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Boris Faces No-Confidence Vote

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Boris Johnson

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

Stock markets are off to a decent start this week with Europe posting almost 2% gains and the US not far behind.
Fluctuations in the markets are so frequent and large that I struggle to get particularly excited about days like today. On the face of it, these are very decent gains. But what exactly has changed? There’s far more to be concerned about than optimistic at this point and that’s going to be a constant challenge to any of these bear market rallies.
The next couple of weeks could be huge for market sentiment going into the summer, from the ECB rate decision on Thursday to US inflation on Friday and the Fed meeting next week. A lot has been priced into the markets when it comes to interest rates but it may still not be enough. And there’s perhaps a bit of denial about the economic prospects, especially if inflation falls at a much slower rate.
GBP higher ahead of no-confidence vote
The pound is one of the better-performing currencies in FX markets at the start of the week which may come as a surprise to some given the no-confidence vote on Prime Minister Boris Johnson that was confirmed earlier in the day. Political instability isn’t something that is typically positive for a country and its currency but a look at the odds ahead of the vote probably tells you everything you need to know. ‚Äč
Interestingly, the biggest winner of this evening’s no-confidence vote could be Boris, himself. The Prime Minister will no doubt consider a vote in his favour as drawing a line under the whole partygate scandal – even if plenty of others disagree – and he’ll be free of another challenge for at least 12 months. Who knows, he may well be pleased with the vote being triggered, even feel emboldened if he wins, as expected.
Oil pares gains as China continues reopening
Oil prices are slipping a little on Monday after stalling just above $120 a barrel. Clearly, traders were not overly impressed by the OPEC+ output hike last week once the details of the deal were released. Allowing countries, the bulk of which are running at capacity, to increase output faster will only increase the shortfall, rather than solve the issue of tightness in the market. But then, was it ever intended to do anything more? Or just a symbolic gesture.
The ongoing reopening in China will continue to support demand and be a bullish factor for crude prices. Of course, the flip side of that is such commitment to Covid-zero means restrictions could be reimposed at any time.
Gold treading water
Gold is trading a little lower today but broadly speaking is continuing to tread water around $1,850. There hasn’t really been much movement on that front over the last couple of weeks, despite there still being decent intraday volatility. Higher yields pose a risk to the gold recovery trade and a higher inflation reading on Friday could mark the end of it.
Bitcoin remains in consolidation
Bitcoin is back above $30,000 and up around 5% on the day. And yet, I don’t think we’re any the wiser on the path of travel for the cryptocurrency in the days and weeks ahead. It’s been in consolidation for many weeks now in a pattern that looks more bearish than bullish on the face of it but as we’ve seen before, once the recovery fully takes hold, the rally can be as explosive as it was unexpected. One thing that’s against it is the near-term prospects for risk assets more broadly and like with those, it could be a big ten days.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Crude Oil

Oil Prices Rally Amidst Russian Export Ban and Rate Hike Concerns

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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.

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Crude Oil

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

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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.

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Crude Oil

Oil Prices Retreat as Markets Await Fed Meeting

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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.

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