Oil Declines From Three-Month High as Dollar Surges
Oil plunged from a ninety-day high after the U.S. dollar surged, halting investor appetite for commodities.
Futures pulled back as the Bloomberg Dollar Spot Index rose from the lowest level since June. The fall in oil prices increased after Baker Hughes Inc. data showed that the total number of U.S oil rigs increased for the first time this year.
“Oil is going to slip when the dollar stops plunging,” said Thomas Finlon, director of Energy Analytics Group LLC in Jupiter, Florida. “We’ve had a dramatic rally to highs for the year and it’s time for things to calm down for a bit. I don’t think this disrupts the overall trend at all, and we should soon resume the move higher.”
Prior to the data, oil prices advanced due to lower U.S. oil production and improved central-bank policies for demand growth even as they pressured the dollar.
West Texas Intermediate oil capped a fifth weekly gain amid speculation that stronger demand and shrinking U.S. shale production will ease a global glut.
The Federal Reserve signaled a slower pace of rate increases, and Norway and Indonesia cut borrowing costs on Thursday, a week after the European Central Bank boosted stimulus. The Fed headlines sent the dollar lower, bolstering the appeal of commodities priced in the currency.
Oil Prices Rise Amidst Global Banking Concerns and Russian Nuclear Tensions
Oil prices rose on Monday as investors evaluated efforts by authorities to address concerns about the global banking system.
Brent crude oil, against which Nigerian oil is priced increased by 1.03% or 77 cents, reaching $75.76 a barrel at 9:00 am, while the US West Texas Intermediate crude rose by 1.03% or 74 cents to $70 a barrel. This follows a 2.8% increase in Brent and a 3.8% rebound in WTI as concerns in the banking sector decreased.
Despite the oil fundamentals remaining on the sidelines, crude markets are observing the sentiment in the financial market, according to Vandana Hari, the founder of oil market analysis provider Vanda Insights.
Hari stated, “Expect most price action in Brent and WTI futures to occur during the Europe and US trading hours, marked by plenty of intraday volatility.” Hari added that a strong rebound is not expected until the banking crisis is fully resolved, which may take days or weeks.
In other news, First Citizens BancShares Inc announced that it will acquire the deposits and loans of Silicon Valley Bank, closing one chapter in the financial market crisis. Furthermore, the US authorities are reportedly discussing expanding emergency lending facilities, which has given hopes for additional support for bank funding.
Oil prices have also gained support from Russian President Vladimir Putin’s announcement to place tactical nuclear weapons in Belarus, which has escalated tensions in Europe. It is one of Russia’s most significant nuclear signals yet, and it serves as a warning to NATO over its military support for Ukraine.
In response, Ukraine has called for a meeting of the United Nations Security Council, and NATO criticized Putin’s “dangerous and irresponsible” nuclear rhetoric.
Despite the rise in oil prices, Russia’s Deputy Prime Minister Alexander Novak has reported that Moscow is on the verge of achieving its target of reducing crude output by 500,000 barrels per day (bpd) to around 9.5 million bpd.
However, according to industry sources and Reuters calculations, Russia’s crude exports are expected to remain steady as it cuts refinery output in April. Since September 2022, Russian crude stocks have been increasing, and experts suggest that if Russia wants to draw down the inventories it has built, output cuts may need to be extended beyond June.
Meanwhile, in France, industrial action is affecting refineries, reducing crude demand and fuel production. Investors are awaiting China’s manufacturing and services purchasing managers’ indexes for cues on demand from the world’s leading crude oil importer.
According to Baker Hughes Co, oil rigs rose by four to 593 last week in the US, up for the first time in six weeks, while gas rigs held steady at 162.
NASENI Solar Cell Factory to be A Game Changer in Nigeria’s Energy Sector
The National Agency for Science and Engineering Infrastructure (NASENI) which recently laid the foundation for its solar cell production factory in Gora, Nasarawa state Nigeria, has positioned to be a game changer in the nation’s energy sector.
The Executive Vice-chairman and Chief Executive of NASENI during the foundation laying ceremony Prof. Mohammad Sani Haruna disclosed that the agency has embarked on a $325,860,690 solar cells production plant to make power affordable.
He stated that the agency’s goal was to use science, innovation, and technology, to advance local contends interventions in power sector reforms.
In his words, “The cost of solar energy is still beyond the affordability of an average Nigerian hence the necessity of this project. When fully commissioned, the price per watt of solar power supply will be cheap enough to be affordable to everyone and it is a game changer in the energy and power supply industry as well as industrial development in Nigeria. This singular project has the capacity to positively change the energy status of Nigeria, the region, and the continent of Africa since it is the first of its type”.
Also present at the foundation laying ceremony, Nigeria’s Vice President Prof. Yemi Osinbajo disclosed that the solar cell production factory will lead to solar manufacturing in the country. He was also positive that the NASENI solar cell production plant will meet and surpass expectations when it becomes fully operational.
In his words,
“This landmark achievement places Nigeria within the ranks of countries pushing the boundaries in the use of climate-smart energy sources, particularly solar power. And as we have heard, this particular project is built on 10 years of work. 10 years ago, NASENI established its 7.5mw solar panel production plant. Its capacity is now 21MW. NASENI solar cell production factory in Nigeria will be a game changer, given the urgency of climate action today and the importance of developing African green energy manufacturing and solutions”.
The National Agency for Science and Engineering Infrastructure (NASENI) last year stated that it received a directive from President Muhammadu Buhari to produce more solar cells to boost Nigeria’s alternative power sources.
Investors King understands that for over 10 years, NASENI has been consistent in championing solar power as an alternative to hydro and fossil power. The agency’s target is to contribute 50 megawatts of solar energy to Nigeria’s electricity by 2023. The agency has already achieved about 21 Megawatts per annum with installed capacity through its NASENI Solar Energy Limited, a manufacturing plant located in Karshi, Abuja.
In Nigeria, the rapid population increase and the overreliance on fossil fuel have no doubt created significant environmental, health, and economic consequences which have led to severe socio-economic drawbacks.
Also, the energy deficit has led to poverty, economic decline, hardship, and several negative impacts. That is to say that a constant and stable energy supply is fundamental to the development of the country. With the commencement of the NASENI solar cell production plant and the agency’s commitment to enhance Nigeria’s energy sector, it is not far-fetched to say that the nation will record several remarkable achievements as a result of improved energy supply.
A Dovish Shift From the Fed
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Equity markets in Europe opened a little lower on Thursday following a very mixed session in Asia and some heavy selling on the other side of the pond on Wednesday.
While investors have been relieved that this week has brought no new instability in the banking sector (yet), they are a little concerned by what they heard from the Fed and Treasury Secretary Janet Yellen yesterday.
The central bank hiked interest rates by 25 basis points, in line with expectations, but the language that accompanied it was far less hawkish than before, reflecting the uncertainty that the recent mini-banking crisis has created.
Jerome Powell and his colleagues are clearly concerned about the impact of recent events on credit conditions which may impact lending to households and businesses, slow the economy, and weigh on inflation. While this would do some of its job for it, in bringing inflation back to target, it won’t do so in the way that it will have wanted.
What’s more, the risks of further fallout have left investors nervous and while the Fed is not pricing in any rate cuts this year, markets very much are. We may not see those risks reflected in Fed forecasts and the dot plot but they are evident in the language used, as they were with the ECB last week.
BoE left with little wiggle room
The Bank of England is up next and it also finds itself left with little option but to raise rates again despite the events of the last couple of weeks. Regardless of yesterday’s inflation data, the MPC may have opted for another 25 basis points anyway as its counterparts in the US and euro area have stuck to their plan without any negative repercussions.
But the February CPI readings removed any flexibility they may have thought they had and now markets are pricing in a higher terminal rate of around 4.5% as a result. This makes the language that accompanies the decision key and I expect it will use the same playbook as the Fed and ECB in highlighting the uncertainty around the outlook and the need to take it one meeting at a time and be data-dependent.
Signs of permanent damage in oil?
Oil prices are a little lower today after gradually recovering in recent days. While no one can say with confidence that a banking crisis has been averted, there is growing confidence that the actions taken by central banks, regulators, and governments have significantly reduced the odds of one, particularly a severe scenario, and that is ultimately good for the economy and crude demand.
So while we saw Brent and WTI plunge to late-2021 levels amid the panic of the various collapses, they have bounced back almost 10% in recent days. That said, they remain below the range lows that preceded the sell-off and have even run into resistance around those lows over the last couple of days. A move back above here may suggest confidence is returning while a failure to do so may indicate some more permanent damage to expectations.
Gold shining once more?
Gold has been buoyed by the less hawkish stance from the Fed and the market perception that the central bank will swiftly reverse course on interest rates. While Powell pushed back against this, markets have other ideas and that’s enabled the dollar to soften, yields to pull back, and gold to rally.
Throw in some risk-aversion on the back of Yellen’s comments on the government not considering blanket insurance for bank deposits and gold is beginning to shine once more. It now has $2,000 in its sights once more – a level it has rarely ever traded above – and record highs are not that far above either. This could potentially become a very favourable environment for the yellow metal.
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