By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
It’s been quite a calm start to the week which isn’t entirely surprising given the lack of events on the calendar today. That said, things are expected to pick up with the rest of the week serving up some big economic releases and a hugely important OPEC+ meeting.
All data now, particularly that of the US, is being looked at through the prism of what it will mean for the final central bank meeting of the year and the new projections it’ll be accompanied by.
Since the last meeting, the data has been encouraging and we’ll get another batch before the Fed meets on 13 December. This week we’ll get the October PCE inflation data – the Fed’s preferred measure – as well as third quarter GDP, ISM manufacturing and jobless claims.
Outside of the US, we’ll get flash HICP inflation data for the eurozone, PMIs from China, CPI figures for Australia and a rate decision from the RBNZ. On top of all that, there’s a plethora of central bank speakers making appearances which will keep us on our toes.
BoE Governor Bailey got the week off to a start on that front, pushing back against expectations for rate cuts from Q2, claiming he doesn’t expect any for the “foreseeable future”. A vague commitment as ever but all we can expect from policymakers for now. There’s still a way to go and as Bailey highlighted, getting from peak to now is likely to be much easier than from here to 2%.
Oil choppy ahead of Thursday’s OPEC+ meeting
Arguably, the OPEC+ meeting will be the week’s most impactful event. Not just because any decision could have direct consequences for price and therefore inflation but also due to the meeting already being pushed back by four days, so there’s clearly some disagreement within the alliance.
The group has always found a way to get an agreement over the line before, even if that means the biggest producers taking on more of the additional commitments so it’s probably safe to say something similar will be achieved this week. But the question is how far they’ll push it, given the recent trend in oil prices and increasing concerns around global growth next year.
Gold eyeing record highs?
Gold has got the week off to a strong start, up around half a percent and hitting a six-month high. It just about managed to end last week above the psychologically challenging $2,000 level – where it’s repeatedly been pushed back from over the last month – and it seems that has propelled it on today.
We’re still seeing some push back though but this break has been backed by softer US data in recent weeks and less hawkish commentary from the Fed. That may be the difference this time around and enable it to look up towards record highs, only a few percent above where it currently finds itself.
Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns
Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.
Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.
The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.
This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.
While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.
Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.
Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.
Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.
Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.
Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm
The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.
Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.
The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.
However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.
Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.
He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.
Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.
The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.
Oil Prices Surge as Brent Approaches $83, WTI Nears $78 Amidst Refinery Buying Activity
Oil prices surged as Brent crude oil approached the $83 price level while West Texas Intermediate (WTI) neared $78 as refineries in the United States and China increased purchases.
Brent crude oil, against which Nigerian oil is priced, gained 1.1% on Monday, signaling a bullish trend in the oil market.
The recent uptick in oil prices comes amidst signs of heightened demand from refineries, particularly in key markets like the US and China.
This surge in demand has contributed to the strengthening of timespreads, indicating tighter conditions in the near term.
Market observers are closely monitoring the International Energy Week in London, where industry leaders are convening to discuss the outlook for the global energy market.
Scheduled speakers include Russell Hardy, the CEO of Vitol Group, a major player in the energy sector.
While tensions in the Middle East and production cuts by the OPEC+ alliance have supported crude prices, increased production from non-OPEC+ countries, notably the US, has capped potential gains.
Analysts predict that oil prices may continue to trade within a range, with Brent crude expected to hover around $83, while WTI remains near the $78 mark, barring significant shifts in market dynamics.
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