Oil extended its retreat from a seven-week high and Asian energy shares declined, while the dollar weakened versus major peers as traders weighed prospects for a U.S. interest-rate hike this year. European equity index futures advanced.
Crude sank below $47 a barrel in New York, dragged down by possible increases in supplies from Iraq and Nigeria, and the MSCI Asia Pacific Energy Index of shares fell for a fourth day. The Bloomberg Dollar Spot Index snapped its biggest two-day advance in a month as South Korea’s won led gains in emerging markets. New Zealand’s currency strengthened after its central bank said the pace of interest-rate cuts in the nation will be gradual. U.S. Treasury bond volatility was near a 20-month low.
Financial markets have been dominated over the past week by speculation about the timing of the Federal Reserve’s next increase in borrowing costs and an air of caution is evident before Chair Janet Yellen speaks Friday at an annual symposium in Jackson Hole, Wyoming. Regional Fed presidents including William Dudley and John Williams indicated last week that a rate hike could come as soon as next month, while futures prices indicate a 51 percent chance of such a move this year.
“With investors waiting for Yellen, it’s unlikely that we’ll see a strong direction in the stock market,” said Toshihiko Matsuno, a senior strategist with SMBC Friend Securities Co. in Tokyo. Still, “oil, which had been rebounding, has started to correct again,” dragging down commodity-related shares, he said.
Preliminary gauges of this month’s manufacturing activity in the euro area and the U.S. are scheduled for release on Tuesday, while central banks in Turkey and Hungary have policy meetings. A report is also forecast to show sales of new homes in America held near an eight-year high in July.
West Texas Intermediate crude for October delivery slid 1 percent to $46.92 a barrel as of 7:05 a.m. London time. Militants in Nigeria have made a proposal to end hostilities, a development that could boost the nation’s oil output, and Iraq is in the process of boosting crude exports by about 5 percent.
WTI crude jumped 9.1 percent last week, buoyed by speculation that informal talks among major producers next month will bring about an output freeze.
“We’re seeing a bit of profit-taking,” said Ric Spooner, chief analyst at CMC Markets in Sydney. “There is still plenty of supply around. It wouldn’t be surprising to see this downtrend continue and it’s possible we could see some sort of basing around $44 to $45 a barrel.”
Gold held near a one-week low, while silver added 0.6 percent. Zinc advanced as much as 1.2 percent in London after Morgan Stanley said it was bullish and that demand from China’s steel industry would continue to support the price. The metal, which is used to galvanize steel, has surged more than 40 percent this year.
A gauge of energy stocks on the MSCI Asia Pacific Index was down 0.9 percent, the biggest loss among 10 industry groups. Cnooc Ltd., China’s biggest offshore oil and gas producer, dropped by 1.2 percent.
Japan’s Topix index fell for the first time in three days, while Australia’s S&P/ASX 200 Index advanced to a two-week high. Hong Kong’s Hang Seng Index declined 0.3 percent and the Shanghai Composite Index gained 0.2 percent.
Trading volumes in Tokyo and Hong Kong were down more than 15 percent from their 30-day averages, according to data compiled by Bloomberg.
Futures on the Euro Stoxx 50 Index added 0.4 percent, while those on the S&P 500 Index were little changed. Contracts on the U.K.’s FTSE 100 Index gained 0.5 percent.
The Dollar Spot Index lost 0.2 percent, after jumping 0.6 percent over the last two trading days. South Korea’s won strengthened 0.9 percent versus the greenback, rebounding from its weakest close of the month, and the Japanese yen rose 0.2 percent.
Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal
Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.
Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.
While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.
“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.
“Gold remains an yield story and that yield story is very much tied back to the tapering story.”
A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.
“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.
A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.
Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.
Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.
Silver rose 0.9% to $22.61 per ounce.
Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.
Brent Crude Oil Near $80 Per Barrel Amid Supply Constraints
Oil prices rose for a fifth straight day on Monday with Brent heading for $80 amid supply concerns as parts of the world sees demand pick up with the easing of pandemic conditions.
Brent crude was up $1.14 or 1.5% at $79.23 a barrel by 0208 GMT, having risen a third consecutive week through Friday. U.S. Oil added $1.11 or 1.5% to $75.09, its highest since July, after rising for a fifth straight week last week.
“Supply tightness continues to draw on inventories across all regions,” ANZ Research said in a note.
Rising gas prices as also helping drive oil higher as the liquid becomes relatively cheaper for power generation, ANZ analysts said in the note.
Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as under-investment or maintenance delays persist from the pandemic.
China’s first public sale of state oil reserves has barely acted to cap gains as PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.
India’s oil imports hit a three-month peak in August, rebounding from nearly one-year lows reached in July, as refiners in the second-biggest importer of crude stocked up in anticipation of higher demand.
Oil Holds Near Highest Since 2018 With Global Markets Tightening
Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.
Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.
China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.
At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.
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