Oil Plunged to almost two months low as Saudi Arabia and Iran pulled out of oil-freeze discussions to cap production on Sunday.
Currencies of oil exporting nations also tumbled, followed by Global stocks as demand for safe haven assets boosted the yen and Treasuries.
The Canadian dollar and Russia’s ruble posted the biggest losses, while U.S. oil, West Texas Intermediate plunged 6.8 percent during Asia trading session on Monday.
Japanese yen rose to 17 month high against the U.S. dollar after G20 finance ministers oppose restraining the safe haven gains. The Stoxx Europe 600 and U.S. futures declined, with MSCI Asia Pacific index of shares plunging from a four months high.
Global equities rebounded from multi-year lows two months ago amid prospect oil producers would freeze production to address global glut.
“There was an expectation baked into prices that you’d see a production freeze, and with no resolution, it adds to negative drivers for the oil price, commodities and commodity currencies,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion. “We will probably see equity markets go off the boil as some of that recent strength in the materials and energy stocks unwinds. The reporting season remains in focus this week.”
NNPCL to Lead Africa’s Transition to Clean Energy
The Nigerian National Petroleum Company Limited (NNPCL) has set itself up to lead Africa’s transition to a more sustainable energy source.
The Chief Executive Officer and Group Managing Director, NNPCL, Malam Mele Kyari, made this announcement during his lecture at the 30th Convocation of the Federal University of Technology Minna, Niger State.
The lecture titled “Energy Transition & Energy Accessibility – The New Paradigm” focused on how NNPCL can transit to low-carbon energy and renewables.
According to Kyari, the national energy company is expanding its use of natural gas and infrastructure backbone from Ajaokuta in Kogi state to Kano via Abuja and Kaduna.
In addition, he stated that this massive pipeline will receive fuel from the Obiafu-Obrikom-Oben (OB3) and Escravos-Lagos Pipeline System (ELPS) gas pipelines through the Oben node in Edo State and transport 2 billion standard cubic feet of natural gas to power plants and industrial off-takers in Abuja, Kaduna, and Kano.
He went on to say that as a national oil company and a major participant worldwide, NNPCL is prepared to transition to renewable energy.
“We are taking a firm position in this transformation by institutionalizing the required enablers for success,” the GMD hinted.
As an Energy Company of Global Excellence, NNPCL has changed the NNPCL R&D Division into a Renewable Energy Division, Kyari stated.
He further said NNPCL welcomes collaborative relationships with academics and business professionals who may conduct fruitful research and innovation in the energy sector.
He asserts that oil will continue to play a significant role in the global energy mix of the present and the future.
However, Kyari pointed out that as the shift to less expensive energy picks up speed, particularly in developed nations, oil companies must continually boost operational effectiveness and cut costs to be competitive.
He said earlier in the presentation that Africa is particularly blessed with an abundance of sunshine, which may enable a significant development of renewable energy and place Africa on the map of the world’s energy-sufficient regions.
Kyari said “what Africa needs is energy transition that addresses energy poverty across the continent and supports the use of comparative and cheaper available energy resources in Africa” in light of the financial strain required to move at the same rate as the rest of the globe.
Benefits of the New NNPCL
Transparency and good governance
Nigeria’s oil and gas company, NNPCL, is set to be privatized with the sale of shares to the public, like Petrobras of Brazil and Aramco of Saudi Arabia. Prior to the transition, political interference, lack of transparency and accountability, and bureaucracy shrouded the activities of the Company. The new development must be approved by the government and endorsed by the National Economic Council on behalf of the federation.
Increased revenue to the government
The transition is expected to increase the revenue base of the government. NNPC would soon emerge as the fifth-largest gas-producing in the world, adding that the new legislation would provide business opportunities that would enable it to earn more revenue for the country.
Speaking on the development, Dr Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), said the transition would now absolve the state-owned oil company from political interference and bureaucratic bottlenecks.
“We will see an NNPC that is independent and autonomous and an NNPC that would be decoupled or insulated from political interference and bureaucracy,” Yusuf said.
BoE Decision Eyed as Fed Cools Reversal Speculation
Fed officials have been out in force again; this time with a focus on market expectations of a swift reversal from rate hikes to cuts early next year
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
We’re seeing a little more positivity in the markets after another lively week and there’s still plenty to come as we get closer to the weekend.
Fed officials have been out in force again; this time with a focus on market expectations of a swift reversal from rate hikes to cuts early next year. Both Mary Daly and Neel Kashkari were very clear that it’s unreasonable to expect such a policy u-turn given the inflation environment, with Kashkari even saying he’s not sure what markets are looking at.
Daly did throw her support behind a 50 basis point hike in September, calling it the reasonable thing to do, which investors will no doubt have enjoyed. There’s a long way to go until that meeting though and a lot can change in that time. Loretta Mester is up next and I’m sure traders will be clinging to her every word, especially those of a dovish nature.
BoE is expected to accelerate tightening alongside new forecasts
Before that, attention will shift to this side of the pond and the Bank of England as it decides whether to join many of its peers in hiking rates by 50 basis points. The MPC started its tightening cycle earlier than most and has taken a very steady approach since. But with inflation seen peaking above 11% later this year, which could be revised even higher today, the time may have come for more decisive action.
Markets have almost fully priced in a 50 basis point hike but some economists are not convinced and for good reason. The central bank hasn’t always done what was expected over the last 12 months, nor been in any rush to do as other central banks are doing. It would be very on-brand to disregard market pricing and hike by 25 again although it is becoming increasingly difficult to justify.
The central bank is also expected to release details on its quantitative tightening plans, which could come into force next month. A combination of allowing bonds to mature and actively selling others in the market is expected and traders are hoping for details today. Throw in new economic forecasts and it promises to be another lively session.
Can oil break $90?
Oil prices are a little lower again today after tumbling a day earlier on the back of a surprise surge in inventories. The 4.5 million barrel increase in stocks caught the market off guard, with forecasts pointing to a small decline. New talks in Vienna over the nuclear accord may also be contributing to some of the weakness.
Add into the mix the new OPEC+ deal which aims to increase production by 100,000 barrels per day and the price naturally slipped a little. The deal isn’t huge but given the economic environment and downside growth risks ahead, it’s not surprising that they’ve taken a conservative approach. The key question is how big the shortfall will be going forward.
A break below $90 is now a very real possibility which is quite remarkable given how tight the market remains and how little scope there is to relieve that. But recession talk is getting louder and should it become reality, it will likely address some of the imbalance. Just not in the way we’d like.
Gold eyeing another run at $1,800?
Gold is pushing higher again this morning as yields ease of this week’s highs and the dollar softens. I’m not sure if this is a case of the Fed’s message not getting through or investors not buying it but the market is still favouring 50 basis points in September and a reversal towards the middle of next year.
If that remains the case, we could see gold prices continue to edge higher and push against $1,780-1,800 where it has already run into resistance. More recession talk could also favour gold as it may lower interest rate expectations and trigger safe-haven flows.
Bitcoin recovery stalls amid Solana hack
Bitcoin is struggling a little this morning, falling back below $23,000 and down almost 2% on the day. It appears to be finding fresh support on Wednesday but that has quickly stalled which could be a concern. Especially amid an improvement in risk appetite across the markets. Reports of around 8,000 Solana wallets being drained following a hack may be contributing to the downbeat start to trade on Thursday, with it being the latest in a series of negative headlines in the crypto space.
Nerves Amid China Warnings
By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
We’re seeing more risk aversion on Tuesday as Nancy Pelosi’s trip to Taiwan generates numerous unsettling headlines at a time of strained ties between the US and China.
US House Speaker Pelosi’s proposed visit has been met with numerous threats from Beijing including an unspecified military response. They have continued this morning, hours ahead of the apparent arrival which is clearly making investors very nervous.
Stock markets throughout most of Asia are in the red, with those in China, Hong Kong and Taiwan unsurprisingly seeing the biggest declines. In Europe, it’s more of a mixed bag while US futures are pointing to a slightly lower open which may change in the hours leading up to the opening bell depending on where Pelosi touches down.
Another member of camp “data-dependent”
The Australian dollar slid on Tuesday as the RBA joined the Fed in camp “data-dependent” following a string of aggressive rate hikes. The central bank maintained that further tightening will be warranted but was keen to stress that they are not on a pre-set path and that they will be driven by the data.
The RBAs forecasts highlight the challenges facing the economy, with unemployment seen falling a little further before rising to 4% but this is naturally subject to immense uncertainty in the outlook. I expect the RBA, like the Fed and others, will continue tightening fairly aggressively over the course of the remainder of the year before proceeding with far more caution into 2023.
Smashed it out of the park
BP unsurprisingly smashed it out of the park in the second quarter, reporting its second highest profit ever as energy firms continue to capitalise on soaring prices. The company has boosted its dividend by 10% and intends to execute a $3.5 billion share buyback on the back of the results which were far stronger than expected. It also highlighted its investment in the energy transition although, in the current climate, that will be overshadowed by the billions being returned to shareholders.
There will undoubtedly be an enormous amount of attention on these earnings, which come days after Shell’s record profits, coming at a time when households are facing eye-watering energy bills. But in much the same way that these firms make huge profits when prices are high, it works both ways. Not that this makes it any easier to accept when we’re experiencing such an extreme example as we are currently.
How influential is Biden in OPEC+?
Oil prices are slipping again on Tuesday as traders take a more cautious stance ahead of the OPEC+ meeting. There’s a lot more uncertainty this time around as they’re no longer on a pre-set path that people were hoping would change but never really did. The decision this week will tell us just how unified the group still is, how committed it is to rebalancing the market and whether President Biden has any influence in the cartel at all.
There have been reports that Saudi Arabia will put forward a case for higher levels of production at the meeting after making assurances to President Biden. Of course, that won’t necessarily translate into an agreement on higher output, with the priority remaining the unity of the alliance. And let’s not forget that the group is still incapable of delivering on what it’s already agreed. So unless Saudi Arabia and the UAE are going to do more heavy lifting, any deal may have little impact on the situation.
Can gold push on from here?
Gold is relatively flat on Tuesday after securing a fourth consecutive day of gains at the start of the week. The yellow metal has been buoyed by the moves we’ve seen in bond markets, the shift to a less hawkish stance by the Fed and the pullback in the dollar. The threat of recession and the potential realisation that the stock market is just experiencing another bear-market rally may also feed into further gold strength.
The next big test to the upside falls around $1,800 although it could see some resistance around $1,780 where it appears to have stumbled this morning. A corrective move to the downside could see support arrive around $1,750-1,760, as we’ve seen in the past. It all depends on how much further yields can fall given inflation is still high and more tightening is almost inevitable.
A bottom in bitcoin?
Bitcoin is recording losses for a third consecutive day in what could be a sign of recovery momentum waning. There certainly were signs of this during the most recent rally which peaked a little shy of $25,000 and the corrective pattern that’s formed over the last month and a half could easily be viewed as a bearish setup following the sell-off that preceded it. It’s difficult to say at this point but it will probably ultimately depend on inflation, the Fed and whether we see any more worrying crypto news flow. Perhaps the hesitancy is a sign that traders lack confidence that this is a bottom and the start of the good times returning.
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