Markets

Caution Ahead of Midterms and Inflation Data

It’s been a rough couple of days for bitcoin which finds itself back below $20,000 and down more than 4% on the day

Published

2 years ago

November 8, 2022

Samed Olukoya

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

A cautious start to trading on Tuesday, with investors seemingly having one eye on midterm results in the US and another on Thursday’s inflation data.

It’s hard to see past both of these things this week. The question for many is whether investors will respond positively to the deadlock in Washington. On the one hand, the prospect of less spending could be viewed as aiding the inflation fight but on the other, the economy could be headed for recession, and inaction in government won’t help the situation.

The Republicans are strongly favoured to take back control of the House and with the Senate currently split, they are likely to edge that as well meaning Biden’s economic agenda will come to a standstill ahead of the 2024 election.

Arguably the most important takeaway from the midterms will be how Trump-supporting Republicans fare, particularly those so fiercely sticking to the “stolen election” line, among others. With Trump himself due to make a “big announcement” soon, it would appear he’s about to throw his hat into the ring and declare any victories a show of support for his own nomination.

With the US likely heading for recession, whoever wins the Republican race stands a good chance of winning the race in 2024. It may now become a question of how much of a grip Trump still has on the Republican party and whether the manner of his exit will prove to be a barrier or a supportive factor within the base.

Of course, the more pressing issue in the near term is inflation and so, regardless of the midterm results, we may still see some trepidation in the markets ahead of Thursday’s release. The Fed has made clear it intends to slow the pace of tightening in December and this data could either throw that into question or start to build the case for a lower terminal rate than the central bank hinted at last week.

Oil pares gains as China Covid cases jump

Oil prices are easing a little on Tuesday, a day after Brent crude came within a whisker of $100 again. It’s traded below this major psychological level since July but recent developments have propelled the price higher again, up more than 20% from the September lows.

OPEC+ had a big hand to play in that but speculation around China’s zero-Covid commitment may also be a factor in recent gains. That said, those rumours still haven’t been confirmed and in fact, outbreaks in Guangzhou and other major cities have led to increased restrictions. It may be a little early to get carried away with speculation, especially when any significant change in policy would represent an enormous shift from the status quo. Still, the performance of Chinese stocks suggests there’s a belief that there’s no smoke without fire, which may also be enabling the continued rise in crude.

Gold edges lower amid a stronger dollar

The dollar is staging a small recovery around its recent lows which is weighing a little on gold this week. The yellow metal surged late last week following the jobs report before stumbling around $1,680 which has previously been a notable level of resistance. Still, it’s holding onto the bulk of those gains quite well which suggests traders are anticipating some good news from the inflation data on Thursday, at least good enough to convince the Fed of the need to slow the pace of tightening next month.

Anything that suggests they won’t need to rise as high as the Fed indicated could give gold another boost. Although given what the central bank said last week, you have to wonder if they are in fact anticipating another stubborn reading.

Bitcoin plunges below $20,000

It’s been a rough couple of days for bitcoin which finds itself back below $20,000 and down more than 4% on the day. It has recovered a little after previously being off more than 6% but this is a far more severe decline than we’re seeing in other risk assets which may be a worrying sign for crypto bulls. The declines may be linked to the plunge in FTT which nosedived amid reported concerns over Alameda’s balance sheet. We’ve seen this kind of situation have ripple effects on prices before and this may explain the sharper declines we’re seeing this week.

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Samed Olukoya

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

Dangote Mega Refinery in Nigeria Seeks Millions of Barrels of US Crude Amid Output Challenges

Published

3 days ago

May 16, 2024

Samed Olukoya

The Dangote Mega Refinery, situated near Lagos, Nigeria, is embarking on an ambitious plan to procure millions of barrels of US crude over the next year.

The refinery, established by Aliko Dangote, Africa’s wealthiest individual, has issued a term tender for the purchase of 2 million barrels a month of West Texas Intermediate Midland crude for a duration of 12 months, commencing in July.

This development revealed through a document obtained by Bloomberg, represents a shift in strategy for the refinery, which has opted for US oil imports due to constraints in the availability and reliability of Nigerian crude.

Elitsa Georgieva, Executive Director at Citac, an energy consultancy specializing in the African downstream sector, emphasized the allure of US crude for Dangote’s refinery.

Georgieva highlighted the challenges associated with sourcing Nigerian crude, including insufficient supply, unreliability, and sometimes unavailability.

In contrast, US WTI offers reliability, availability, and competitive pricing, making it an attractive option for Dangote.

Nigeria’s struggles to meet its OPEC+ quota and sustain its crude production capacity have been ongoing for at least a year.

Despite an estimated production capacity of 2.6 million barrels a day, the country only managed to pump about 1.45 million barrels a day of crude and liquids in April.

Factors contributing to this decline include crude theft, aging oil pipelines, low investment, and divestments by oil majors operating in Nigeria.

To address the challenge of local supply for the Dangote refinery, Nigeria’s upstream regulators have proposed new draft rules compelling oil producers to prioritize selling crude to domestic refineries.

This regulatory move aims to ensure sufficient local supply to support the operations of the 650,000 barrel-a-day Dangote refinery.

Operating at about half capacity presently, the Dangote refinery has capitalized on the opportunity to secure cheaper US oil imports to fulfill up to a third of its feedstock requirements.

Since the beginning of the year, the refinery has been receiving monthly shipments of about 2 million barrels of WTI Midland from the United States.

Crude Oil

Oil Prices Hold Steady as U.S. Demand Signals Strengthening

Published

3 days ago

May 16, 2024

Samed Olukoya

Oil prices maintained a steady stance in the global market as signals of strengthening demand in the United States provided support amidst ongoing geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, holds at $82.79 per barrel, a marginal increase of 4 cents or 0.05%.

Similarly, U.S. West Texas Intermediate (WTI) crude saw a slight uptick of 4 cents to $78.67 per barrel.

The stability in oil prices came in the wake of favorable data indicating a potential surge in demand from the U.S. market.

An analysis by MUFG analysts Ehsan Khoman and Soojin Kim pointed to a broader risk-on sentiment spurred by signs of receding inflationary pressures in the U.S., suggesting the possibility of a more accommodative monetary policy by the Federal Reserve.

This prospect could alleviate the strength of the dollar and render oil more affordable for holders of other currencies, consequently bolstering demand.

Despite a brief dip on Wednesday, when Brent crude touched an intra-day low of $81.05 per barrel, the commodity rebounded, indicating underlying market resilience.

This bounce-back was attributed to a notable decline in U.S. crude oil inventories, gasoline, and distillates.

The Energy Information Administration (EIA) reported a reduction of 2.5 million barrels in crude inventories to 457 million barrels for the week ending May 10, surpassing analysts’ consensus forecast of 543,000 barrels.

John Evans, an analyst at PVM, underscored the significance of increased refinery activity, which contributed to the decline in inventories and hinted at heightened demand.

This development sparked a turnaround in price dynamics, with earlier losses being nullified by a surge in buying activity that wiped out all declines.

Moreover, U.S. consumer price data for April revealed a less-than-expected increase, aligning with market expectations of a potential interest rate cut by the Federal Reserve in September.

The prospect of monetary easing further buoyed market sentiment, contributing to the stability of oil prices.

However, amidst these market dynamics, geopolitical tensions persisted in the Middle East, particularly between Israel and Palestinian factions. Israeli military operations in Gaza remained ongoing, with ceasefire negotiations reaching a stalemate mediated by Qatar and Egypt.

The situation underscored the potential for geopolitical flare-ups to impact oil market sentiment.

Crude Oil

Shell’s Bonga Field Hits Record High Production of 138,000 Barrels per Day in 2023

Published

4 days ago

May 16, 2024

Samed Olukoya

Shell Nigeria Exploration and Production Company Limited (SNEPCo) has achieved a significant milestone as its Bonga field, Nigeria’s first deep-water development, hit a record high production of 138,000 barrels per day in 2023.

This represents a substantial increase when compared to 101,000 barrels per day produced in the previous year.

The improvement in production is attributed to various factors, including the drilling of new wells, reservoir optimization, enhanced facility management, and overall asset management strategies.

Elohor Aiboni, Managing Director of SNEPCo, expressed pride in Bonga’s performance, stating that the increased production underscores the commitment of the company’s staff and its continuous efforts to enhance production processes and maintenance.

Aiboni also acknowledged the support of the Nigerian National Petroleum Company Limited and SNEPCo’s co-venture partners, including TotalEnergies Nigeria Limited, Nigerian Agip Exploration, and Esso Exploration and Production Nigeria Limited.

The Bonga field, which commenced production in November 2005, operates through the Bonga Floating Production Storage and Offloading (FPSO) vessel, with a capacity of 225,000 barrels per day.

Located 120 kilometers offshore, the FPSO has been a key contributor to Nigeria’s oil production since its inception.

Last year, the Bonga FPSO reached a significant milestone by exporting its 1-billionth barrel of oil, further cementing its position as a vital asset in Nigeria’s oil and gas sector.