Markets

Inflation Hits Low Bar Draghi Set as Stimulus Debate Gets Closer

Published

7 years ago

July 31, 2017

Samed Olukoya

Inflation Hits Low Bar Draghi Set as Stimulus Debate Gets Closer

Mario Draghi kept expectations low for inflation this summer, and July’s number is proving him right.

Consumer-price growth in the euro area stayed at 1.3 percent — enough to argue that deflation risks have disappeared, but too little to meet the European Central Bank president’s goal of just under 2 percent. While it confirms Draghi’s prediction that inflation would remain near June levels in the coming months, it also reinforces his assessment that, despite better economic growth, there isn’t yet a self-sustained upward trend.

Monday’s report comes as policy makers gear up for an autumn debate on the future path of ECB policy. But unlike confidence at a decade high and accelerating economic growth, it doesn’t offer an obvious argument why asset purchases should be phased out next year, as widely predicted by economists and investors.

“They need to get a clear story for September or October to make the case of the exit and it’s not going to be easy because core inflation and wages will probably roughly be where they are now,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “They have to make the case for tapering and that will be based on growth giving them confidence that inflation is going to come back, and that’s the story they will try to sell.”

So far, Draghi and his Governing Council have steered away from a formal discussion about what will happen to the ECB’s 2.3 trillion-euro ($2.7 trillion) quantitative-easing program after its scheduled end in December. While policy makers’ guidance ties bond-buying to progress on the inflation front, the Italian has suggested that purchases could be pared without tightening the stance.

Pondering Data

Officials will have ample time to ponder economic data and policy options ahead of their Sept. 7 meeting, and probably even thereafter. A decision is more likely to come in October, people familiar with the matter told Bloomberg.

Business and consumer confidence in the region unexpectedly improved this month and core inflation accelerated to 1.2 percent. Unemployment fell to 9.1 percent in June, the lowest since early 2009, and a report on Tuesday is forecast to show output increased 0.6 percent in the second quarter.

The ECB is banking on the region’s robust recovery, now in its fifth year, to create price pressures — an endeavor complicated by an appreciating currency. Until now, wages have been almost stagnant, and a Bloomberg measure of domestically generated inflation has slowed, while the euro has gained more than 11 percent against the dollar since the start of the year.

“Weakness in oil prices and strength in the euro make continued weakness in inflation likely,” said Bert Colijn, senior euro-area economist at ING Bank NV in Amsterdam. “While the economic euphoria continues in the euro zone with strong growth and improving labor markets, inflation remains miles away from the ECB target. ”

Discussing Progress

Draghi has the opportunity to discuss his assessment with 19 Nobel Laureates at a conference that starts on Aug. 23 in Lindau, Germany, before he meets his international counterparts at the Federal Reserve’s Symposium in Jackson Hole, Wyoming.

U.S. officials may arrive with some advice on the dos and don’ts of unwinding stimulus. The central bank sparked an uproar in markets in 2013 with a signal about reducing accommodation. It’s since stopped buying bonds and started to raise interest rates and plans to begin “relatively soon” to build down the institution’s $4.5 trillion balance sheet.

Draghi has indicated that he’s in no rush to head down the exit path.

“We need to think. We need to have lots of information we don’t have today,” he said after policy makers’ July 19-20 meeting. “But let me give you the bottom line of our exchanges: Basically, inflation is not where we want it to be, and where it should be.”

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Samed Olukoya

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

Dangote Mega Refinery in Nigeria Seeks Millions of Barrels of US Crude Amid Output Challenges

Published

3 days ago

May 16, 2024

Samed Olukoya

The Dangote Mega Refinery, situated near Lagos, Nigeria, is embarking on an ambitious plan to procure millions of barrels of US crude over the next year.

The refinery, established by Aliko Dangote, Africa’s wealthiest individual, has issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for a duration of 12 months, commencing in July.

This development revealed through a document obtained by Bloomberg, represents a shift in strategy for the refinery, which has opted for US oil imports due to constraints in the availability and reliability of Nigerian crude.

Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, emphasized the allure of US crude for Dangote’s refinery.

Georgieva highlighted the challenges associated with sourcing Nigerian crude, including insufficient supply, unreliability, and sometimes unavailability.

In contrast, US WTI offers reliability, availability, and competitive pricing, making it an attractive option for Dangote.

Nigeria’s struggles to meet its OPEC+ quota and sustain its crude production capacity have been ongoing for at least a year.

Despite an estimated production capacity of 2.6 million barrels a day, the country only managed to pump about 1.45 million barrels a day of crude and liquids in April.

Factors contributing to this decline include crude theft, aging oil pipelines, low investment, and divestments by oil majors operating in Nigeria.

To address the challenge of local supply for the Dangote refinery, Nigeria’s upstream regulators have proposed new draft rules compelling oil producers to prioritize selling crude to domestic refineries.

This regulatory move aims to ensure sufficient local supply to support the operations of the 650,000 barrel-a-day Dangote refinery.

Operating at about half capacity presently, the Dangote refinery has capitalized on the opportunity to secure cheaper US oil imports to fulfill up to a third of its feedstock requirements.

Since the beginning of the year, the refinery has been receiving monthly shipments of about 2 million barrels of WTI Midland from the United States.

Crude Oil

Oil Prices Hold Steady as U.S. Demand Signals Strengthening

Published

3 days ago

May 16, 2024

Samed Olukoya

Oil prices maintained a steady stance in the global market as signals of strengthening demand in the United States provided support amidst ongoing geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, holds at $82.79 per barrel, a marginal increase of 4 cents or 0.05%.

Similarly, U.S. West Texas Intermediate (WTI) crude saw a slight uptick of 4 cents to $78.67 per barrel.

The stability in oil prices came in the wake of favorable data indicating a potential surge in demand from the U.S. market.

An analysis by MUFG analysts Ehsan Khoman and Soojin Kim pointed to a broader risk-on sentiment spurred by signs of receding inflationary pressures in the U.S., suggesting the possibility of a more accommodative monetary policy by the Federal Reserve.

This prospect could alleviate the strength of the dollar and render oil more affordable for holders of other currencies, consequently bolstering demand.

Despite a brief dip on Wednesday, when Brent crude touched an intra-day low of $81.05 per barrel, the commodity rebounded, indicating underlying market resilience.

This bounce-back was attributed to a notable decline in U.S. crude oil inventories, gasoline, and distillates.

The Energy Information Administration (EIA) reported a reduction of 2.5 million barrels in crude inventories to 457 million barrels for the week ending May 10, surpassing analysts’ consensus forecast of 543,000 barrels.

John Evans, an analyst at PVM, underscored the significance of increased refinery activity, which contributed to the decline in inventories and hinted at heightened demand.

This development sparked a turnaround in price dynamics, with earlier losses being nullified by a surge in buying activity that wiped out all declines.

Moreover, U.S. consumer price data for April revealed a less-than-expected increase, aligning with market expectations of a potential interest rate cut by the Federal Reserve in September.

The prospect of monetary easing further buoyed market sentiment, contributing to the stability of oil prices.

However, amidst these market dynamics, geopolitical tensions persisted in the Middle East, particularly between Israel and Palestinian factions. Israeli military operations in Gaza remained ongoing, with ceasefire negotiations reaching a stalemate mediated by Qatar and Egypt.

The situation underscored the potential for geopolitical flare-ups to impact oil market sentiment.

Crude Oil

Shell’s Bonga Field Hits Record High Production of 138,000 Barrels per Day in 2023

Published

3 days ago

May 16, 2024

Samed Olukoya

Shell Nigeria Exploration and Production Company Limited (SNEPCo) has achieved a significant milestone as its Bonga field, Nigeria’s first deep-water development, hit a record high production of 138,000 barrels per day in 2023.

This represents a substantial increase when compared to 101,000 barrels per day produced in the previous year.

The improvement in production is attributed to various factors, including the drilling of new wells, reservoir optimization, enhanced facility management, and overall asset management strategies.

Elohor Aiboni, Managing Director of SNEPCo, expressed pride in Bonga’s performance, stating that the increased production underscores the commitment of the company’s staff and its continuous efforts to enhance production processes and maintenance.

Aiboni also acknowledged the support of the Nigerian National Petroleum Company Limited and SNEPCo’s co-venture partners, including TotalEnergies Nigeria Limited, Nigerian Agip Exploration, and Esso Exploration and Production Nigeria Limited.

The Bonga field, which commenced production in November 2005, operates through the Bonga Floating Production Storage and Offloading (FPSO) vessel, with a capacity of 225,000 barrels per day.

Located 120 kilometers offshore, the FPSO has been a key contributor to Nigeria’s oil production since its inception.

Last year, the Bonga FPSO reached a significant milestone by exporting its 1-billionth barrel of oil, further cementing its position as a vital asset in Nigeria’s oil and gas sector.