Commodities
Oil rebound pauses on reality check over impact from Israel-Hamas war
© Reuters.
Investing.com – Oil has only traded a day since the escalation in Israel-Hamas fighting, yet traders have already hit the pause button on the market’s rally, for a reality check on the impact from the conflict.
After Monday’s run-up of more than 4% in prices of both U.S. crude and its UK peer Brent, the two oil benchmarks traded in the negative by Tuesday’s noon hour in Asia. The pause on the oil rally came in the absence of credible estimates on how many barrels of oil produced, traded or shipped out of the Middle East would be stranded by latest tensions in the region.
By 12:01 local in Singapore (00:01 ET), New York-traded West Texas Intermediate, or , crude for delivery in November was down 36 cents, or 0.4%, to $86.02 per barrel.
On Monday, the U.S. crude benchmark settled up $3.59, after rising almost $4.50 at the session high to reach $87.23.
London-traded for the most-active December contract was down 34 cents, or 0.4%, to $87.81.
In the previous session, Brent closed up $3.57, after also rising nearly $4.50 at the session high like WTI to reach $89.
It was important to put the brakes on any oil rally to prevent the market from getting ahead of itself again, like it did in September, despite concerns about global inflation and stagnating European growth, said John Kilduff, a partner at New York energy hedge fund Again Capital.
“Don’t get me wrong, the war that’s going on now is big,” said Kilduff, who’s also a veteran commentator on the impact of Middle East strife on oil markets. “But is the oil trade really getting stifled by this conflict, aside from the squeeze on supply already being applied by OPEC+? Or is oil going up just in sympathy with overall tensions in the region.”
“It’s alright to assign some geopolitical risk to oil in situations like this, but not to the extent that the geopolitical risk itself becomes a free lunch for the trade,” said Kilduff. “As of now, there’s no proof that there’ll be a meaningful reduction in barrels because of this war alone and that includes any clampdown on oil exports from Iran, which is a supporter of all things Hamas. Until and unless we get evidence of that, crude prices should not trade much higher than where they did last week.”
Oil prices hit five-week lows last week, with WTI falling to $81.50 and Brent plumbing $83.44.
In support of oil markets on Monday, Saudi Energy Minister Abdulaziz bin Salman said production cuts by the global group of oil producers known as OPEC+ will continue.
OPEC+ says cuts will continue, but no word on Iranian supplies
The Saudis and Russians, who jointly lead the OPEC+, are withholding a daily supply of 1.3 million barrels between them, while the rest of the 23-nation alliance is contributing to a squeeze of another 2 million barrels or more.
“I honestly believe that the best thing I could say is that the cohesion of OPEC+ should not be challenged,” Abdulaziz said on the sidelines of a climate conference in Riyadh. “We’ve been through the worst, I don’t think we will have to go through any terrible situation at all,”
“Yes, we may be delayed with a decision on what to do, but I would not forfeit the precautionary approach, even if it goes beyond a month or two, or three or four months, or five months,” he added.
But there was no word about any change to Iranian supply, which is what the market was really looking out for.
Since late 2022, Washington has turned a blind eye to surging Iranian oil exports, bypassing American sanctions. The priority in Washington was an informal détente with Tehran so as to allow the world more in the advent of the OPEC cuts.
As a result, Iranian oil output is estimated to have surged nearly 700,000 barrels a day this year – the second-largest source of incremental supply in 2023, behind only US shale oil. The White House could enforce those sanctions against Iran now in support of Israel.
Early last week, oil hit more than one-year highs of $95 for WTI and $97 for Brent, responding to aggressive OPEC+ cuts.
From there, the market tumbled on a backdrop of macro and economic factors as hit 16-year highs and the soared to a 10-month peak while consumption of gasoline — the No. 1 fuel product in the United States — hit a seasonal low of 25 years. Specifically, US crude fell 9% last week and Brent 11%, the biggest weekly slump since March. It was a selloff deeper than any weekly rally in oil over the past three months.
Investing.com– Gold prices hit a record high in Asian trade on Monday amid growing bets that the Federal Reserve will cut interest rates by a bigger margin later this week.
Reports of a second assassination attempt on Republican presidential nominee Donald Trump also spurred some demand for safe havens, although Trump appeared to be unharmed, and the assailant apprehended.
Asian trading volumes were somewhat limited by market holidays in Japan, China, and South Korea.
rose 0.4% to a record high of $2,589.02 an ounce, while expiring in December rose 0.1% to $2,613.70 an ounce.
Gold benefits from rate cut bets as Fed looms
A softer allowed for more strength in gold prices, as markets awaited a Fed meeting.
The central bank is widely expected to on Wednesday, although markets are split between a 25 or 50 basis point cut.
showed markets split exactly 50% over the two options, with bets on a bigger cut coming back into play on concerns over weakness in the labor market.
The central bank is also expected to kick off an easing cycle from this week, with analysts expecting at least 100 bps of rate cuts by the end of the year.
Lower rates bode well for precious metals, given that they reduce the opportunity cost of investing in non-yielding assets.
rose 0.4% to $1,004.80 an ounce, while rose 0.8% to $31.332 an ounce.
Trump assassination attempt spurs some safe haven demand
Gold saw some safe haven demand after reports of a second assassination attempt on Trump, this time at his golf course in Florida.
But secret service agents foiled the attempt in a reported shootout with the assailant, who was later apprehended by authorities. Trump was unharmed during the event, stating as much in a message on his fundraising website.
Copper prices steady after weak Chinese data
Among industrial metals, copper prices benefited from a softer dollar. But gains in the red metal were held back by a string of weak economic readings from China, the world’s biggest copper importer.
Benchmark on the London Metal Exchange rose 0.1% to $9,276.0 a ton, while one-month rose 0.1% to $4.2225 a pound.
A string of data released from China over the weekend showed and grew less than expected in August, while rose and fell.
The readings ramped up concerns over an economic slowdown in the country, which could bode poorly for its appetite for copper. But ANZ analysts said that the government could now have more impetus to release stimulus measures.
By Robert Harvey
LONDON (Reuters) -Oil prices edged higher on Monday as ongoing disruption to U.S. Gulf oil infrastructure balanced persistent demand concerns after a fresh round of Chinese data while investors await a likely cut to U.S. interest rates this week.
futures for November were up 46 cents, or 0.64%, at $72.07 a barrel by 1207 GMT. futures for October rose 52 cents, or 0.76%, to $69.17.
The market is likely to remain cautious until the Federal Reserve makes its interest rate decision on Wednesday, said Phillip Nova analyst Priyanka Sachdeva, adding that prices are still supported by some supply worries given that some capacity remains offline in the Gulf of Mexico.
Traders are increasingly betting on rate cut of 50 basis points (bps) rather than 25 bps, as shown by the CME FedWatch tool that tracks fed fund futures.
Lower interest rates typically reduce the cost of borrowing, which can boost economic activity and lift demand for oil.
However, a cut of 50 bps could also signal weakness in the U.S. economy, which could raise concerns over oil demand, said OANDA analyst Kelvin Wong.
Saxo Bank analyst Ole Hansen, meanwhile, said activity is likely to remain light ahead of the Fed meeting, adding that the outcome “looks like a coin toss between 25 and 50 bps”.
Nearly a fifth of crude oil production and 28% of output in the Gulf of Mexico remains offline in the aftermath of Hurricane Francine.
Weaker Chinese economic data released over the weekend dampened market sentiment, with the low-for-longer growth outlook in the world’s second-largest economy reinforcing doubts over oil demand, IG market strategist Yeap Jun Rong said in an email.
Industrial output growth in China, the world’s top oil importer, slowed to a five-month low in August while retail sales and new home prices weakened further.
Oil refinery output also fell for a fifth month as weak fuel demand and export margins curbed production.
Brent and WTI each gained about 1% last week but remain comfortably below their August averages of $78.88 and $75.43 a barrel respectively after a price slide around the start of this month driven in part by demand concerns.
Investing.com — Oil prices rose Monday, benefiting from ongoing disruption to U.S. Gulf oil production as well as a softer dollar ahead of an expected interest rate cut by the Federal Reserve later this week.
At 08:05 ET (12:05 GMT), rose 0.7% to $72.11 a barrel, while rose 0.8% to $68.30 a barrel.
Rate cuts in focus as Fed meeting looms
A softer was the biggest point of support for oil prices, as markets positioned for an from the Fed on Wednesday.
The central bank is likely to kick off an easing cycle, although traders are split over a 25 or 50 basis point cut.
Still, lower rates bode well for economic growth, which in turn could help keep U.S. fuel demand supported in the coming months.
Continued disruption in Gulf of Mexico
Also helping the tone was the continued disruption of production in the Gulf of Mexico following the arrival of Hurricane Francine.
Nearly a fifth of crude oil production and 28% of natural gas output in U.S. Gulf of Mexico federal waters remains offline, the U.S. offshore energy regulator said on Sunday.
Francine hit Louisiana as a Category 2 hurricane on Wednesday, eventually cutting power in four southern states.
Chinese economic data underwhelms
But gains were capped by persistent concerns over slowing demand, especially following a slew of weaker-than-expected economic data from China over the weekend.
and both missed expectations, while rose and fell.
The readings ramped up concerns that slowing economic growth in the world’s biggest oil importer will dent its appetite for crude.
Analysts at ANZ said Beijing was likely to roll out more stimulus measures to help support local economic growth, although they still expect gross domestic product to come below the government’s 5% target in the third quarter.
Concerns over China saw both the Organization of Petroleum Exporting Countries and the International Energy Agency slash their outlook for oil demand growth in the current year.
Holidays in China and Japan also kept trading volumes relatively slim.
(Ambar Warrick contribute to this article.)
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