticipated but still faces recession risks and marginal growth at best. People are feeling a little more optimistic about the US, with last week’s services PMI backing that up, but even here there are significant downside risks. While China is a big unknown with efforts to stimulate the economy being targeted and far from guaranteed to boost growth substantially. That said, one thing we’re guaranteed is supply to continue to be restricted until the end of the year at least following the recent announcement by Saudi Arabia and Russia. That has created a deficit in the market that is supporting oil prices, with OPEC forecasting that the shortfall will run at around three million barrels per day, accelerating the drawdown in inventories.   Momentum appears to be picking up again The OPEC report gave oil prices an extra boost and that appears to have lifted the momentum indicators with it which could be a bullish signal if it continues.   BCOUSD Daily OANDA on Trading View     There’s no obvious resistance ahead of $100 which isn’t to say it will necessarily reach this level, or quickly, but last time it traded around here it was quite volatile between $90 and $100. An interesting level over the last year or so was $93.50 so it will be interesting to see how it trades around here again. The late-August and early-September rally was quite powerful and if we have now seen a break higher after consolidation, it will also be interesting to see whether that momentum continues or it faces more resistance.    
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The Impact of Global Developments on Financial Markets: Oil Prices, Inflation, and Equities

Saxo Bank Saxo Bank 13.09.2023 13:49
 Following on from weakness in the US and Europe, stocks in Asia fell across the board as oil prices extended gains ahead of today’s key US inflation report. The weakness in US stocks was led by technology companies with Apple dropping almost 2%. The potentially tightest oil market in a decade lifted oil prices while raising fresh inflation concerns saw the 2-year Treasury yield back above 5%, while the dollar traded mixed against its G10 peers after seeing broad gains on Tuesday. US CPI the focus today given the current 50/50 split on whether the FOMC will hike rates one more time.   Equities: Nasdaq 100 futures are sliding further this morning to the 15,478 level as Apple’s iPhone event last night failed to muster any excitement, which means that the market is now in a wait-and-see mode ahead of today’s US inflation report. Energy stocks continue to be in focus given the rally in Brent crude on estimated oil supply shortfall due to Saudi Arabia’s oil production cuts. FX: Higher crude oil prices made CAD the G-10 outperformer with USDCAD down to 1.3550 from 1.3590 but EUR attempted to catch up in late NY/early Asian hours on ECB leak that inflation forecasts may be raised higher which are seen to be raising the prospect of a hike this week. EURUSD jumped higher to 1.0770 with EURGBP above the 0.86 hurdle as GBPUSD dipped below 1.25 on not-so-hawkish labor market. USDCNH takes another leg lower below 7.29 but AUDUSD also dipped to 0.64 handle in Asia. Commodities: Saudi Arabia’s ‘stable market’ reason for cutting production rings increasingly hallow after OPEC in their monthly report said the market may experience a shortfall of 3.3m b/d in the fourth quarter. With the EIA meanwhile only predicting a 230k b/d shortfall, OPEC could find themselves being accused of trying to inflate prices to meet big spending plans among its members. IEA’s report will be on watch today ahead of the US CPI print and EIA’s weekly stock report which according to API’s figures may show a rise. Oil’s rally to a fresh 10-month high and the stronger dollar saw gold drop below 200DMA as inflation concerns returned, bringing more fear of rate hikes. Fixed income: European sovereign curves are likely to bear-flatten this morning after Reuters reported that the ECB expects inflation to remain above 3% next year and growth to be downgraded for this and next year. Despite the upcoming forecasts painting the perfect stagflation picture for the eurozone, policymakers will weigh their options carefully and tilt towards a hawkish pause rather than a hike. Yet, they might need to reinforce their message by ending reinvestments under the PEPP facility. That would buy them enough time to wait for rate hikes to feed through the economy instead of adding pressure to the German and Dutch recessions. The focus today is on the US CPI numbers and the 30-year US Treasury auction. Volatility: VIX traded 43 cents higher at 14.23, but more importantly the VIX futures traded 1.31 higher, up to 15.95, indicating there is some uncertainty about the upcoming US inflation report. Adobe, which is scheduled to release its earnings report later this week, closed lower yesterday. Options traders were divided on the stock, with the put/call ratio at 1, indicating that equal amounts of calls and puts were traded. This might suggest that there is no clear consensus on how the earnings report will be received.  Macro: ECB’s new 2024 inflation projection could be raised above 3% vs 3% in June, firming case for interest rate hike. ECB also to cut 2023 and 2024 economic growth projections to broadly in line with market expectations. UK labor report was mixed with headline earnings up 8.5% YoY in July vs. 8.2% expected. For more, read our latest Macro/FX Watch. In the news: Europe's high gas prices hit industrial output – full story on Reuters. Apple unveiled four new iPhone models with a muted reaction from investors in extended trading – full story in FT. Technical analysis: S&P 500 rejected at 4,540 resistance level, expect set back, support at 4,340.Nasdaq 100 rejected at 15,561 key resistance level. USDJPY uptrend eyeing 149-150. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. Brent oil uptrend potential to 98.50 Macro events: UK Industrial Production (Jul) exp. -0.7% m/m vs 1.8% prior (0600 GMT), US CPI (Aug) exp. 0.6% m/m and 0.2% core vs 02% and 0.2% prior (1230 GMT), US 30-year T-bond auction ($20 billion) Commodities events:  IEA’s Oil Market Report (0900 GMT), EIA’s Weekly Crude and Fuel Stock Report (1430 GMT) Earnings events: Inditex F424 1H results, which have already reported with EPS at €0.81 vs est. €0.80 and a small positive revenue surprise.  
USD Stable as Oil Prices Rebound Ahead of US CPI Report Release

USD Stable as Oil Prices Rebound Ahead of US CPI Report Release

FXMAG Team FXMAG Team 14.09.2023 09:57
USD: Oil price rebound continues ahead of US CPI report release The main foreign exchange rates have remained stable during the Asian trading session with USD/CNY continuing to trade just below the 7.3000-level and USD/JPY at just below 147.50. The verbal intervention from domestic policymakers in China and Japan to support their currencies has at least helped to stable their currencies close to recent lows although is unlikely to trigger a more sustained reversal of US dollar strength on its own. Market attention will shift back to the global inflation outlook today when the latest US CPI report for August will be released. The recent rebound in the price of oil and gasoline has continued at the start of this week which if sustained would create a more challenging backdrop for central banks next year in their ongoing efforts to bring inflation back down to their targets. The price of Brent crude oil rose further above USD92/barrel overnight extending its advance since the low last month to almost 13% and to almost 30% since the low from back in June. The latest data published by OPEC showed that global markets face a supply shortfall of more than 3 million barrels a day in Q4. If realized it could be the biggest inventory drawdown since at least 2007 according to Bloomberg. OPEC’s 13 members have pumped an average of 27.4 million barrels per day so far this quarter or roughly 1.8 million less than it believes consumers needed. This gap between OPEC supply and demand is expected to almost double in Q4 when it estimates it will need to provide 30.7 million barrels a day to satisfy demand. Saudi Arabia’s recent decision to extend production cuts until the end of this year means that OPEC supply is expected to remain stable. The developments are encouraging speculation that the price of oil could rise back above USD100/barrel by the end of this year. A negative development for global consumers and would limit room for central banks to reverse policy tightening in the year ahead.    
Oil Rally Driven by Saudi and Russian Cuts Continues Amid Economic Considerations

Oil Rally Driven by Saudi and Russian Cuts Continues Amid Economic Considerations

Craig Erlam Craig Erlam 19.09.2023 14:04
Saudi and Russian cuts continue to drive the price higher Could a cooler economy push it back? Momentum indicators continue to support the rally This oil rally has been relentless and I’m not seeing any signs of exhaustion yet. A 15% rally in the space of around three weeks to trade at levels not seen since last November and not far from triple figures, it’s been an impressive move and there could be more to come. Saudi Arabia and Russia have been very effective in squeezing a tight market that much further to create a situation in which oil prices are trading well above the zone they’ve been stuck around for much of the year. You would imagine there’ll be a limit to their ambitions, not to mention their desire to continue the additional voluntary cuts but that may well depend on the demand side over the coming months. They’re committed until the end of the year but if demand softens as those additional cuts expire then the price could cool somewhat. The group has been heavily criticized over the last year for what were labelled unjustified cuts but for the bulk of that time, the price hasn’t risen as much as thought. Is this a sign of cuts going a step too far or will demand weaken to the point of prices pulling back again?   No lack of momentum in the rally The key to this chart after such a powerful rally is the momentum indicators at the bottom and neither the stochastic nor MACD are showing signs of divergence.   BCOUSD Daily Source – OANDA on Trading View That doesn’t mean the price can’t fall or correct lower but it does suggest the rally is healthy, even after such a large move. If the rally does continue, it will be interesting to see whether divergences form on approach to $100. Psychology can often play a role in the markets and that could be the case again. This is also where the price failed last October and November barring a couple of brief moments above. $98 may also be an area of interest having been so at times in the past, although at that point I expect all of the talk will be about whether it can breach triple figures once more, and if so, where next?
Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.10.2023 08:17
Saudi's commitment is not written into a law By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Markets are on an emotional rollercoaster ride this week. The slightest data is capable of moving oceans. Yesterday, the significantly softer-than-expected ADP report, and the announcement that 75'000 healthcare workers at Kaiser went on strike sparked a positive reaction from the market in a typical 'bad news is good news' day. The US economy added only 89K new private jobs in September, much less than 153K penciled in by analysts. It was also the slowest job additions since January 2021. The rest of the data was mixed. US factory orders were better than expected in August, but the services PMI came close to slipping into the contraction zone, and the ISM's non-manufacturing component also hinted at slowing activity. Mortgage activity in the US fell to the lowest levels since 1995, as the 30-year mortgage rates spiked higher toward 8%. Housing and services are among the biggest contributors to high inflation besides energy prices, therefore, seeing these sectors cool down has a meaningful impact on inflation expectations, hence on Federal Reserve (Fed) expectations. As such, yesterday's soft-looking data tempered the Fed hawks, after the stronger-than-expected JOLTs data triggered panic the day before. The US 2-year yield took a dive toward the 5% mark, the 10-year yield bounced lower after flirting with the 4.90% level, while the 30-year hit 5% for the very first time since 2007 before bouncing lower on relieving news of soft job additions. Hallelujah.  The US dollar index retreated across the board, and equities rebounded. The S&P500 jumped from the lowest levels since the beginning of June. The score is now one to one. One good news for the US jobs market, and one bad news. Everyone is now holding his or her breath into Friday's jobs data, which will determine whether we will end this week with a sweet or a sour taste in our mouth. Sweet would be loosening jobs data, sour would be a still-strong jobs data which would fuel the hawkish Fed expectations and further boost US yields while the US yields are at a critical moment.   For the first time since 2002, the US 10-year yield comes at a spitting distance from the S&P500 earnings. The index is just about 60 points above its critical 200-DMA. Looking at the seasonality chart, the S&P500 could dip at about now. In this context, there is a chance that soft jobs data from the US marks a dip in the S&P500 selloff. But one thing is sure: the yields and the US dollar must come down to keep the S&P500 on a rising path. Profits at the S&P500 companies are inversely correlated with the US dollar as their international profits account for about a third of the total. If the yields and the US dollar continue to rise, the S&P500 will face severe headwinds into the year end.    Oil fell nearly 6%!  Rising suspicions that the global economy is headed straight into a wall didn't spare oil bulls yesterday. The barrel of American crude dived almost 6%, slipped below the 50-DMA ($85pb), and below the positive trend base building since the end of June. The 6.5-mio-barrel build in gasoline stockpiles last week helped bring the bears back to the market even though the data also showed a more than 2-mio-barrel draw in crude inventories over the same week.   Yesterday's move shows that what matters the most for intraday moves is the rhetoric. This summer, the market focus was on the tightening global oil supply and how the US will 'soft land' despite the aggressive Fed tightening. Now we start talking about slowing economies and recession worries.   OPEC decided to maintain its oil production strategy unchanged at yesterday's decision. Saudi and Russia repeated that they will keep their production restricted to maintain the positive pressure on oil. But if global demand cools down and volumes fall, both Saudi and Russia will be tempted to increase profits by selling more oil at a cheaper price. Saudi Arabia shouldering all the production cuts for OPEC is not written into a law, it could become uncertain if market conditions turn sour.
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Commodities Under Pressure: Yields and USD Strength Dictate Trends

ING Economics ING Economics 05.10.2023 08:22
The Commodities Feed: It's all about the yields The ‘higher-for-longer’ narrative for rates is pressuring the commodities complex, while the accompanying USD strength is adding further pressure.   Energy - Steady OPEC output The oil market struggled yesterday. ICE Brent settled a little more than 1.6% lower on the day as rising treasury yields and USD strength proved to be too much of an obstacle for the market. Technically, the Brent December contract still needs to fill the gap left following the November contract expiry on Friday. If that happens, it would take the front-month contract back above US$95/bbl. Preliminary OPEC production data for September is starting to come through. The Bloomberg survey showed that output increased by 50Mbbls/d MoM to 27.97MMbbls/d. Nigeria showed the largest increase over the month. Their supply grew by 60Mbbls/d, while Iran saw a marginal pullback in output of 50Mbbls/d. Output is likely to remain relatively steady over October. Further out, the market will be focused on any sign that Saudi Arabia is starting to unwind its voluntary additional supply cuts. There was a bit more noise yesterday around the resumption of Northern Iraqi oil flows through the Ceyhan pipeline. Turkey has said that flows could resume this week. However Iraqi officials have thrown cold water on the idea, saying that there are still some issues that need to be resolved before this can happen. The pipeline can carry almost 500Mbbls/d of crude oil from the Kurdish region to the Ceyhan export terminal. Flows were suspended back in March after the Iraqi government won an international arbitration ruling, stating that these flows were occurring without approval from the Iraqi government Metals - Gold plunges to seven-month low Gold plunged to its lowest level since March yesterday - edging closer to US$1,800/oz, as treasury yields continued to move higher and the USD also strengthened.  The higher-for-longer narrative has been putting significant pressure on gold, which is leading to a significant reduction in investment appetite reflected by the large declines in gold ETF holdings in recent months. Fed policy will remain key to the outlook for gold prices in the months ahead.
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AUD Weakens Post RBA Hike, Oil Takes a Hit: Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.11.2023 15:47
AUD weakens after RBA hike, oil downbeat By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The US bond yields rebounded, and the equity rally slowed on Monday. The US 10-year rebound from last Friday low, and the S&P500 consolidate gains near three-week highs. There are divergent opinions regarding whether last week's risk rally is on sufficiently solid ground to extend into a Santa rally, or it would simply fade away. And it all depends on what matters the most for investors. The softening Federal Reserve (Fed) and other central bank expectations and falling sovereign yields are positive for stock valuations, but the chatter of potentially higher-for-longer rates, growing signs of slowing global economy and the rising recession odds don't offer a bright outlook for equities into the year end. Seasonally speaking, November and December are known to be good months for the S&P500 stocks. In the past, the S&P500 stocks gained, on average, 1.8% in November and 0.9% in December. But this year, the picture is overshadowed by a lot of weak guidance and revenue warnings.   The chatter of weak demand and profit warnings are not great for equities but the worst news would be sticky inflation despite slowing growth and a persistently long period of high interest rates. For now, the Fed is perceived as being 'done' with interest rate hikes. But Powell is due to speak this week and he will probably leave the door open for a rate hike... otherwise he knows that all the past 1.5-year's efforts will be instantaneously thrown out of the window with everyone rushing to US treasuries – which would pull the yields lower and loosen the financial conditions and eventually boost growth and inflation. This is something the Fed doesn't want.   And despite a series of no rate hike news that we received over the past few weeks from major central banks including the Fed, the ECB and the BoE, the Reserve Bank of Australia (RBA) raised its rates by 25bp, as broadly expected, today. The RBA hike came as a sour reminder that there is no rule that says that a bank can't hike rates after pausing for four meetings. Interestingly, the AUDUSD fell after the decision, along with the Australian stock markets. Today's rate hike revived fears of economic slowdown more than appetite for higher Aussie yields – while a broad-based recovery in the US dollar and weak Chinese trade data certainly didn't help.  Speaking of weakness  The Chinese exports which are a good gauge of global economic health, are down for the 6th consecutive month and Iranian oil exports fell for the 2nd straight month to 1.43mbpd as demand in Asia weakened. That's certainly why we haven't seen oil prices react to the news of escalation tensions in the Middle East and the news that Saudi and Russia will keep their oil production curbs in place during the weekend. The barrel of crude is trading a touch above the $80pb psychological mark this morning. We revise our medium-term outlook for crude oil from neutral to negative. Last week's persistent selloff despite a broad-based risk rally, oil bulls' unresponsiveness to normally price-positive geopolitical developments and the fact that the market focus is shifting from supply to demand side hint that a fall below the $80pb is increasingly possible, and a verbal intervention from Saudi or OPEC won't prevent a deeper decline in the short run. Iran's implication in the Gaza war could be a game changer but the American crude is now in the medium-term bearish consolidation zone, and will remain downbeat below $81.50, the major 38.2% Fibonacci retracement on this summer's rally
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Oil Market Faces Headwinds: Brent Hits Lowest Since July as Supply Worries Ease

ING Economics ING Economics 08.11.2023 14:14
The Commodities Feed: Oil under pressure The oil market came under significant pressure yesterday. Brent traded down to its lowest level since July, while WTI broke below $80/bbl. There are signs that the oil balance is looking less tight and this comes at a time when concerns over supply disruptions from the Middle East ease.   Energy - Brent plummets The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and traded to its lowest level since July. Meanwhile, NYMEX WTI settled below US$80/bbl for the first time since August. The market is clearly less concerned about the potential for Middle Eastern supply disruptions and is instead focused on an easing in the balance. Prompt time spreads have weakened, suggesting a less tight physical market. And while there are clear demand concerns hovering over the market, supply dynamics have also played a role. For example, Russian seaborne crude oil exports have grown in recent months, which suggests that Russia is not sticking to its additional voluntary cut. The recent price weakness is likely to lead to growing noise from OPEC+ and in particular from Saudi Arabia. Whilst Saudi Arabia and Russia confirmed that they would continue with their additional voluntary cuts through until the year-end, it is increasingly likely that they will extend this into the new year if this downward pressure continues. The Saudis would like to keep Brent above US$80/bbl, as this is roughly where their fiscal breakeven price is. Our oil balance shows that the market will be in surplus in 1Q24, so further cuts are something we could certainly see. The weakness seen yesterday is likely to continue today. The API released inventory numbers overnight which were bearish. US crude oil inventories increased by 11.9MMbbls over the last week, while Cushing crude oil stocks grew by 1.1MMbbls. For refined products, gasoline inventories fell by 400Mbbls and distillate fuel oil stocks increased by 1MMbbls. The more widely followed EIA inventory report will be released later today. In the EIA’s latest Short-Term Energy Outlook, there was little change to US crude oil production estimates. US crude oil output is expected to average 12.9MMbbls/d this year, up 1MMbbls/d YoY, while supply growth is expected to be much more modest next year, increasing by less than 250Mbbls/d to average 13.15MMbbls/d Chinese October trade data released yesterday showed a fall in the trade surplus last month with weaker exports. However, imports were stronger, including crude oil. Crude oil imports averaged 11.58MMbbls/d in the month, up 3.7% MoM and 13.5% higher YoY. This leaves cumulative imports for the year at 11.41MMbbls/d, up 14.4% YoY. Stronger imports over the course of this year may reflect a recovery in domestic demand, while there will also be a fair amount of stock building.  
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OPEC Meeting Delayed: Analyzing the Potential Impact on Oil Prices and Saudi Arabia's Strategic Dilemma

Ipek Ozkardeskaya Ipek Ozkardeskaya 23.11.2023 13:06
Delay is no good sign By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   OPEC decided to delay this weekend's meeting to next week because talks between Saudi and African members apparently ran into trouble. Saudi likely sensed in this week's poor price action - 'buy the fact that Saudi will double its production cuts' action - that 1mbpd extra cut wouldn't send the oil prices higher, sustainably. Hence, Saudis need other member to put their hand in the mud, and seemingly the negotiations aren't easy.   A bit of history...  Saudi has a history of walking away from its role of 'swing producer' - a crucial role in balancing global oil markets by adjusting its production levels to stabilize prices. Back in the 1980s, Saudi Arabia has shifted its strategy and opted for a market share approach. Instead of cutting production to support oil prices, Saudi Arabia had decided to increase its output significantly, contributing to a glut in the global oil market.   Therefore, if Saudi doesn't get the support that it needs from the other producer countries after all the unilateral efforts that they put in, they will naturally be tempted to abandon the idea of doubling its supply cut, and eventually reverse it. Such a decision would lead to a sharp decline in oil prices and have a significant impact on the economies of other oil-producing nations.   The barrel of American crude sank to $73.50pb before rebounding to the $76 this morning. Brent fell below $80pb before rebounding above this level. Both in Brent and crude, the 200-DMA remains a solid resistance, as the worries of global slowdown outweigh the worries of supply restrictions, even more so as Saudis start giving signs of stress regarding their solo role in cutting production.  
Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Challenges and Contrasts: Navigating the Slippery Slope of Global Economies

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.11.2023 14:14
On a slippery floor By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   While the US economy has been surprisingly resilient this year to the Federal Reserve's (Fed) aggressive monetary tightening, we cannot say that we have a similar soothing picture in Europe. The energy crisis, that followed the pandemic, has been hard on Germany. The country needs money when money becomes rare and expensive. Germany decided to suspend the debt limit for the 4th consecutive year – signaling that borrowing in Europe will continue to increase, and the new debt that the Europeans will take on their shoulders will cost significantly higher than a few years ago.   German bonds fell yesterday on news of yet another suspension of the debt limit. The 10-year German yield advanced to 2.60%, Italy's 10-year yield jumped to 4.40%, the Italian – German yield spread rebounded this week from the lowest levels since September, and the widening yield spread between core and periphery could become a limiting factor for euro appetite at a time traders should decide whether the EURUSD should appreciate above the 1.10 psychological mark.   As per the European Central Bank (ECB) expectations, the European officials do their best to tame the rate cut expectations in the Eurozone. Belgian central bank governor Pierre Wunsch said yesterday that the ECB won't cut the rates as long as wages growth remains elevated, while the German central bank head Joachim Nagel said that cutting rates too early would be a mistake. A mistake? Maybe. Yet, economic data comes as further evidence that the European economies are not going toward sunny days. Released yesterday, the European PMI figures came in slightly better than expected, but the reading was below 50 for the 6th consecutive month, meaning that activity in the Eurozone contracted for the 6th consecutive month. The Eurozone GDP fell below 0 at the latest reading, while in comparison, the US GDP grew nearly 5%. This is to say that, based on the current data, the Fed has a greater margin for keeping rates steady than their European counterparts. It at least has better credibility. And the Fed's bigger hawkish margin compared to the ECB should keep the euro appetite limited against the US dollar following the rally since the beginning of October.   In the US, despite warnings that the falling US long-term yields will, at some point, trigger a hawkish reaction from the Fed and eventually reverse, the Fed doves remain in charge of the market. The US dollar index struggles to gain traction above the 200-DMA.   The USDJPY remains offered near the 50-DMA after the Japanese inflation advanced to a 3-month high in October (rose to 3.3% level from 3% printed a month earlier). Normally, it would've boosted bets of Bank of Japan (BoJ) normalization, but the BoJ should first awaken from its coma.  In energy, US crude trades near $75/76 region. Downside risks prevail due to speculation that the delayed OPEC meeting could result in Saudi Arabia not doubling its solo production cuts. There is even a slim possibility that they eventually reverse them.   I am wondering if this week's drama is not staged amid poor buying following the news that Saudi would doble its cuts, to cast shadow in Saudi's intention to defend oil prices, to bring attention to OPEC and to Saudi which finally would go ahead and double its production cuts hoping that the market reaction would be stronger than if they had announced the same outcome this weekend. In all cases, deteriorating growth prospects will likely limit the upside potential in oil prices in the medium run. The short run will certainly see more volatility.    
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The Dollar Index Extends Losses Below 200-DMA Despite Yields Rebound: Weekly Market Analysis

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.11.2023 15:12
The dollar index extends losses below 200-DMA   Friday's rebound in the US yields couldn't give a bullish shift to the US dollar. The dollar index slipped below its 200-DMA, closed the week below this level and is under renewed selling pressure this morning despite positive pressure on the yields. The broad-based dollar weakness helps the EURUSD extend gains to 1.0950, with solid resistance seen into the 1.10 level given weaker growth perspectives for the European economies compared to the US in the coming months. Cable trades past the 1.26 level, while the USDJPY remains offered near the 50-DMA, near the 149 level. The yen is benefiting from rumours that a growing number of institutional players are turning long yen on expectation that the Bank of Japan (BoJ) will one day normalize its rate policy. Every day that goes by brings the BoJ closer to normalization and there is a great upside potential for the yen at the current levels – hence a great downside potential for the USDJPY. Yet the right time for getting long yen is anybody's guess. What we know however is that the upside potential in the USDJPY is certainly limited above the 150 level.   In commodities, gold pulled out offers at the $2000 per ounce and is trading above this level this morning. The softer dollar gives support to the yellow metal, yet the rebound in the US long-term yields, news of a potential extension of cease fire in Gaza beyond today and the fact that the precious metal is worth just shy of its ATH levels hint at a limited upside potential at the current levels.   In energy, appetite in oil is nowhere to be found this morning. The barrel of US crude trades below the $75pb level despite news that OPEC+ is nearing a resolution of the disagreement on output quotas, which led to the group delaying a crucial meeting last weekend. Officials said that discussions with the African nations over the production quotas continue and agreement is within reach – in which case Saudi will likely announce at least 1mbpd extra supply cut to prevent oil bulls from leaving the battlefield. But oil traders need more effort to reverse the selloff in oil prices. The barrel of US crude sees strong resistance around the 200-DMA, near the $78pb level, and the price should rally past the $81pb level for the current bearish trend to reverse. 
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OPEC Crude Oil Production Dips in November Amidst Market Skepticism and Global Supply Concerns

ING Economics ING Economics 04.12.2023 14:19
Energy – OPEC crude oil production softens in November Sentiment in the oil market remains negative this morning, with both ICE and WTI futures trading almost 1% lower after the announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term. Pessimism over compliance with the new deal remains one of the major concerns for the market for now. Initial data shows that OPEC crude oil production dropped to around 28.05MMbbls/d in November 2023 compared to 28.19MMbbls/d in October 2023, according to a Bloomberg survey. The BBG survey estimates that supply from Iraq and Nigeria dropped by 50Mbbls/d each, while Iran and Kuwait also lowered production by 40Mbbls/d each. Higher production from Saudi Arabia and Libya helped offset some of the production losses for the month. Weekly data from Baker Hughes shows that the US added five oil rigs over the last week, taking the total oil rig count to 505, whilst the gas rigs fell by 1, taking the total rig count (oil & and gas combined) to 625 for the week ended 1 December. US oil rigs have now increased to their highest level in nearly two months, although the recent weakness in oil prices could weigh on further rig additions over the coming weeks. The Al-Zour refinery in Kuwait is now fully operational as the third of the three mini refineries was brought online on Sunday. This will gradually increase the refining capacity of the facility to 615Mbbls/d from the current capacity of 410Mbbls/d. The plant halted its operational activities last month after a fuel gas feed was halted. Al-Zour is one of the largest oil-processing facilities in the Middle East and it is expected to boost the nation’s refining capacity to about 1.5MMbbl/d. The latest positioning data from CFTC shows that speculators decreased their net long position in NYMEX WTI by 6,408 lots for a ninth straight week over the last week, leaving them with net longs of 98,137 lots as of 28 November 2023, the lowest since the week ending on 4 July 2023. In contrast, money managers increased their net longs in ICE Brent by 11,630 lots over the last week after reporting five consecutive weeks of decline, leaving them with a net long position of 166,735 lots as of last Tuesday.
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OPEC+ Tentatively Agrees to 2.2 Million Barrels per Day Cut, but Skepticism Prevails as Full Compliance Appears Unlikely

Kenny Fisher Kenny Fisher 04.12.2023 14:50
OPEC+ unofficially agree to 2.2 million barrel per day cut Full compliance with cuts already looks unlikely Brent continues to consolidate near recent lows Oil prices remain quite volatile but more importantly, not too far from their recent lows after traders judged yesterday’s announcement from OPEC+ with some skepticism. The lack of an official announcement, with details gradually appearing from individual member states indicated there’s no firm commitment to the 2.2 million barrel per day cut. And Angola insisting straight after it won’t comply further solidified that view. Saudi Arabia will be hoping that others will, in the main comply, after it committed to extending its one million barrel cut until the end of March, while Russia increased its export reduction from 300,000 to 500,000. But it seems traders either aren’t buying that members will be compliant or don’t view it as being sufficient. Or, of course, that the lack of formal commitment hints at fractures within the alliance which could impact its ability to hit its targets, let alone cut further if necessary. If Brent breaks below its November lows, it will be perfectly clear what markets think of the deal.   rent was testing a big area of resistance ahead of the OPEC+ announcement but has since headed lower creating a very interesting setup. Brent Crude Daily Source – OANDA on Trading View An imperfect inverse head and shoulders appears to be forming with the neckline around the 200/233-day simple moving average band (red). It was also an important area of support over the last few months. A move below the recent lows around $77 though would be a very bearish development, especially against the backdrop of the OPEC+ deal.
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Scream Correction: Crude Oil Plummets Below $70pb Despite OPEC's Efforts

ING Economics ING Economics 12.12.2023 13:09
Scream correction.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   US crude plummeted 4% yesterday and sank below the $70pb mark and Brent slipped below $75pb. Momentum traders and falling volumes worsened crude's recent plunge while OPEC's latest announcement of output cuts and Saudi's additional threats that they will extend their solo cut beyond Q1 went totally unheard. Worse, as the bears saw that investors ignored the supply cuts and threats, they feel more confident to increase their bets against crude. And indeed, the cartel's shrinking share of global output and frictions among members regarding the supply cut strategy mean that either the supply cuts don't make much difference, or further action will be difficult and perhaps too costly. Add the global slowdown woes into that mix, the dwindling falling interest and algorithmic trades' lack of emotion regarding the OPEC news, you understand why the barrel of crude is below $70pb and not above $100pb this December, as many banks had forecasted at the start of the year. And if a more than 4.5mio barrel fall in the US oil reserves last week couldn't halt yesterday's oil selloff, it is because the most recent number was blurred by a big margin error, the biggest on record – or the bulls just couldn't find the energy to swim against such a strong tide.   The question on the back of everyone's mind is: could crude oil extend losses? At the current levels, crude oil is trading near oversold market territory, therefore your algorithmic models based on market metrics should take than into account and slow selling. As such, we shall see a certain rebound at the current levels. Yet any price recovery could remain limited at $75/78 range, including the minor 23.6% Fibonacci retracement and the 200-DMA, and once the time is right, we could see this negative move extent to $65/67 region.   Remains the question of US strategic reserves that the US is said to consider refilling between $67/72 region. Yes, that will certainly help slow the downside pressure at this range but keep in mind that these  buybacks are limited to about 3 mio barrels per month due to physical constraints and won't reverse the tide.   Now that OPEC risk is out of the way, the biggest upside risk for oil is Middle East tensions.     

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