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Pound Erases Loss as Brexit Campaigns Halt After Lawmaker Death

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Pound

The pound erased losses against the dollar after the killing of a U.K. lawmaker Thursday fueled speculation the nation’s voters will be more likely to favor remaining in the European Union in next week’s referendum.

Both the “Remain” and “Leave” sides suspended campaigning on whether Britain should exit the EU after the attack. Labour Party lawmaker Jo Cox was murdered as she met constituents in her electoral district in West Yorkshire in the north of England. The Guardian newspaper reported an eyewitness saying Cox’s attacker had shouted “Britain First.” That’s the name of a group that campaigns against immigration and Britain’s membership in the EU.

“This is all stemming from the tragic news of the lawmaker being attacked and killed,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. “It certainly stokes uncertainty, and I think the fact that Ms. Cox was a proponent of the Stay camp — that is seen as potentially lending some sympathetic support to keeping Britain in the EU.”

The pound climbed 0.1 percent, to $1.4218, as of 2:52 p.m. in New York, having fallen to $1.4013 earlier. The U.K. currency dropped 1.5 percent to 148.362 yen, retracing an earlier loss of 3.5 percent.

The prospect of Britain exiting the world’s largest trading bloc has fueled nervousness across the globe, with the Federal Reserve saying on Wednesday that the referendum was a factor in its decision to keep interest rates on hold. Bank of England officials led by Governor Mark Carney left policy unchanged Thursday and said a vote for a Brexit could damage the U.K. economy and trigger further weakness in the currency.

The Swiss National Bank also kept its rates unchanged Thursday. Officials there have said the British referendum has potential to cause “enormous stress” in Europe.

“A tragedy usually unites people rather than divides, so I think it is fair to assume that it might have an impact on voter sentiment in favor of remain,” said Mazen Issa, senior foreign-exchange strategist at Toronto-Dominion Bank in New York.

BOE Meeting

The pound touched a two-month low versus the dollar earlier Thursday after the BOE reiterated warnings about the risks of leaving the EU in its final policy meeting before the U.K. votes on its membership. A two-week measure of pound-dollar volatility based on option prices surged to the highest level on record this week as five polls in 24 hours showed more support for leaving the EU than remaining.

Traders noted the rebound in the pound coincided roughly with a deterioration in odds that Britons would elect to leave the EU as tracked by Oddschecker’s survey of bookmakers’ implied probability. Those odds slipped below 39 after surpassing 44 hours earlier.

“If you do see uncertainty, that typically will drive voters to the status quo,” said Karl Schamotta, director of foreign-exchange research and strategy in Toronto at Cambridge Global Payments, which hedges currencies for companies. The pound’s losses have been overdone, he said, and “we’re seeing a trade that’s entirely too crowded — at the end of the day, the market expectation remains that we will see a stay vote.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Commodities

Refiners Predict Petrol Prices to Fall to N300/Litre with Adequate Local Crude Supply

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Petrol - Investors King

The pump price of Premium Motor Spirit (PMS), commonly known as petrol, could drop to N300 per litre once local production ramps up significantly, according to operators of modular refineries.

This projection hinges on the provision of sufficient crude oil to domestic refiners, which they say would undercut the exorbitant costs currently imposed by foreign refineries.

Speaking under the aegis of the Crude Oil Refinery Owners Association of Nigeria (CORAN), the refiners stressed the urgency for the government to ensure a steady supply of crude oil to local processing plants.

They argue that the reliance on imported petroleum products has been economically disadvantageous for Nigeria.

Eche Idoko, Publicity Secretary of CORAN, emphasized that the current high costs could be mitigated by boosting local production.

“If we begin to produce PMS in large volumes and ensure adequate crude oil supply, the pump price could be reduced to N300 per litre. This would prevent Nigerians from paying nearly N700 per litre and stop foreign refiners from profiting excessively at our expense,” Idoko stated.

The potential price drop follows the model seen with diesel, which experienced a significant price reduction once the Dangote Petroleum Refinery began its production.

“Diesel prices dropped from N1,700-N1,800 per litre to N1,200 per litre after Dangote started producing. This is a clear indication that local production can drastically reduce costs,” Idoko explained.

In a previous statement, Africa’s richest man, Aliko Dangote, affirmed that Nigeria would cease importing petrol by June 2024 due to the Dangote Refinery’s capacity to meet local demand.

Dangote also expressed confidence in the refinery’s ability to cater to West Africa’s diesel and aviation fuel needs.

Challenges and Governmental Role

However, achieving this price reduction is contingent on several factors, including the provision of crude oil at the naira equivalent of its dollar rate.

CORAN has advocated for this approach, citing that it would bolster the naira and reduce the financial burden on refiners who currently buy crude in dollars.

The Nigerian government has shown some commitment towards this goal. Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), confirmed that a framework has been developed to ensure consistent supply of crude oil to domestic refineries.

“We have created a template for the Domestic Crude Oil Supply Obligation to foster seamless supply to local refineries,” Komolafe stated.

Industry Reactions

Oil marketers have welcomed the potential for reduced petrol prices. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed optimism about the Dangote Refinery’s impact on petrol prices.

“We expect the price of locally produced PMS to be below the current NNPC rate of N565.50 per litre. Ideally, we are looking at a price around N500 per litre,” Maigandi noted.

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Crude Oil

Brent Nears $80, WTI at $76 After Weekly Drop and OPEC+ Supply Move

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Brent crude oil - Investors King

Oil prices steadied on Monday with Brent crude trading near $80 per barrel and West Texas Intermediate (WTI) hovering around $76.

This stabilization follows a 2.5% decline last week, spurred by OPEC+’s announcement to increase supply starting from the third quarter.

The market is now keenly awaiting a series of industry reports and a crucial decision from the Federal Reserve on interest rates.

Last week’s drop in oil prices was exacerbated by algorithmic trading, which intensified the market’s reaction to OPEC+’s decision.

The alliance’s move to restore supply comes after months of production cuts aimed at stabilizing prices amid fluctuating demand.

Traders are now looking ahead to monthly reports from OPEC and the International Energy Agency (IEA), scheduled for Tuesday and Wednesday, respectively.

These reports are expected to provide valuable insights into the current health and future outlook of the oil sector.

Also, the Federal Reserve’s mid-week announcement on interest rates is being closely watched.

Strong economic data and persistently high inflation have tempered expectations that the Fed will soon pivot to lower borrowing costs, a shift that could significantly impact market dynamics.

The oil market has been on a downward trend since early April, driven by a weakening demand outlook.

This bearish sentiment is reflected in the positioning of money managers, who have significantly reduced their net long positions on Brent crude to the least bullish levels in a decade, according to data going back to 2011. Similarly, net long positions for the US benchmark WTI have also declined.

Despite the overall downturn, certain segments of the refined products market, such as jet fuel, are showing signs of strength.

A resurgence in air travel, approaching pre-COVID-19 levels, is driving increased demand for jet fuel, offering a glimmer of optimism within the broader market.

Geopolitical factors continue to play a role in the oil market’s volatility. Tensions remain high in the Middle East, where an Israeli operation in Gaza resulted in the release of four hostages but also led to the deaths of over 200 Palestinians, according to the Hamas-run government media office.

Meanwhile, in Europe, far-right parties made significant gains in the European Parliament elections, adding another layer of uncertainty to the geopolitical landscape.

Trading volumes are expected to be thin during Asian hours due to holidays in mainland China and Hong Kong, which could contribute to lower liquidity and potential price swings.

As the market navigates these multifaceted challenges, the upcoming reports from OPEC and the IEA, along with the Federal Reserve’s decision, will be pivotal in shaping the near-term outlook for oil prices.

For now, traders and analysts alike will be watching closely to gauge the future direction of the market.

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Crude Oil

Oil Prices Gain on Fed Rate Cut Hopes, Capped by OPEC+ Supply Increase

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Crude oil - Investors King

Oil prices experienced an upward trend on Thursday, driven by growing expectations that the U.S. Federal Reserve might cut interest rates in September.

This optimism, however, was tempered by the OPEC+ decision to increase oil supply and the report of rising U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 57 cents, or 0.7% to $78.98 per barrel while the U.S. West Texas Intermediate (WTI) crude oil increased by 62 cents, or 0.8% to $74.69 per barrel.

This follows a more than 1% gain on Wednesday, a recovery after nearly $8 per barrel drop over the five sessions through Tuesday.

Market sentiment was buoyed by a recent Reuters poll, conducted from May 31 to June 5, which revealed that nearly two-thirds of economists predict the Federal Reserve will lower interest rates in September.

Lower interest rates generally reduce borrowing costs, potentially boosting economic activity and, consequently, oil demand.

However, this optimism was partially offset by mixed signals from the U.S. economy. The U.S. services sector, which represents a significant portion of the country’s economic output, showed signs of growth in May following a contraction in April. This could influence the Fed’s decision on interest rates.

Despite the current rise, oil prices are still projected to decline by about 3% for the week. This forecast is influenced by the latest decisions from OPEC+, which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies.

The group agreed on Sunday to extend most of their existing oil output cuts into 2025. However, they also allowed for voluntary cuts from eight members to be gradually reversed starting in October.

“Oil markets have over-reacted to the mildly negative OPEC+ meeting outcome. Demand indicators have certainly softened somewhat recently, but are not falling off a cliff,” Barclays analyst Amarpreet Singh noted in a recent report.

OPEC Secretary General Haitham Al Ghais defended the latest adjustments to the OPEC+ oil output deal, expressing confidence in sustained strong demand.

Also, Russia’s Deputy Prime Minister Alexander Novak stated that global oil demand is expected to increase gradually, with no peak in sight in the near future.

Adding to the market’s bearish sentiment were recent U.S. inventory figures. Data from the U.S. Energy Information Administration showed that U.S. crude stocks rose by 1.2 million barrels in the week ending May 31, contrary to analysts’ expectations of a 2.3 million barrel drawdown.

Furthermore, Saudi Arabia’s decision to cut its official selling prices (OSP) for July crude amid falling Middle East crude benchmarks and weaker profit margins for Asian refiners has also influenced market dynamics.

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