By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Equity markets are cautiously higher in Europe while the US is poised to open relatively flat as we await appearances from the heads of the Fed, ECB, BoE and BoJ.
Fed Chair Jerome Powell, ECB President Christine Lagarde, BoE Governor Andrew Bailey, and BoJ Governor Kazuo Ueda are due to take part in a panel discussion at the ECB Forum on Central Banking around the opening bell in the US and their comments could set the tone for the rest of the day.
Often in these situations, policymakers will stick to the script, preferring to leave big announcements for meetings and certain high-profile events. But with so many heads appearing at the same time, there’s every chance at least one says something that will either rattle or stimulate the markets.
To make this event more intrguing, they’re all contending with very similar issues and yet their individual situations are quite different, which could make the discussion all the more interesting.
The Fed is arguably closest to the end of its tightening cycle and will probably be the first to cut rates, the ECB appears to be making some progress but is also more pessimistic than many on how much more is needed, the BoE is in a mess, frankly, and the BoJ may simply watch as the whole thing passes it by.
It really is quite fascinating and it will be interesting to hear what each has to say about the current environment. Especially with the Fed and ECB until now adopting a more hawkish stance than most, the BoE coming across less hawkish but recently being forced to pivot back to larger hikes, and the BoJ pushing back against any hawkish expectation in the markets.
Oil prices hold in recent range
Oil prices are edging higher again today after once again sliding back toward the range lows of the last few months. What’s interesting is that, as we’ve seen previously, Brent crude failed to reach the previous low. It’s now the fourth time that’s happened in recent months and suggests we are potentially in a prolonged period of consolidation, with little sign yet of further downside momentum building.
That may of course change as the environment changes, which can happen quite rapidly these days, but for now it looks stuck in that lower range between $70-$80, perhaps even $72-$77.
Can gold hold above $1,900
Gold is slipping again this week after initially breaking below its recent range just over a week ago. It’s now falling to a new three-month low and appears to be closing in on $1,900 which could represent the next big test of support for the yellow metal.
Appetite for gold has dwindled as investors have increasingly come around to the reality that not only could more rate hikes be in the pipeline, but rate cuts this year are now highly unlikely. Inflation is proving even more stubborn than expected on the way down and that’s bad news for gold.
Is bitcoin going to take off from here?
Bitcoin has steadied between $30,000 and $31,000 in recent days after surging on the back of encouraging ETF filings. The SEC lawsuits against Binance and Coinbase have not been forgotten but they’ve certainly drifted into the background and been overtaken by far more promising news flow.
It would appear the cryptocurrency has good momentum once more and the community may well be wondering if this could be the kind of development that sees enthusiasm for cryptos surge again. It’s obviously been a fantastic year for bitcoin so far but the sell-off since mid-April was another reminder that it doesn’t come without major setbacks.
Oil Prices Surge as China’s Holiday Demand and Tight US Supply Drive 2% Weekly Gain
Oil prices to close the week with about a 2% gain as robust holiday demand from China and constrained U.S. fundamentals overshadowed concerns about potential supply increases from Saudi Arabia.
Brent crude oil, against which Nigerian oil is priced, gained 5 cents to $95.43 per barrel at about 6:00 a.m. Nigerian time on Friday while the U.S. West Texas Intermediate crude (WTI) rose by 16 cents to $91.87 per barrel.
The market’s resilience became evident as it rebounded from a slight 1% dip in the previous session when profit-taking followed a surge in prices to 10-month highs.
China, the world’s largest oil importer, played a pivotal role in driving prices higher. Strong fuel demand coincided with China’s week-long Golden Week holiday, with increased international and domestic travel significantly boosting Chinese oil consumption.
Analysts at ANZ noted that this holiday season’s surge in travel was underpinned by the fact that the average daily flights booked were a fifth higher than during Golden Week in 2019, pre-dating the COVID-19 pandemic.
Also, improving macroeconomic data from China and the steady growth of its factory activity further supported the bullish sentiment.
The U.S. economy’s robust growth and indications of accelerated activity in the current quarter also bolstered expectations of sustained fuel demand.
Also, tight supplies in the U.S., evidenced by dwindling storage levels at Cushing, Oklahoma, provided additional support to oil prices. As rig counts fell, U.S. oil production was expected to slow down, potentially pushing the market into a deficit of more than 2 million barrels per day in the last quarter.
Investors are now eagerly awaiting the upcoming meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+), scheduled for October 4th.
The meeting will be a crucial indicator of whether Saudi Arabia will consider stepping up its supply in response to the nearly 30% surge in oil prices this quarter.
Analysts, however, caution that the market may be entering overbought territory, leading to possible hesitancy among participants and concerns that OPEC+ could ease production cuts earlier than planned if prices continue to rise.
The outcome of next week’s OPEC meeting will undoubtedly hold significant implications for the oil market’s future trajectory.
Oil Prices Soar to a Year High as Crude Reserves Plummet
Crude stocks at a pivotal storage hub in Cushing, Oklahoma, hit their lowest levels since July last year, sparking concerns about future supply stability.
Oil prices surged to their highest level in over a year during Asian trading hours, following a significant drop in crude stocks at a key storage hub.
Crude inventories in Cushing, Oklahoma, plummeted to a mere 22 million barrels in the fourth week of September, close to operational minimums, according to data from the U.S. Energy Information Administration (EIA).
This translates to 943,000 barrels compared to the prior week.
The U.S. West Texas Intermediate (WTI) rose to $95.03 per barrel during Asian trading hours, a peak not seen since August 2022 before settling at $94.61 per barrel.
Meanwhile, Brent crude oil, the international benchmark for Nigerian oil, rose by 1.05% to $97.56 per barrel.
Experts have attributed this rapid price escalation to the precarious situation in Cushing, with Bart Melek, Managing Director of TD Securities, stating, “Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022.”
Melek expressed concerns about the challenges of getting crude oil into the market if inventories continue to dip below these critical levels.
Predicting the future trajectory of oil prices, Melek suggested that prices could remain at elevated levels for the remainder of the year, especially if the global oil cartel, OPEC+, continues to enforce supply restrictions.
He noted that the global oil market is facing a “pretty robust deficit” on top of an already significant shortfall for this quarter due to OPEC’s production cuts.
Saudi Arabia, a key player in OPEC+, has extended its voluntary crude oil production cut of 1 million barrels per day until the year’s end, bringing its crude output to nearly 9 million barrels per day.
Russia has also pledged to continue its 300,000 barrels per day export reduction until December.
However, Melek added that, “We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”
Nigeria’s Struggles in the Energy Sector Highlighted as Ghana Nears Universal Access
Nigeria, the most populous nation in Africa, continues to grapple with challenges in its electricity sector, resulting in a significant lag behind its West African neighbor, Ghana, in achieving universal access to electricity.
Ghana, with its population of 34 million, has made remarkable strides in expanding its power sector, attaining an impressive electrification rate of 88.54% with ambitions to reach 100% by 2024.
Ghana’s success story is characterized by its deliberate policy formulation and swift implementation to bolster its power sector, facilitating increased investment and widespread electricity access for its citizens.
Speaking at the Nigeria Energy Conference and Exhibition 2023 in Lagos, Ghana’s Minister of Energy, Andrew Mercer, underscored his country’s commitment to achieving universal access to electricity by the end of 2024.
Mercer stated, “The president of Ghana emphasized the aggressive target of the government to achieve universal access by the end of 2024 from the current rate of 88.54%. This is consistent with the UN Sustainable Development Goal 7 (SDG7), which aims to ensure access to affordable, reliable, and modern energy for all by 2030.”
In Ghana, the total installed energy capacity stands at 5,454 megawatts (MW) with dependable capacity at 4,843 MW, and peak demand reached 3,561 MW in May 2023.
Meanwhile, Nigeria boasts a significantly higher total installed generation capacity of 13,000 MW but only a fraction, between 3,500 and 4,500 MW, is effectively transmitted and distributed to Nigerian homes and businesses.
Tragically, this disparity means that over 80% of Nigerians still lack access to the electricity grid with only around 11.27 million Nigerians recorded as electricity customers as of Q1 2023, according to the National Bureau of Statistics (NBS).
Ghana’s sustained electricity grid stability has resulted from consistent efforts by the government and stakeholders to enhance the nation’s electricity industry, ultimately improving the quality of life for Ghanaians and supporting economic activities.
Both Ghana and Nigeria have increased their reliance on thermal power generation, reducing the share of hydro power generation in favor of thermal sources. However, while Ghana boasts a record of grid stability and minimal outages, Nigeria has struggled with frequent grid collapses.
In September 2023, Nigeria experienced grid collapses on two occasions, disrupting power supply nationwide.
This disparity in grid reliability highlights the challenges faced by Nigeria’s electricity sector. According to data from the Nigerian Electricity Regulatory Commission (NERC), Nigeria recorded a high number of grid collapses in recent years, with 2018, 2019, 2020, and 2021 witnessing 13, 11, 4, and 4 collapses, respectively.
In 2022, there were seven recorded grid collapses, with the most recent occurring on September 25, 2022, when power generation plummeted from over 3,700 MW to as low as 38 MW.
As Nigeria grapples with these electricity challenges, Ghana’s steady progress in its power sector serves as a reminder of the critical importance of comprehensive policies, infrastructure development, and stability in ensuring universal access to electricity for citizens, a goal that remains elusive for millions of Nigerians.
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