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US Federal Reserve Leaves Funds Rate Unchanged

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Fed Chair Janet Yellen

A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end.

“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.

“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”

Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester — in her first dissent — and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

“Our decision does not reflect a lack of confidence in the economy,” Fed Chair Janet Yellen said at the start of her press conference. “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future.”

Stocks climbed with Treasuries after the decision, while the dollar declined and gold rallied. The Standard & Poor’s 500 Index extended gains after the Fed’s statement, while a gauge of the U.S. yield curve flattened as the shortest-maturity debt underperformed. The greenback lost ground against all but two of its major peers.

The central bank’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policy makers projected that keeping rates unchanged this year would be most appropriate. Officials scaled back expectations for hikes in 2017 and over the longer run.

Policy makers see two rate hikes next year, down from their June median projection of three.

The Fed said that the labor market will “strengthen somewhat further,” adding the qualifier “somewhat further” to similar language from the July statement.

“Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” the Fed said in its statement. “Household spending has been growing strongly but business fixed investment has remained soft.”

The target range for the benchmark federal funds rate remains at 0.25 percent to 0.5 percent, where it’s been since a quarter-point increase in December 2015 that ended seven years of near-zero rates.

The Fed repeated that it “continues to closely monitor inflation indicators and global economic and financial developments.”

Gradual Pace

The FOMC reiterated that borrowing costs will probably rise at an “only gradual” pace. Policy makers also reiterated that they expect inflation to rise to their 2 percent goal over the medium term.

Because November’s FOMC meeting comes within a week of the U.S. presidential election and isn’t followed by a press conference with Yellen, economists have viewed the Fed’s December meeting as a more likely candidate for an increase.
The latest decision could embolden Republican presidential nominee Donald Trump to unleash additional attacks on Yellen. The billionaire businessman said last week that the Fed “is being totally controlled politically” and might stand pat on rates for the rest of year.

Yellen, a former economics professor at the University of California at Berkeley, was appointed Fed chair by President Barack Obama and served as President Bill Clinton’s top economic adviser.

The decision comes as Fed officials become more convinced that the economy is experiencing a new normal.

Long-Term Rate

Policy makers scaled back their median projection of the long-term interest rate to 2.9 percent from 3 percent in June. The estimate shows how high officials think rates can climb, so its downgrade suggests a shallower hiking cycle.

Fed officials also cut their median growth projection for 2016 to 1.8 percent from 2 percent, mirroring the drop in the longer-run forecast, based on median estimates. Inflation is projected at 1.3 percent in the fourth quarter, down from a forecast of 1.4 percent in June. Policy makers again projected that inflation will reach the 2 percent target in 2018.

Most economists had expected the committee to stay on hold, assigning just a 15 percent chance of a hike this month. Fed watchers saw a 54 percent probability that the Fed will raise rates at its December 13-14 meeting.

Yellen is scheduled to hold a press conference at 2:30 p.m. in Washington. It will be her first public remarks since a speech last month, when she said that the case for an interest-rate increase “has strengthened in recent months.”

Payroll Gains

Nonfarm payrolls have climbed by 182,000 jobs on average so far this year, although the most recent report showed a cooling to 151,000 job gains along with moderating wage increases. Other figures have shown declines in August retail sales and industrial production, as well as drops in sentiment at service companies and manufacturers.

Inflation is still running below the Fed’s 2 percent goal. After picking up earlier in the year, annual gains in the headline personal consumption expenditures price index slowed to 0.8 percent in July. Core inflation, which excludes food and fuel costs, is firmer though still undershooting at 1.6 percent.

Meanwhile, inflation expectations have stayed relatively low. A gauge of market-based expectations watched by the Fed is projecting a pace of price gains of about 1.5 percent in the period five to 10 years out.

The Fed repeated on Wednesday that “market-based measures of inflation compensation remain low.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Prices Hit Multi-year Highs on Monday

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Crude oil - Investors King

Oil prices hit multi-year highs on Monday buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation.

Brent crude oil futures were up 59 cents, or 0.7%, to $85.45 a barrel by 0900 GMT, after hitting $86.04, their highest level since October 2018.

U.S. West Texas Intermediate (WTI) crude futures climbed 90 cents, or 1.1%, to $83.18 a barrel, after hitting a $83.73, their highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ bank said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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Crude Oil

Oil and Gas Companies in Nigeria

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Oil - Investors King

Nigeria is an oil reach nation with several oil and gas companies operating in Africa’s largest economy.  However, only ten oil and gas companies are listed on the Nigerian Exchange Limited (NGX).

Before we discuss in detail each of the listed oil and gas companies in Nigeria. A short background on Africa’s largest economy will help throw more light on the significance of the oil and gas companies or the entire oil sector to the Nigerian economy.

Nigeria is a petrol-dollar economy, which means Africa’s most populous nation, sells crude oil and use its proceed to service the economy. In fact, the Nigerian Naira is backed by crude oil like Canadian Dollar and other commodity-dependent economies.

But because the Central Bank of Nigeria (CBN) pegged the Naira against its global counterparts, the local currency does not reflect succinctly the fluctuation in global oil prices like other crude oil-dependent currencies.

Since global oil prices rebounded with the gradual reopening of economies, the oil and gas companies in Nigeria have also rebounded from the 2020 record low of $15 per barrel. The oil and gas sector has gained 62.76 percent from the year to date, according to the NGX Oil and Gas Index.

The index gauge price movements in 10 listed oil and gas companies in Nigeria.  However, there are several oil and gas companies in Nigeria not listed on the Nigerian Exchange Limited.

Oil and Gas Companies Listed on the Nigerian Exchange Limited (NGX)

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Oil Prices Extend Gains on Friday After Saudis Dismiss Supply Concerns

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Oil

Oil prices extended gains on Friday after Prince Abdulaziz bin Salman, Saudi Energy Minister dismissed calls for more crude oil supply on Thursday.

Brent crude oil, against which Nigerian oil is priced, rose to $84.92 per barrel at around 8:31 am Nigerian time. The U.S West Texas Intermediate crude oil also responded positively to the comment, rising to $81.56 per barrel on Friday.

Prince Abdulaziz had stated on Thursday that OPEC plus efforts were enough to protect the oil market from wild price volatility seen in coal and natural gas markets.

“What we see in the oil market today is an incremental (price) increase of 29%, vis-à-vis 500% increases in (natural) gas prices, 300% increases in coal prices, 200% increases in NGLs (natural gas liquids) ….”

He further stated that the Organization of the Petroleum Exporting Countries and allies led by Russia, have done a “remarkable” job acting as “so-called regulator of the oil market,” he said.

“Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC+ has done and what it has achieved.”

Prince Abdulaziz explained that OPEC plus will add 400,000 barrels per day in November and do the same in December and subsequent months. The increase will be gradual he said.

“We want to make sure that we reduce those excess capacities that we have developed as a result of COVID,” he said, adding that OPEC+ wanted to do it “in a gradual, phased-in approach”.

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