- Global Stocks Mixed as Yen and Won Drop, Oil Gains
Global stocks were mixed, with a falling yen pushing shares higher in Japan while Korean shares slumped, as investors weighed geopolitical risks and the path for U.S. monetary policy.
Equities in Tokyo and Sydney climbed with traders in the Asia Pacific region taking their first chance to react to worse-than-forecast U.S. hiring data. The Kospi slipped the most in more than five weeks and the won led losses among major currencies as geopolitical concerns lingered in South Korea. The yen weakened against the dollar for a third straight day. Oil added to last week’s rally.
Financial markets are showing resilience in the face of Friday’s weaker employment figures for the world’s largest economy and a ratcheting up of geopolitical tensions, with demand for haven assets abating. While the jobs report was weaker than some had expected, it’s consistent with the U.S. economy growing at two percent this year, Federal Reserve Bank of St. Louis President James Bullard said in Melbourne Monday. Corporate results ramp up this week with earnings due from the likes of JPMorgan Chase & Co., Tesco Plc and Prada SpA.
While most investors moved past last week’s missile attack on Syria, anxiety remained in South Korea amid speculation Donald Trump could make a similarly aggressive move against North Korea. An American aircraft carrier bound for Australia has been diverted to North Asia. Meanwhile, the much-anticipated meeting between Chinese President Xi Jinping and Trump ended with no mention of concrete measures to defuse tensions with Pyongyang.
What investors will be watching this week:
- Argentina, Brazil, Canada, Chile and South Korea are among countries setting interest rates this week.
- U.S. banks will start reporting first-quarter earnings, led by Citigroup Inc., JPMorgan and Wells Fargo & Co.
- Fed Chair Janet Yellen speaks Monday in Ann Arbor, Michigan. Fed Bank of Minneapolis President Neel Kashkari will participate in a Q&A at a meeting of the Minnesota Business Partnership on Tuesday.
- NATO Secretary General Jens Stoltenberg will visit Washington and meet with Trump on Wednesday. European leaders remain anxious about the U.S. level of support after Trump’s complaints that some NATO nations weren’t paying their share.
Oil Prices Rally Amidst Russian Export Ban and Rate Hike Concerns
Oil prices saw an upward trend on Friday as concerns over Russia’s ban on fuel exports potentially tightening global supply.
This development overshadowed apprehensions of further interest rate hikes in the United States that could impact demand.
However, despite this bounce, oil prices were still on course for their first weekly decline in four weeks.
Brent crude oil gained 46 cents, or 0.5% to $93.76 per barrel while the U.S. West Texas Intermediate crude (WTI) oil surged by 65 cents, a 0.7% rise to $90.28 a barrel.
These gains were driven by growing concerns regarding tight global supply as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) continued to implement production cuts.
Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, commented on the volatile nature of the market, stating, “Trading remained choppy amid a tug-of-war between supply fears that were reinforced by a Russian ban on fuel exports and worries over slower demand due to tighter monetary policies in the United States and Europe.”
He further noted that investors would closely monitor OPEC+ production cuts and the impact of rising interest rates, predicting that WTI would trade within a range of approximately $90 to $95.
Russia’s abrupt ban on gasoline and diesel exports to countries outside a select group of four ex-Soviet states had an immediate effect as it aimed to stabilize the domestic fuel market. This export restriction prompted a nearly 5% increase in heating oil futures on Thursday.
Tina Teng, an analyst at CMC Markets, explained, “Crude oil bounced off a session low after Russia banned diesel exports, which included gasoline. The action reversed a downside movement in crude markets following the hawkish Fed decision.”
However, she also warned that mounting concerns about a recession in the Eurozone could continue to exert downward pressure on oil prices.
The U.S. Federal Reserve recently maintained its interest rates but adopted a more hawkish stance, projecting a quarter-percentage-point increase to 5.50%-5.75% by the year-end. This decision heightened fears that higher rates might dampen economic growth and reduce fuel demand.
Also, the stronger U.S. dollar, reaching its highest level since early March, made oil and other commodities more expensive for buyers using alternative currencies.
NNPCL’s Crude Commitments Create Hurdles for Dangote’s Oil Operations
The Nigerian National Petroleum Company Limited (NNPCL) has found itself at the center of a growing challenge faced by the Dangote Petroleum Refinery, one of Africa’s largest industrial projects.
As the refinery gears up for full-scale production, it is grappling with unforeseen hurdles caused by the commitments made by NNPCL in the form of crude oil agreements with other entities.
Dangote Petroleum Refinery, a flagship project of the Dangote Group led by billionaire Aliko Dangote, is on the brink of becoming a game-changer in Nigeria’s energy sector. With a promise to significantly reduce the country’s dependence on imported petroleum products, the refinery holds the potential to bolster the nation’s energy self-sufficiency.
However, recent revelations have shed light on the complexity of the oil industry in Nigeria and how contractual commitments can disrupt even the best-laid plans.
According to Devakumar Edwin, the Executive Director of the Dangote Group, in an interview with S&P Global Commodity Insights, the NNPCL, which normally trades crude oil on behalf of Nigeria, has pledged its crude to other entities.
While Edwin did not disclose the specific recipients of NNPCL’s crude commitments, it was previously announced that the company had entered into a $3 billion crude oil-for-loan deal with the African Export-Import Bank. Under this agreement, NNPCL agreed to allocate future oil production to the bank as repayment for the loan.
This unforeseen twist has left Dangote Petroleum Refinery in a predicament, necessitating the temporary importation of crude oil.
Edwin, however, stated that this importation is only a short-term solution, as the refinery expects to receive crude supply from NNPCL starting in November 2023.
The refinery’s ambitious plans include producing up to 370,000 barrels per day of crude, which will be processed into Automotive Gas Oil (diesel) and jet fuel by October 2023. By November 30, 2023, the plant aims to produce Premium Motor Spirit (petrol), providing a much-needed boost to the domestic fuel market.
While the Dangote Group remains committed to its objectives, the delays caused by NNPCL’s prior commitments have raised concerns among oil marketers.
They believe that the prices of diesel and jet fuel, in particular, will only experience a significant reduction once the refinery begins receiving crude oil supplies from Nigeria rather than importing it.
Despite these temporary setbacks, Edwin reaffirmed the refinery’s readiness to receive crude oil, stating, “Right now, I’m ready to receive crude. We are just waiting for the first vessel. And so, as soon as it comes in, we can start.”
In essence, the shift in the refinery’s original timeline can be attributed to the prior commitments made by NNPCL, causing a momentary delay.
However, it remains a beacon of hope for Nigeria’s energy sector, promising a reliable supply of environmentally-friendly refined products and a substantial influx of foreign exchange into the country.
Devakumar Edwin also underscored that the revenues generated from the refinery’s operations would be reinvested in further developments, reaffirming Aliko Dangote’s unwavering commitment to Nigeria’s economic growth.
As the nation eagerly awaits the commencement of production at the Dangote Petroleum Refinery, it is clear that the complex web of oil industry contracts and commitments has played an unexpected role in shaping the refinery’s journey towards becoming a transformative force in Nigeria’s energy landscape.
Oil Prices Retreat as Markets Await Fed Meeting
Oil prices dipped by almost $1 on Wednesday ahead of the U.S. Federal Reserve’s anticipated interest rate decision.
Investors are grappling with uncertainty surrounding peak rates and the potential impact on energy demand.
Despite a substantial drawdown in U.S. oil inventories and sluggish U.S. shale production indicating a possible tight crude supply for the remainder of 2023, prices tumbled.
Brent crude oil, against which Nigerian oil is priced, slid 88 cents, or 0.9%, to $93.46 a barrel following Tuesday’s peak of $95.96, its highest level since November.
U.S. West Texas Intermediate crude oil also fell by 1%, or 97 cents, to $90.23 a barrel after hitting a 10-month high of $93.74 the previous day.
Edward Moya, senior market analyst at OANDA, said, “The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the U.S. economy has a soft or hard landing.”
He emphasized that the oil market remains “very tight” in the short term.
Investors are closely monitoring central bank interest rate decisions this week, including the Federal Reserve’s announcement, to gauge economic growth and fuel demand. While it’s widely expected that the Fed will maintain interest rates, the focus will be on its projected policy path, which remains uncertain.
U.S. crude oil stockpiles declined significantly, with a 5.25 million-barrel drop last week, exceeding the 2.2 million-barrel decline expected by Reuters analysts.
Goldman Sachs analysts raised their 12-month ahead Brent forecast from $93 a barrel to $100 a barrel, citing lower OPEC supply and higher demand. They believe OPEC can maintain a Brent price range of $80-$105 in 2024.
Russia is considering imposing higher export duties on oil products to address fuel shortages, while U.S. shale oil production is set to reach its lowest point since May 2023. On the demand side, India’s crude oil imports declined for the third consecutive month in August due to maintenance and reduced shipments from Russia.
Exxon Mobil Corp has pledged to increase oil production by nearly 40,000 barrels per day in Nigeria, as part of a new investment initiative in the country, according to a presidential spokesperson.
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