Connect with us

Markets

Markets Today – Ukraine De-Escalation, ECB, BoE, Unemployment, Oil, Gold, Bitcoin

Published

on

Markets

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

Risk appetite is much improved on Tuesday following reports that Russia is pulling back some troops, a significant de-escalation that makes the prospect of an invasion this week much less likely.

The Kremlin maintains that it never intended to invade Ukraine and the return of some troops to their regular bases following military exercises is proceeding as was always planned. While risks remain elevated, this looks like a big step in the right direction, and investors, like everyone else, are breathing a huge sigh of relief.

European stocks are up more than 1% and US futures are eyeing a similar open, while oil and gold are paring gains from the last couple of sessions. The mood will no doubt continue to lift if troops continue to return to bases and leaders stop talking up the prospect of an imminent invasion, which appears to have brought amusement to some in recent days.

With diplomatic efforts set to continue, starting with German Chancellor Olaf Scholz’ visit to the Kremlin today, we could see sentiment continue to improve in the coming days. That could allow stocks to make up more lost ground as Ukraine developments have compounded fears around inflation and interest rates.

Pressure growing on ECB and BoE

Data from across Europe this morning has shown the labour market remained healthy into the new year despite the omicron setback. The euro area has seen employment exceed its pre-pandemic level while the economy grew by 0.3% in the final three months of the year. The resilience displayed through the latest wave highlights how tight the labour market is and will continue to pile pressure on the ECB as it tackles unusually high inflation.

The Bank of England is all too aware of those pressures, having already raised interest rates at each of the last two meetings and a repeat is expected in the coming months as well. Wages are continuing to rise as Christmas bonus’ appeared to exceed expectations, which contributed to earnings rising 4.3% in the three months to December, a faster rate than a month earlier and far higher than the 3.8% consensus. The pressure is not easing up on central banks, although inflation is expected to peak over the next couple of months.

$100 oil delayed as Ukraine tensions ease

Oil prices have pulled back from yesterday’s highs and are off more than 3% on the day as invasion fears recede. Brent and WTI had been on the march to $100 but the removal of troops has reduced the likelihood of conflict and, in turn, the risk premium. We could quickly see that change over the coming days if the situation deteriorates but if not, we could see a further decline in the price.

There’s been so much talk of triple-figure crude and the threat of war in Ukraine clearly accelerated that. We could still see oil hit $100 even without an invasion but it will take a little longer. The market is still extremely tight, which is why we’re seeing the prospect of an invasion drive up prices so much. In the absence of some unilateral action from Saudi Arabia, or a nuclear deal between the US and Iran, it may still not be too far away.

Gold appeal wanes on Ukraine de-escalation

Soaring demand for gold in recent days has cooled after Russia confirmed the planned withdrawal of some troops; the first sign of de-escalation on the Ukrainian border amid warnings of an invasion. The yellow metal was boosted by a combination of its safe-haven reputation and its inflation hedge qualities as oil and gas prices spiked.

It peaked earlier today around $1,880 but now finds itself testing $1,850, a level that prior to the invasion warnings on Friday had been a notable level of resistance. Should gold erase its invasion premium, we could see it move back towards $1,830 where it had stabilised around the middle of last week.

Bitcoin looking to build on positive momentum

Bitcoin remained quite stable throughout the uncertainty of recent days. It had already started to pull back from $45,500 as profit-taking kicked in but the downside since Friday has been fairly mild by its own standards. It’s certainly benefiting from improved sentiment today though, rallying almost 5% and suddenly last week’s highs look quite vulnerable. A break above here would put it back into healthy territory and we could see it gather momentum from there.

Continue Reading
Comments

Crude Oil

Oil Prices Rally Amidst Russian Export Ban and Rate Hike Concerns

Published

on

Crude oil - Investors King

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.

Continue Reading

Crude Oil

NNPCL’s Crude Commitments Create Hurdles for Dangote’s Oil Operations

Published

on

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.

Continue Reading

Crude Oil

Oil Prices Retreat as Markets Await Fed Meeting

Published

on

Crude oil - Investors King

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.

Continue Reading
Advertisement
Advertisement




Advertisement
Advertisement
Advertisement

Trending