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Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

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  • Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

Energy shares led stocks in Europe lower, the Russia ruble weakened and oil touched a one-month low after the world’s biggest crude producers failed to agree to supply cuts at a meeting in Vienna. U.S. equity-index futures and Mexico’s peso clawed back some of their losses from Friday triggered by the FBI’s reopening of an inquiry into Hillary Clinton’s e-mails.

A gauge of energy companies on the MSCI All Country World Index slipped for a second day after the Organization of Petroleum Exporting Countries ended two days of talks on Saturday without agreeing any individual quotas.

Russia’s ruble declined while the South African rand surged after prosecutors withdrew charges against Finance Minister Pravin Gordhan. Perceived investment-grade credit risk was set for the longest run of increases since May.

The OPEC talks yielded little more than a promise that the world’s top oil producers would keep discussing ways to stabilize the market. Sovereign bonds were relatively muted Monday as investors awaited key central bank meetings from the U.K. and U.S. later in the week. Global equities lost ground in October and government bonds also slid amid speculation the Federal Reserve will hike interest rates this year.

“Oil companies are reacting to OPEC news,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “We have a huge week of data, biggest in a long time. So people are positioning for what’s expected to be a pretty important week.”

Stocks

The Stoxx Europe 600 Index dropped 0.5 percent as of 7:19 a.m New York time, set for a sixth day of declines, the longest losing streak since February. The benchmark has fallen 1.1 percent in October, a month that has yielded gains in five of the past six years.

BP Plc and Tullow Oil Plc fell more than 1 percent, dragging a measure of energy companies to the worst performance of the 19 industry groups on the Stoxx 600, as oil declined after European markets closed Friday.
Miners gained the most on the index as metals prices advanced. Centamin Plc led the charge after saying it sees gold output near the upper end of its 2016 forecast.

WPP Plc led media companies higher, rising 4.1 percent after the world’s largest advertising company posted an increase in quarterly sales. Sika AG jumped 14 percent after a Swiss court backed its bid to block a takeover by Cie de Saint-Gobain. Shares in its French rival dropped 0.8 percent.

S&P 500 Index slid 20 points in about 40 minutes on Friday amid news the Federal Bureau of Investigation was again looking into Clinton’s use of private e-mail while secretary of state, an issue that has dogged her presidential campaign.

Futures on the gauge advanced 0.1 percent, indicating equities will rebound from Friday’s retreat to a six-week low. Investors will look to data Monday on personal income and spending for indications of the health of the U.S. economy as the Federal Reserve prepares to meet.

Among stocks moving in premarket New York trading, Baker Hughes Inc. gained 9.1 percent after General Electric Co. agreed to combine their oil and gas businesses to bolster their operations amid the global slump in crude prices. General Electric added 0.3 percent. Level 3 Communications Inc. climbed 3.9 percent after agreeing to a $34 billion cash-and-stock takeover offer from CenturyLink Inc.

For more news on the latest probe into Clinton’s e-mails, click here.

Commodities

Crude oil fell 0.6 percent to $48.40 a barrel in New York, trading near the lowest since the end of September. Oil has fluctuated near $50 amid skepticism about whether OPEC can implement the first supply cuts in eight years at an official meeting in November.

“Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.”
Gold was little changed at about $1,274.13 an ounce after rallying 0.6 percent on Friday.

Aluminum and zinc extended gains in Shanghai as investors bet that strong domestic demand, surging coal prices and logistical issues will underpin prices. Aluminum rose to its highest since September 2014, having jumped by about 10 percent last week, and zinc climbed to levels last seen in March 2011.

Currencies

The rand jumped 1.8 percent as South Africa’s Chief Prosecutor Shaun Abrahams announced that fraud charges against the finance minister have been dropped, two days before he was due to appear in court.

The Bloomberg Dollar Spot Index has climbed more than 2 percent this month, set for the biggest gain since May.

While the Fed is seen leaving policy unchanged at a review this week, futures prices indicate a 69 percent chance of an interest-rate hike at its December meeting, up from 59 percent at the end of September.

The ruble fell 0.2 percent, declining for a second day and set for its first monthly drop in three.

Mexico’s peso advanced 0.4 percent as Clinton’s allies escalated attacks on FBI Director James Comey to stem political damage from his disclosure last week the agency is reviewing files related to a probe of her e-mail practices.

South Korea’s won traded near a three-month low as President Park Geun-hye deals with an influence-peddling scandal that’s sparked calls by the ruling party for her to remove the prime minister. Prosecutors raided Park’s office over the weekend to investigate allegations her close friend Choi Soon-sil — a private citizen whom opposition lawmakers have linked to a religious cult — wielded influence on state affairs over an extended period.

China’s yuan strengthened 0.2 percent, paring its biggest monthly loss since May. It advanced from near a six-year low following Friday’s retreat in the dollar and as China’s clampdown on UnionPay payments for insurance products in Hong Kong provided support. The transactions have been used as a means of skirting capital controls to take funds out of the mainland.

Bonds

The yield on Treasuries due in a decade was little changed at 1.84 percent, after touching a five-month high of 1.88 percent on Friday. Sovereign debt in the world’s biggest economy has lost 1.2 percent on average this month, the worst performance since February 2015, a Bloomberg index shows.

Germany’s 10-year bond yield was at 0.16 percent, up 28 basis points this month, which would be the biggest increase since May 2013.

Spanish 10-year bond yields were little changed at 1.23 percent, after Mariano Rajoy claimed a second term as prime minister by winning a confidence vote on Saturday night, ending a 10-month political impasse.

The cost of insuring investment-grade corporate bonds against default climbed for a fifth day. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies rose one basis point to 73 basis points, a two-week high. A gauge of swaps on junk-rated corporate issuers rose for a fifth day, the longest run since June. It added three basis points to 332 basis points.

China’s one-year interest-rate swaps rose five basis points to an 18-month high of 2.76 percent in Shanghai. The increase reflects speculation policy makers will seek to keep money rates high as they tackle asset bubbles and try to stem declines in the yuan.

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.

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Crude Oil

Oil Prices Slip as Japan’s Rising Inflation Signals Rate Hikes

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Crude oil fell in early trading on Friday as concerns over sustained high interest rates in both Asia and the United States weighed on the outlook.

This trend is attributed to Japan’s increasing inflation, which is prompting expectations of imminent rate hikes by its central bank.

Brent crude edged declined by 11 cents to settle at $85.60 per barrel while the U.S. crude oil declined by 9 cents to $81.20 per barrel.

Recent data revealed that Japan’s core consumer prices rose by 2.5% in May compared to the same month last year. This increase marks a growth from the previous month, suggesting that the Bank of Japan is likely to raise interest rates in the upcoming months to curb inflation.

In the United States, data released on Thursday showed a decrease in the number of new unemployment claims for the week ending June 14, indicating continued strength in the job market.

This persistent robustness in employment raises the likelihood that the U.S. Federal Reserve will maintain higher interest rates for a longer period.

Higher interest rates typically have a dampening effect on economic activity, which can subsequently reduce oil demand.

The prospect of prolonged elevated interest rates in two major economies has therefore put downward pressure on crude oil prices.

Despite the downward trend, oil prices received some support from the latest figures from the Energy Information Administration (EIA).

The data showed a drawdown in U.S. crude inventories by 2.5 million barrels in the week ending June 14, bringing the total to 457.1 million barrels. This exceeded analysts’ expectations, who had predicted a 2.2 million-barrel reduction.

Also, gasoline inventories fell by 2.3 million barrels to 231.2 million barrels, contrary to forecasts that anticipated a 600,000-barrel increase.

“Gasoline finally came to life and posted its first strong report of the summer driving season,” remarked Bob Yawger, director of energy futures at Mizuho in New York, highlighting the surprising uptick in gasoline demand.

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Crude Oil

Nembe Creek Oil Field Halted After Leak, Impacting 150,000 bpd

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Nigeria’s oil output has taken a significant hit following the shutdown of the Nembe Creek oil field due to a major oil leak.

The Nembe Creek oil field, responsible for producing approximately 150,000 barrels of crude oil per day (bpd), was forced to cease operations on June 17, 2024.

The leak occurred on the Nembe Creek Trunk Line (NCTL), a critical pipeline that transports oil from the Nembe Creek oil field to the Bonny Oil Export Terminal.

The operator of the pipeline, Aiteo Eastern Exploration and Production Company, confirmed the leak and the subsequent shutdown in a statement released yesterday.

Aiteo reported that the leak was discovered during routine operations in the Nembe area of Bayelsa State, located in Nigeria’s oil-rich Delta region.

This region is notorious for environmental degradation due to decades of oil spills, which have severely impacted local agriculture and fishing industries.

Following the discovery of the leak, Aiteo activated its Oil Spill and Emergency Response Team and shut down all production from Oil Mining Lease (OML) 29 as a precautionary measure to prevent further environmental damage.

“While we regret the production losses and the potential environmental impact, our current priority is to expedite an efficient spill management process in line with regulatory standards and collaborate with all stakeholders to restore production and mitigate associated risks,” said Victor Okronkwo, Managing Director of Aiteo Eastern E&P.

The exact cause of the leak remains unknown. Aiteo emphasized that the shutdown was a precautionary step to contain the spill and minimize environmental harm.

The company has notified its joint venture partners and relevant regulatory bodies, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the National Oil Spill Detection and Response Agency (NOSDRA), about the incident.

This development comes as a setback for Nigeria, which holds Africa’s largest natural gas reserves and is a major oil producer.

The country’s oil sector has faced numerous challenges, including aging infrastructure, theft, and environmental issues, which have hindered its ability to maximize production and exports.

The Nembe Creek shutdown also highlights ongoing concerns about the safety and reliability of Nigeria’s oil infrastructure. The NCTL has been a frequent target of oil theft and sabotage, exacerbating the challenges of maintaining a steady oil output.

Energy analysts believe that the latest incident could impact Nigeria’s ability to meet its export commitments and exacerbate the country’s economic challenges.

The Nigerian government, under President Bola Tinubu, has been making efforts to attract investment into the energy sector to boost production and address infrastructure deficits.

“The government will hope this offers confidence not only in the quality of the Nigerian resource base, but also in the government’s pledge to improve ease of doing business,” said Clementine Wallop, director of sub-Saharan Africa at political risk consultancy Horizon Engage.

As Nigeria works to address the immediate spill and restore production, the broader implications for the country’s oil sector and its environmental impact remain to be seen.

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Crude Oil

Brent Crude Nears Seven-Week Highs as Market Eyes US Inventory Report

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Brent oil, the international benchmark for Nigerian crude oil, remained steady on Thursday, hovering just below seven-week highs as the escalating conflict in the Middle East raised concerns over potential supply disruptions.

At the same time, the market eagerly awaits U.S. inventory data for further indications of demand trends.

August Brent crude rose 28 cents, or 0.3%, to $85.35 a barrel while the U.S West Texas Intermediate (WTI) oil gained 13 cents, or 0.2%, to $81.70 a barrel.

“There was no WTI settlement on Wednesday due to a U.S. public holiday, which kept trading subdued,” noted Ricardo Evangelista, an analyst at ActivTrades.

“However, oil prices are likely to remain supported around current levels due to a growing geopolitical risk premium driven by conflict in the Middle East.”

Israeli forces have intensified their operations in the Gaza Strip, targeting areas in the central region overnight while tanks advanced into Rafah in the south.

The escalating violence has heightened fears of a broader conflict that could impact oil supplies from the region.

“Expectations of an inventory build appear to be overshadowing fears of escalating geopolitical stress for now,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Investors are keenly awaiting the release of U.S. inventory data from the Energy Information Administration (EIA) later on Thursday, delayed by a day due to the Juneteenth holiday.

An industry report released on Tuesday by the American Petroleum Institute (API) indicated that U.S. crude stocks rose by 2.264 million barrels in the week ending June 14, while gasoline inventories fell, according to market sources.

The summer season typically sees an uptick in oil demand due to increased refinery runs and weather-related risks.

“Ongoing production cuts by the OPEC+ group, combined with seasonal demand, should tighten oil balances and lead to inventory draws during the summer months,” J.P. Morgan commodities analysts wrote.

Refining margins have also improved, with the ICE gasoil futures premium to Brent crude jumping to $20.63 a barrel on Wednesday, a two-month high.

“Firmer fuel refining margins provide a healthy dose of encouragement for those expecting improvements on the demand side,” commented Tamas Varga, an analyst at PVM.

In other economic news, the Bank of England’s decision to keep its main interest rate unchanged at a 16-year high of 5.25% ahead of the national election on July 4 has been noted by market observers.

Higher interest rates generally increase the cost of borrowing, which can slow economic activity and dampen oil demand.

As the market braces for the upcoming EIA inventory report, analysts and traders are closely watching for any signals that could influence oil prices in the near term.

The delicate balance between geopolitical tensions and supply-demand fundamentals continues to play a critical role in shaping the oil market landscape.

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