By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
We’re seeing green flashing across the board on Thursday, with sentiment buoyed by positive signals on Fed rate hikes and China’s Covid response.
While it could be argued that Jerome Powell’s comments on Wednesday were relatively balanced – slower tightening now but rates high for longer – the last year has proven that anticipating the path of inflation even a short period ahead is incredibly difficult. Knowing what the Fed intends to do next is far more valuable than what it thinks it may do 6-12 months down the line.
And anything that is perceived to reduce to possibility of an interest rate recession is going to be a positive for equity markets. The Fed has every opportunity to tighten more in the months ahead if the data doesn’t play ball. What’s far more difficult is undoing the damage caused by moving too fast now with little to no visibility on how impactful past tightening has been.
The signals coming from China also look very positive. While we shouldn’t expect a dramatic shift in policy from the leadership, particularly before the March Congress, any modest softening in its Covid-zero policy will and should be welcomed. The approach has been extremely damaging to growth and confidence and the protests highlight how public opinion towards it is changing.
We shouldn’t be naive to the fact that a move away from the policy won’t be easy and there’ll be plenty of setbacks. But it’s certainly a step in the right direction that, along with the measures announced to revive the property market, could put the economy on a much better path.
A huge few days for oil markets
Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude, another large production cut from OPEC+ this weekend, and China’s evolving Covid stance. There remains considerable uncertainty surrounding all of the above though which will likely ensure prices remain volatile going into the weekend. That could carry more risk than normal if the OPEC+ meeting does go ahead as planned on Sunday and the EU hasn’t agreed to the price cap level by the close of play Friday. The range of possibilities on these two things alone is huge which will make rumours and speculation over the coming day or two all the more impactful.
Gold testing range highs
Gold bulls were particularly happy with Powell’s comments on Wednesday with the yellow metal rallying strongly to trade at the upper end of its recent range. It faces strong resistance around $1,780 though which was a significant level of support in the first half of the year. With so much data to come over the next day or so, it may not prove particularly resilient if traders are given further hope that rates will rise more slowly and peak lower.
Some relief for cryptos
The risk relief rally is coming at just the right time for bitcoin, helping it to recover from the lows to trade around $17,000. This is around the highs of the last few weeks since it settled after its latest plunge. Whether it will be enough to revive interest in the cryptocurrency, I’m not sure. The FTX fallout is continuing to weigh heavily on the space and the prospect of more contagion or scandals is hard to ignore.
Crude Oil Dips Slightly on Friday Amid Demand Concerns
On Friday, global crude oil prices experienced a slight dip, primarily attributed to mounting concerns surrounding demand despite signs of a tightening market.
Brent crude prices edged lower, nearing $83 per barrel, following a recent uptick of 1.6% over two consecutive sessions.
Similarly, West Texas Intermediate (WTI) crude hovered around $78 per barrel. Despite the dip, market indicators suggest a relatively robust market, with US crude inventories expanding less than anticipated in the previous week.
The oil market finds itself amidst a complex dynamic, balancing optimistic signals such as reduced OPEC+ output and heightened tensions in the Middle East against persistent worries about Chinese demand, particularly as the nation grapples with economic challenges.
This delicate equilibrium has led oil futures to mirror the oscillations of broader stock markets, underscoring the interconnectedness of global economic factors.
Analysts, including Michael Tran from RBC Capital Markets LLC, highlight the recurring theme of robust oil demand juxtaposed with concerning Chinese macroeconomic data, contributing to market volatility.
Also, recent attacks on commercial shipping in the Red Sea by Houthi militants have added a risk premium to oil futures, reflecting geopolitical uncertainties beyond immediate demand-supply dynamics.
While US crude inventories saw a slight rise, they remain below seasonal averages, indicating some resilience in the market despite prevailing uncertainties.
Nigeria’s Petrol Imports Decrease by 1 Billion Litres Following Subsidy Removal
Nigeria’s monthly petrol imports declined by approximately 1 billion litres following the fuel subsidy removal by President Bola Ahmed Tinubu, the National Bureau of Statistics (NBS) reported.
The NBS findings illuminate the tangible effects of this policy shift on the country’s petroleum importation dynamics.
Prior to the subsidy removal, the NBS report delineated a consistent pattern of petrol imports with quantities ranging between 1.91 billion and 2.29 billion litres from March to May 2023.
However, in the aftermath of Tinubu’s decision, the nation witnessed a notable downturn in petrol imports, with figures plummeting to 1.64 billion litres in June, the first post-subsidy month.
This downward trend persisted in subsequent months, with July recording a further reduction to 1.45 billion litres and August witnessing a significant decline to 1.09 billion litres.
August’s import figures represented a decrease of over 1 billion litres compared to the corresponding period in 2022.
The NBS report underscores the pivotal role of the subsidy removal in reshaping Nigeria’s petrol import landscape with the Nigerian National Petroleum Company emerging as the sole importer of fuel in the current scenario.
Despite higher petrol imports in the first half of 2023 compared to the previous year, the decline in June, July, and August underscores the profound impact of subsidy removal on import dynamics, affirming the NBS’s latest findings.
Nigeria’s Oil Rig Count Soars From 11 to 30, Says NUPRC CEO
The Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, has announced a surge in the country’s oil rig count.
Komolafe disclosed that Nigeria’s oil rigs have escalated from 11 to 30, a substantial increase since 2011.
Attributing this surge to concerted efforts by NUPRC and other governmental stakeholders, Komolafe highlighted the importance of instilling confidence, certainty, and predictability in the oil and gas industry.
He explained the pivotal role of the recently implemented Petroleum Industry Act (PIA), which has spurred significant capital expenditure amounting to billions of dollars over the past two and a half years.
Speaking in Lagos after receiving The Sun Award, Komolafe underscored the effective discharge of NUPRC’s statutory mandate, which has contributed to the success stories witnessed in the sector.
The surge in Nigeria’s oil rig count signifies a tangible measure of vibrant activities within the upstream oil and gas sector, reflecting increased drilling activity and heightened industry dynamism.
Also, Komolafe noted that NUPRC has issued over 17 regulations aimed at enhancing certainty and predictability in industry operations, aligning with the objectives outlined in the PIA.
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