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Draghi’s Drama-Free Jackson Hole Message Reaffirms Slow QE Exit

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  • Draghi’s Drama-Free Jackson Hole Message Reaffirms Slow QE Exit

Mario Draghi’s message in Jackson Hole may not have been dramatic as three years ago but was clear nonetheless: the European Central Bank will go extremely slowly about removing its monetary stimulus.

While the ECB president startled investors in 2014 by laying the groundwork for quantitative easing, his published remarks at the Federal Reserve symposium in Wyoming on Friday included nothing on policy makers’ deliberations scheduled for Sept. 7 or on their concerns over the euro’s appreciation. In response to his silence, the single currency jumped to the highest level in more than two and a half years against the dollar.

But in the subsequent discussion Draghi took the opportunity to reiterate the Governing Council’s position at its previous policy meeting in July. A self-sustained convergence of inflation toward the ECB’s goal is still nowhere in sight, labor-market factors that are weighing on wage growth and subduing inflation won’t disappear anytime soon — meaning “a significant degree of monetary accommodation” is still warranted.

“His responses during the Q&A were more closely related to the outlook for the euro area, but stuck to the familiar narrative of weak inflation necessitating ongoing monetary accommodation,” economists Jamie Murray and Niraj Shah wrote in a Bloomberg Intelligence analysis. “As the ECB’s guidance indicates, asset purchases will continue until there is a pickup in underlying inflation — there’s little evidence of that now.”

Bond-Buying Talks

The euro held onto its gains after the comments from the Q&A. The single currency climbed as high as $1.1941, the strongest since January 2015, and was up 1.1 percent at $1.1924 at the close of trading.

Back in 2014 at the Kansas Fed mountain resort, Draghi made a last-minute addition to his speech to say euro-area inflation expectations were falling “at all horizons,” meeting a precondition that he had previously said would warrant QE.

More than 2 trillion euros ($2.4 trillion) of debt purchases later, policy makers are poised to discuss when and how the program will continue next year, and whether buying can be wound down. Given the complexity of ECB stimulus — which also includes negative rates and forward guidance — any decision may not come until the ECB’s October session.

Rather than front-running the debate, Draghi chose to focus his speech on a defense of free trade and post-crisis financial regulation — the latter comments echoing the remarks of Fed Chair Janet Yellen who spoke a few hours earlier. In the face of plans by President Donald Trump’s administration to dismantle rules accused of stifling U.S. growth, she urged that any rollback be “modest.”

“As always seemed likely, this is no 2014 repeat — we have to wait another fortnight for the Governing Council to hammer out an agreement on the next steps,” said Ken Wattret, an economist at TS Lombard in London. “No expression of concern about currency strength is a green light for the euro to move higher, irrespective of the agenda for the event.”

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

IOCs Stick to Dollar Dominance in Crude Oil Transactions with Modular Refineries

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Crude Oil - Investors King

International Oil Companies (IOCs) are standing firm on their stance regarding the currency denomination for crude oil transactions with modular refineries.

Despite earlier indications suggesting a potential shift towards naira payments, IOCs have asserted their preference for dollar dominance in these transactions.

The decision, communicated during a meeting involving indigenous modular refineries and crude oil producers, shows the complex dynamics shaping Nigeria’s energy landscape.

While the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had previously hinted at the possibility of allowing indigenous refineries to purchase crude oil in either naira or dollars, IOCs have maintained a firm stance favoring the latter.

Under this framework, modular refineries would be required to pay 80% of the crude oil purchase amount in US dollars, with the remaining 20% to be settled in naira.

This arrangement, although subject to ongoing discussions, signals a significant departure from initial expectations of a more balanced currency allocation.

Representatives from the Crude Oil Refinery Owners Association of Nigeria (CORAN) said the decision was not unilaterally imposed but rather reached through deliberations with relevant stakeholders, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

While there were initial hopes of broader flexibility in currency options, the dominant position of IOCs has steered discussions towards a more dollar-centric model.

Despite reservations expressed by some participants, including modular refinery operators, the consensus appears to lean towards accommodating the preferences of major crude oil suppliers.

The development underscores the intricate negotiations and power dynamics shaping Nigeria’s energy sector, with implications for both domestic and international stakeholders.

As discussions continue, attention remains focused on how this decision will impact the operations and financial viability of modular refineries in Nigeria’s evolving oil landscape.

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Energy

Nigeria’s Dangote Refinery Overtakes European Giants in Capacity, Bloomberg Reports

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Aliko Dangote - Investors King

The Dangote Refinery has surpassed some of Europe’s largest refineries in terms of capacity, according to a recent report by Bloomberg.

The $20 billion Dangote refinery, located in Lagos, boasts a refining capacity of 650,000 barrels of petroleum products per day, positioning it as a formidable player in the global refining industry.

Bloomberg’s data highlighted that the Dangote refinery’s capacity exceeds that of Shell’s Pernis refinery in the Netherlands by over 246,000 barrels per day. Making Dangote’s facility a significant contender in the refining industry.

The report also underscored the scale of Dangote’s refinery compared to other prominent European refineries.

For instance, the TotalEnergies Antwerp refining facility in Belgium can refine 338,000 barrels per day, while the GOI Energy ISAB refinery in Italy was built with a refining capacity of 360,000 barrels per day.

Describing the Dangote refinery as a ‘game changer,’ Bloomberg emphasized its strategic advantage of leveraging cheaper U.S. oil imports for a substantial portion of its feedstock.

Analysts anticipate that the refinery’s operations will have a transformative impact on Nigeria’s fuel market and the broader region.

The refinery has already commenced shipping products in recent weeks while preparing to ramp up petrol output.

Analysts predict that Dangote’s refinery will influence Atlantic Basin gasoline markets and significantly alter the dynamics of the petroleum trade in West Africa.

Reuters recently reported that the Dangote refinery has the potential to disrupt the decades-long petrol trade from Europe to Africa, worth an estimated $17 billion annually.

With a configured capacity to produce up to 53 million liters of petrol per day, the refinery is poised to meet a significant portion of Nigeria’s fuel demand and reduce the country’s dependence on imported petroleum products.

Aliko Dangote, Africa’s richest man and the visionary behind the refinery, has demonstrated his commitment to revolutionizing Nigeria’s energy landscape. As the Dangote refinery continues to scale up its operations, it is poised to not only bolster Nigeria’s energy security but also emerge as a key player in the global refining industry.

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Crude Oil

Brent Crude Hits $88.42, WTI Climbs to $83.36 on Dollar Index Dip

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Brent crude oil - Investors King

Oil prices surged as Brent crude oil appreciated to $88.42 a barrel while U.S. West Texas Intermediate (WTI) crude climbed to $83.36 a barrel.

The uptick in prices comes as the U.S. dollar index dipped to its lowest level in over a week, prompting investors to shift their focus from geopolitical tensions to global economic conditions.

The weakening of the U.S. dollar, a key factor influencing oil prices, provided a boost to dollar-denominated commodities like oil. As the dollar index fell, demand for oil from investors holding other currencies increased, leading to the rise in prices.

Investors also found support in euro zone data indicating a robust expansion in business activity, with April witnessing the fastest pace of growth in nearly a year.

Andrew Lipow, president of Lipow Oil Associates, noted that the market had been under pressure due to sluggish growth in the euro zone, making any signs of improvement supportive for oil prices.

Market participants are increasingly looking beyond geopolitical tensions and focusing on economic indicators and supply-and-demand dynamics.

Despite initial concerns regarding tensions between Israel and Iran and uncertainties surrounding China’s economic performance, the market sentiment remained optimistic, buoyed by expectations of steady oil demand.

Analysts anticipate the release of key economic data later in the week, including U.S. first-quarter gross domestic product (GDP) figures and March’s personal consumption expenditures, which serve as the Federal Reserve’s preferred inflation gauge.

These data points are expected to provide further insights into the health of the economy and potentially impact oil prices.

Also, anticipation builds around the release of U.S. crude oil inventory data by the Energy Information Administration, scheduled for Wednesday.

Preliminary reports suggest an increase in crude oil inventories alongside a decrease in refined product stockpiles, reflecting ongoing dynamics in the oil market.

As oil prices continue their upward trajectory, investors remain vigilant, monitoring economic indicators and geopolitical developments for further cues on the future direction of the market.

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