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Markets Today – Eurozone Inflation, Oil, Gold, Bitcoin

Eurozone Inflation Data Brings Some Relief For the ECB But Tightening Cycle Likely Not Over

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Gold and Bitcoin - Investors King

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

European stocks are ending the week on a high, buoyed by another encouraging inflation report that will soon support the end of the ECBs tightening cycle.

Not only did the headline HICP rate fall further than expected, but the slight rebound at the core level – driven largely by unfavourable base effects, largely attributed to German transport subsidies last year – was lower than expected.

ECB policymakers will not get complacent on the back of today’s data but with inflation expected to fall further in the months ahead, core included later in the third quarter, we could well see a pause in rate hikes before the fourth quarter. This may enable the soft landing policymakers have been hoping for, with very shallow recessions a small cost to pay for price stability. ‚Äč

The unemployment rate staying at 6.5% as the number of unemployed fell slightly will keep ECB hawks on edge for signs of labour market tightness driving sustained excessive wage growth, but those fears should also subside over the coming months.

A rate hike in July looks highly likely on the back of recent ECB comments, particularly those after the meeting this month, but beyond that investors aren’t convinced thinking another is more likely than not but by no means guaranteed.

Oil remains range bound but ending the week on a positive

Oil prices are edging higher again today but given how they’ve traded over the last couple of months I’m struggling to read too much into it. The inventory data on Wednesday was bullish on the face of it and the eurozone inflation data today won’t do it any harm either, but uninspiring Chinese PMIs overnight don’t fill me with confidence.

Broadly speaking, it’s range-bound as it has been since early May, and showing little signs of breaking in either direction. The range is getting very gradually smaller but at such a slow pace that it doesn’t really tell us much at this point. It very much feels like traders are awaiting more information on inflation and, by extension, interest rates, and until we have a better idea of the outlook, it could remain in this pattern.

Gold struggling amid US interest rate concerns

Gold continues to languish around $1,900 after slipping below here briefly on Thursday for the first time since March. Strong economic data from the US has reaffirmed fears that a resilient economy may stand in the way of the Fed ending the tightening cycle, increasing the possibility of more hikes and a harder landing.

There are clear signs of progress on inflation but with the economy and labour market showing such resilience, officials may be concerned that getting from 4.4% to 2% may be much harder than what’s been achieved so far. And the longer it remains above, the longer rates will remain high which is a big risk to the longer-term economic prospects.

Bitcoin steady after ETF surge

Bitcoin is back in the green today but remains in the $30,000-$31,000 range it’s traded largely within over the last week. The ETF filings have given it some very positive momentum even with SEC lawsuits hanging over the industry. A break above $31,000 could see it accelerate higher once more with $32,500 potentially offering the next test.

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Crude Oil

Oil Prices Surge as China’s Holiday Demand and Tight US Supply Drive 2% Weekly Gain

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Crude oil - Investors King

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.

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Crude Oil

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.

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Crude oil

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.”

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Energy

Nigeria’s Struggles in the Energy Sector Highlighted as Ghana Nears Universal Access

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Power - Investors King

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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