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U.S. Producer Prices Unchanged in October on Weak Services

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Producer Prices
  • U.S. Producer Prices Unchanged in October on Weak Services

U.S. producer prices were unexpectedly flat in October as a rise in the cost of goods was offset by declining services costs.

The Labor Department said on Wednesday that the unchanged reading in its producer price index for final demand last month followed a 0.3 percent increase in September.

In the 12 months through October, the PPI increased 0.8 percent, the biggest gain since December 2014. That followed a 0.7 percent rise in September.

Economists polled by Reuters had forecast the PPI rising 0.3 percent last month and accelerating 1.2 percent from a year ago.

Longer-dated U.S. Treasury bonds erased losses after the report, while the dollar fell to session lows against the euro and the yen.

Goods prices, including energy, increased 0.4 percent last month after rising 0.7 percent in September. The cost of services declined 0.3 percent after edging up 0.1 percent in September.

Declining goods prices have been the main force keeping inflation benign. The drop has been driven by the a surge in the dollar from mid-2014 through January this year, as well a collapse in oil prices.

With the dollar’s rally appearing to have peaked and oil prices having bounced off multi-decade lows, the disinflationary impulse is easing, which could allow overall inflation to gradually rise toward the Federal Reserve’s 2 percent target.

Inflation could push higher in the coming years if president-elect Donald Trump presses ahead with his agenda to boost infrastructure and defense spending at a time when the economy is expected to be at full employment.

Last month, energy prices rose 2.5 percent after a similar gain in September. Wholesale food prices fell 0.8 percent after rising 0.5 percent in September.

The drop in prices for services last month was led by declining prices for the volatile trade services, which measure changes in margins received by wholesalers and retailers. They fell for a fourth straight month.

Healthcare costs increased 0.3 percent last month after edging up 0.1 percent in September. The cost of hospital care rose 0.3 percent, adding to September’s 0.4 percent gain.

These healthcare costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures index.

A key gauge of underlying producer price pressures that excludes food, energy and trade services dipped 0.1 percent after rising 0.3 percent in September.

The so-called core PPI increased 1.6 percent in the 12 months through October, the largest rise since September 2014. That followed a 1.5 percent increase in September.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)

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.

Crude Oil

Oil Rises as Threat of Immediate Iran Supply Recedes

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Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.

Brent crude was up by 82 cents, or 1.13%, to $73.68 per barrel, having risen 0.2% on Monday. U.S. oil gained 91 cents, or 1.3%, to $71.79 a barrel, having slipped 3 cents in the previous session.

Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.

A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.

It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.

Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.

“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.

To meet rising demand, U.S. drillers are also increasing output.

U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.

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Crude Oil

Oil Prices Rise as Demand Improves, Supplies Tighten

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Oil Prices - Investors King

Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.

Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.

U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.

“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.

“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”

Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.

The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.

“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.

The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.

IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.

The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.

On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.

U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.

It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.

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Crude Oil

FG Spends N197.74 Billion on Subsidy in Q1 2021

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Crude oil - Investors King

The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.

The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.

In the three months ended March, the Federal Government spent N197.74 billion on subsidy.

The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.

The difference in landing price and selling price of a single litre is the subsidy paid by the government.

On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.

The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.

However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.

Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”

“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”

Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.

He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.

“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”

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