- Oil Retreats Below $47 Before OPEC Meeting as Metals Snap Rally
Oil retreated back below $47 as OPEC members failed to bridge their differences on production cuts, while a rally in metals ran out of steam. European and developed Asian stocks slipped as investors weighed Donald Trump’s stimulus plans against threats to markets from Italy’s referendum.
Crude futures pared Monday’s gains as Iraq and Iran raised objections with OPEC officials over how to distribute output reductions, referring the issue to ministers for further consideration. Copper slumped for the first time in seven days. European shares and developed Asian stocks slid, while those in emerging markets generally performed better. The Bloomberg Dollar Spot Index steadied after a two-day loss.
“What we are seeing now is a tug of war among OPEC members to get their share of the pie,” Son Jae Hyun, a global market analyst at Mirae Asset Daewoo Co., said by phone from Seoul. “If a deal isn’t made this time, none of them will benefit.”
The impact of President-elect Trump’s surprise victory on the dollar and commodities is waning, and traders are divided on how long China will be able to stabilize its economy while cooling its property market. Investors are also focused on the Organization of Petroleum Exporting Countries’ ministers meeting due this week in Vienna, with Saudi Arabia saying oil output cuts may not be required to stabilize prices.
- West Texas Intermediate crude slipped 0.9 percent to $46.64 a barrel as of 8:06 a.m. in London, after rising 2.2 percent on Monday.
- Copper futures dropped 1.6 percent on the London Metal Exchange, nickel lost 2.2 percent while zinc declined 1.5 percent.
- Gold for immediate delivery fell 0.2 percent following last session’s 0.9 percent jump.
- The euro was down 0.1 percent at $1.0605, while the yen weakened 0.3 percent to 112.31 per dollar.
- Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, was little changed after a two-day decline.
- “Given that he hasn’t even taken office yet, the Trump rally hasn’t become completely obsolete yet as a theme,” said Ayako Sera, a Tokyo-based strategist at Sumitomo Mitsui Trust Bank Ltd. “But given the big events coming up this week, it’s probably the most sensible thing to do for investors to stay away from trading strongly.”
- The South Korean won edged 0.1 percent higher as President Park Geun-hye said she’s willing to resign after an influence-peddling scandal.
- The Chinese yuan gained 0.2 percent after the central bank strengthened the fixing versus the dollar for a second straight day.
- South Africa’s rand weakened 0.8 percent. President Jacob Zuma survived the most serious challenge to his leadership yet, after a contingent of top officials failed to force him from office during a meeting of the ruling party’s National Executive Committee.
- The Stoxx Europe 600 Index opened down 0.5 percent. Raiffeisen Bank International AG tumbled 3.3 percent.
- About the same number of stocks fell as rose on the MSCI Asia Pacific Index, which lost 0.1 percent. Japan’s Topix Index, Australia’s S&P/ASX 200 Index and New Zealand’s S&P/NZX 50 Index were all little changed.
- The Jakarta Composite Index rose 0.9 percent, the biggest gain among Asian developing-nation equity benchmarks, as India’s Sensex advanced 0.8 percent.
- The Hang Seng China Enterprises index and Shanghai’s benchmark swang between gains and losses. The central bank is clamping down further on mortgage lending in areas deemed overheated, people with knowledge of the matter said.
- Futures on the S&P 500 rose 0.1 percent after the underlying benchmark fell from an all-time high Monday, losing at least 0.3 percent.
- Japan, New Zealand and Australian government bonds were all little changed.
- Ten-year Treasuries yielded 2.31 percent, after falling five basis points last session.
- Similar-maturity U.K. gilt yields slid four basis points, while those for bunds were little changed.
Oil Rises as Threat of Immediate Iran Supply Recedes
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.
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.
Oil Prices Rise as Demand Improves, Supplies Tighten
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.
FG Spends N197.74 Billion on Subsidy in Q1 2021
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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