Commodities
Analysis – Oil inventory drops set stage for higher prices
© Reuters. FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo/
By Ahmad Ghaddar, Arathy Somasekhar and Trixie Yap
LONDON/HOUSTON/SINGAPORE (Reuters) – Oil inventories are beginning to fall in some regions as demand outpaces supply constrained by deep production cuts from OPEC leader Saudi Arabia, providing support for prices which are expected to rise in coming months.
JP Morgan analysts said this month that oil inventories – which include crude and fuel products – now play a bigger role in determining oil prices than the U.S. dollar because Western sanctions on Russia have accelerated oil trading in other currencies.
“We expect stocks to draw relatively aggressively in July, and by the end of August, we should be through the stock builds that we saw in the first half of the year,” said Christopher Haines, an analyst at Energy Aspects.
“We are on the cusp of supply tightness. Saudi cuts are essentially accelerating the timeline.”
Both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) expect oil demand to outpace supply this year, leading to overall inventory draws to the tune of 400,000 to 500,000 barrels per day (bpd), mostly accounted for by the second half of the year.
Although global oil inventories increased in May to their highest since September 2021, according to the IEA, driven by a substantial rise in non-OECD countries, analysts say signs of tightness are appearing, in the United States in particular.
Stock declines have been geographically uneven so far, with inventory falls in the United States and Europe offset by increases in China and Japan.
The declines have also been skewed more towards fuel than crude, although the supply of sour crude, typically priced lower than sweet crude, has tightened because of the cuts introduced by OPEC and its allies.
“It appears that the voluntary cuts announced by eight OPEC+ countries in April plus the additional 1 million bpd of unilateral Saudi cut that just started in July are having the desired effect, with sour barrels becoming more scarce,” the JP Morgan analysts said.
Refineries running harder to meet rising summer demand as people drive and fly more partly explains the fall in inventories, the bank said, along with a drop in Russian oil exports this month.
The bank expects benchmark prices, which traded around a three-month high of $84 a barrel this week, to rise to $86 a barrel by the end of the third quarter, before easing in the fourth quarter as inventories start to build again.
UBS said it expected a rise to $85-$90 a barrel over coming months.
Crude stocks at the Cushing storage hub in Oklahoma fell by 2.9 million barrels in the week to July 14, the steepest draw in more than a year and a half according to the U.S. Energy Information Administration (EIA), and shed a further 2.6 million barrels the following week, leaving them well below their five-year average.
For fuel, data from consultancy FGE Energy on key hubs in the United States, northern Europe, Japan, Singapore and Fujairah in the United Arab Emirates, shows that overall stocks have been drawing aggressively so far this month, both onshore and at sea.
Weekly stocks of diesel, jet fuel and fuel oil in the five regions are also currently below their five-year averages.
U.S. gasoline stocks of 217.6 million barrels are at their lowest level for the time of year since 2015, according to EIA data, and 5 million barrels, or 5%, lower than the prior 10-year seasonal average.
BIG CRUDE BUILDS IN ASIA
Big crude builds in China and Japan have so far offset a drop in the Mideast Gulf, meaning there is no sign yet of an overall global onshore crude inventory drawdown, according to satellite analytics firm Kayrros.
In fact, data from the firm shows that crude inventories in the week to July 20 reached a two-year high, with the world adding 200 million barrels into storage since Russia’s invasion of Ukraine in February 2022.
This amounts to roughly 400,000 bpd over that time period, the daily oil consumption of Portugal.
China accounts for the lion’s share of the gains, adding 700,000 bpd since mid-April, which Kayrros co-founder Antoine Halff noted was commercial rather than strategic.
He attributed the build to weak Chinese industrial activity and the import of discounted crude from Russia, Iran and Venezuela.
Crude inventories in Japan have added 25 million barrels, or 8%, since April to stand at their highest in nearly two years, according to Kayrros.
China’s diesel inventories also rose sharply over Nov. 2022-Feb. 2023 and have remained at elevated levels since.
MIDEAST GULF DRAWS
Crude stocks in the Mideast Gulf and North Africa region have declined by 5 million barrels overall so far this year, according to estimates by Macquarie, although OPEC members in the region have drawn 10 million barrels.
“I think Iranian barrels, both floating and onshore, had been making their way through different parts of Asia…and then ending up in China,” said Macquarie analyst Vikas Dwivedi about what could be driving the draw.
Like JP Morgan, Dwivedi believes inventories will fall in coming weeks before starting to build again in the fourth quarter as refineries slow throughput and higher oil prices drive some OPEC+ members to exceed their production quota to maximise revenue.
“We’re bullish right now. This is the first time we’ve been bullish for a long, long time. Over about 18 months we’ve been bearish,” he said.
(Reuters) – Gold hit a record high above $2,600 per ounce on Friday, as the prospect of more U.S. interest rate cuts and global geo-political uncertainty boosted its appeal.
Bullion has risen more than 26% so far this year, and as market bulls lock in further gains, another milestone of $3,000 per ounce is in focus.
Here are the different avenues for investing in gold:
SPOT MARKET
Large buyers and institutional investors usually buy gold from big banks. Prices in the spot market are determined by real-time supply and demand dynamics.
London is the most influential hub for the market, largely because of the London Bullion Market Association (LBMA). The LBMA sets standards for gold trading and provides a framework for the OTC (over-the-counter) market, facilitating trades among banks, dealers, and institutions.
China, India, the Middle East and the United States are other major gold trading centres.
FUTURES MARKET
Investors can also get exposure to gold via futures exchanges, where people buy or sell a particular commodity at a fixed price on a particular date in future.
COMEX (Commodity Exchange Inc), a part of the New York Mercantile Exchange (NYMEX), is the largest market in terms of trading volumes.
Shanghai Futures Exchange, China’s leading commodities exchange, also offers gold futures contracts. The Tokyo Commodity exchange, popularly known as TOCOM, is another big player in the Asian gold market.
EXCHANGE TRADED PRODUCTS
Exchange Traded Products (ETPs) or Exchange Traded Funds (ETFs) issue securities backed by physical metal and allow people to gain exposure to the underlying gold prices without taking delivery of the metal itself. [GOL/ETF]
ETFs have become a major category of investment demand for the precious metal.
Global physically backed gold ETFs attracted a fourth consecutive month of inflows in August after North American and Europe-listed funds increased holdings, the World Gold Council (WGC) said.
BARS AND COINS
Retail consumers can buy gold from metals traders selling bars and coins in an outlet or online. Both gold bars and coins are effective means of investing in physical gold.
DRIVERS:
INVESTORS AND MARKET SENTIMENT
Rising interest from investment funds in recent years has been a major factor behind bullion’s price moves.
Sentiment driven by market trends, news, and global events can also lead to speculative buying or selling of gold.
FOREIGN EXCHANGE RATES
Gold is a popular hedge against currency market volatility. It has traditionally moved in the opposite direction to the U.S. dollar as weakness in the U.S. unit makes dollar-priced gold cheaper for holders of other currencies and vice versa.
MONETARY POLICIES AND POLITICAL TENSIONS
The precious metal is widely considered a “safe haven”, bought during uncertain times in a flight to quality.
Major geopolitical events, such as extended conflicts in the Middle East and Europe have added to uncertainties for global investors and burnished gold’s appeal.
Policy decisions from global central banks also influence gold’s trajectory. Lower rates reduce the opportunity cost of holding gold, since it pays no interest.
Gold’s latest rally was triggered after the U.S. Federal Reserve began its easing cycle with an outsized half-percentage-point cut on Wednesday.
CENTRAL BANK GOLD RESERVES
Central banks hold gold as part of their reserves. Buying or selling of the metal by the banks can influence prices.
Central bank demand has been robust in recent years because of ongoing macroeconomic and political uncertainty, analysts have said.
More central banks plan to add to their gold reserves within a year despite high prices for the precious metal, the World Gold Council (WGC) said in its annual survey in June.
Investing.com– Oil prices retreated Friday, but were still headed for a weekly gain as a bumper U.S. interest rate cut helped quell some fears of slowing demand.
At 08:20 ET (12:20 GMT), fell 0.6% to $74.47 a barrel, while dropped 0.5% to $70.79 a barrel.
Oil heads for weekly gains on rate cut cheer
Crude prices have staged a strong recovery from near three-year lows hit earlier in September, with a bulk of their rebound coming this week as the dollar retreated on a by the Federal Reserve.
was trading up about 3.95% this week, while WTI futures were up 4.4%.
Increased tensions in the Middle East also aided crude, after Israel allegedly exploded pagers and walkie talkies belonging to Hezbollah members, sparking vows of retaliation. Fighting in and around Gaza also continued.
A softer aided crude prices after the Fed cut interest rates by the top end of market expectations and announced an easing cycle, which traders bet will help spur economic growth in the coming quarters.
Lower rates usually bode well for economic activity, which in turn is expected to buoy crude demand.
China demand concerns persist
But China remained a key point of contention for crude markets, as economic readings from the world’s biggest oil importer showed little signs of improvement.
The People’s Bank of China kept unchanged on Friday, despite mounting calls on Beijing to unlock more stimulus for the economy.
Data released earlier in September showed Chinese refinery output slowed for a fifth straight month in August, while the country’s oil imports also remained mostly weak.
Concerns over China dragged oil prices to a near three-year low earlier this month, and have limited any major recovery in crude.
“China has obviously been the key concern when it comes to demand, but there have also been reports of refiners in Europe cutting run rates due to poor margins,” said analysts at ING, in a note.
(Ambar Warrick contributed to this article.)
By Arunima Kumar
(Reuters) -Oil prices eased on Friday, but were on track to register gains for a second straight week following a large cut in U.S. interest rates and declining global stockpiles.
Brent futures were down 50 cents, or 0.67%, at $74.38 a barrel at 1004 GMT while U.S. WTI crude futures fell 48 cents, or 0.65%, at $71.47.
Still, both benchmarks were up 3.7% and 4% respectively on the week.
Prices have been recovering after Brent fell below $69 for the first time in nearly three years on Sept. 10.
“U.S. interest cuts have supported risk sentiment, weakened the dollar and supported crude this week,” UBS analyst Giovanni Staunovo said.
“However, it takes time until rate cuts support economic activity and oil demand growth,” he added, regarding crude’s more muted performance so far on Friday.
Prices rose more than 1% on Thursday following the U.S. central bank’s decision to cut interest rates by half a percentage point on Wednesday.
Interest rate cuts typically boost economic activity and energy demand, but some also see it as a sign of a weak U.S. labour market.
The Fed also projected a further half-point rate cut by year-end, a full point next year and a half-point trim in 2026.
“Easing monetary policy helped reinforce expectations that the U.S. economy will avoid a downturn,” ANZ Research analysts said.
Also supporting prices were a decline in inventories, which fell to a one-year low last week. [EIA/S]
A counter-seasonal oil market deficit of around 400,000 barrels per day (bpd) will support prices in the $70 to $75 a barrel range during the next quarter, Citi analysts said on Thursday, but added prices could plunge in 2025.
Crude prices were also being supported by rising tensions in the Middle East. Walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Security sources have said the Israeli spy agency Mossad was responsible, but Israeli officials have not commented on the attacks.
China’s slowing economy also weighed on market sentiment, with refinery output in China slowing for a fifth month in August and industrial output growth hitting a five-month low.
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