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Don’t Read Too Much into Early New Year Moves

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

An interesting start to the year, with Europe once again posting large gains on Tuesday as the US indices have mixed fortunes.

I always feel too much is read into late December and early January trading, with Santa rallies being overly celebrated and the doom and gloom of the opening month of the year way overdone. The start of the year hasn’t offered the doom and gloom yet, although US tech stocks getting whacked today may make some a little nervous.

As many return to their desks following another unusual holiday season, investors are left to contend with what the coming months have to offer and whether the new abnormal will cause any major disruptions to the global economy. Thankfully omicron appears less aggressive than its predecessors which should enable many countries to continue the transition to living with the virus and away from hiding from it.

But sentiment remains fragile in the markets as Covid is not the only risk to the economy this year. The early days of omicron were a wake-up call to how complacent investors had become to the virus, but it came at a time when the greatest risks to the outlook were the knock-on effects of the previous waves and they have not subsided.

That’s not to say stocks are suddenly about to head south. But inflation is high and will remain so for a while yet, interest rates are going to increase this year, and both of these could be exacerbated if restrictions continue to lead to supply disruptions.

Oil well supported after OPEC+ assessment

Oil prices are extending gains after the OPEC+ meeting today, at which producers agreed to continue to increase output by 400,000 barrels per day, next month. At the last meeting, the group agreed to continue with planned increases in January but made clear it could make adjustments at any point if omicron proves to be a significant drag on demand.

It’s clear based on today’s meeting that downside risks to demand from the new variant never materialized and the group is far more comfortable with the outlook based on the data they’ve seen. This will be encouraging for investors and could keep oil prices elevated around $80.

Gold bulls easily scared

Gold remains an interesting one to follow early in the new year, with traders seemingly bullish but easily scared. The bullishness is interesting given we’re in a monetary tightening environment, the dollar remains king and economic optimism remains strong. Perhaps this is a red flag, a sign that under the surface investors aren’t as confident as they would otherwise appear.

The yellow metal is holding above $1,800 and is up more than half a percent today. But it does appear momentum is starting to wane, with $1,833 seemingly still remaining key to the upside despite the yellow metal finally overcoming the unusually specific resistance level in mid-November.

Bitcoin remains range-bound

Bitcoin remains in a consolidation phase at the start of the year, with $45,500 providing strong support below but $52,000 a step too far above. The last week has seen that range tighten, with $48,000 providing significant resistance which hasn’t made for the most exciting period for bitcoin trade, something that I’m sure won’t last long.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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