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Markets Today – Ukraine, Russian Gas, US Yield Curve, Oil, OPEC+, Gold, Bitcoin

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

Stock markets are giving back some of their gains on Wednesday, as scepticism grows around Russia’s intentions following yesterday’s announcements.

Reports on Tuesday suggested we’re finally seeing a de-escalation in Ukraine, as Russia indicated its intentions to scale back certain military operations. While that was initially viewed as a first step towards a ceasefire, it wasn’t long before doubts started to creep in which weighed on sentiment once more.

All we’re seeing here is cautious optimism with a healthy sprinkling of scepticism. We’ve all watched how the last couple of months have unfolded so no one is going to get too excited until we see troops leaving Ukraine and a full ceasefire agreed upon. Until then, anything is possible.

Furthermore, the Kremlin’s decision to demand gas payments in roubles and threaten similar actions on other commodities that “unfriendly nations” rely upon risks stoking shortages and recessions whether they are true to their word in Ukraine or not. The economic war now at play between Russia and the West will continue to play a key role in the markets.

As long as troops remain in Ukraine, it’s hard to see how a compromise is found. Russia has long sought to position itself as a reliable supplier of natural resources but there’s little difference between changing the terms of the contracts and banning exports. In the absence of a ceasefire, at least one side must blink or all will suffer.

Of course, this all depends on when those demands are implemented. The Kremlin has this morning stated that rouble payments for gas will take time to take effect, which could buy Europe time to search for alternatives and top up reserves. If that’s the case, the timeline ultimately becomes key.

In the meantime, there’s no shortage of other things for the rest of us to fret about. There is a cost of living crisis upon us after all. High inflation and higher interest rates pose an immediate threat and if the bond market warnings are to be believed, recessions may await us.

Now for the caveat of course. There’s no guarantee with these indicators and the 2’s and 10’s remain uninverted in any case. There are parts of the US yield curve that are but that’s not a clear signal in itself. Then there’s the question of reliability, especially against the backdrop of a decade of the yield curve being manipulated by quantitative easing, pushing down the longer end of the curve. With central banks poised to start aggressively reducing their balance sheets, what impact will that have?

I’m sure none of that will put people’s minds at rest if inversions take hold and deepen. Especially against the backdrop of an economic war with Russia and much higher prices. But as it stands, the economic indicators still look healthy and point to more of a slowdown than a recession. If that changes, it’s still worth remembering that not all recessions are equal. As Russia is about to discover.

Oil recovers ahead of OPEC+ meeting

Oil prices are heading higher once more on Wednesday as the prospect of a ceasefire being close quickly faded and the economic war between Russia and its “unfriendly” trading partners ramped up. There’s seemingly no end in sight for increasingly tight oil market and should Russia expand its rouble demands beyond gas and the West tighten sanctions, prices could get much higher.

OPEC+ won’t provide any relief, even if it were capable of doing so. Its failure to hit the output targets its set itself is part of the problem. And those that could instead choose to stick by the alliance which claims to be apolitical while turning a blind eye to tight markets and high prices.

Gold steadies amid Russia doubts

Gold briefly dipped below $1,900 on Tuesday as risk appetite was boosted by supposed developments in Turkey but as that enthusiasm faded, so did the sell-off. It is now relatively flat on that day and back around $1,920 where it has hovered around for most of the session. We could continue to see risk dictate the moves in the yellow metal ahead of Friday’s jobs report, at which point the focus may temporarily shift back to inflation.

Bitcoin to continue higher after breakout?

We’re seeing further profit-taking in bitcoin on Wednesday following the surge and breakout earlier in the week. The near term continues to look positive after a prolonged period of consolidation, with Monday’s breakout no doubt grabbing widespread interest. Plenty of barriers to the upside remain, including $50,000 and $52,000, while key support below falls around $45,500 having been such strong resistance this year.

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

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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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 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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