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Commodities

Crude oil prices rise on SPR refill plans, Middle East concerns

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Crude oil prices rise on SPR refill plans, Middle East concerns
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Investing.com — Oil prices rose Friday, on track for a positive week, boosted by the news that the U.S. was looking to refill its strategic reserves as well as heightened fears that the Israel-Gaza crisis may spread in the Middle East, potentially disrupting supply.

By 09:05 ET (13.05 GMT), the futures traded 0.9% higher at $89.22 a barrel, while the contract climbed 0.9% to $93.25.

Both benchmarks are on course for weekly gains for the second week in a row, with the U.S. contract set for 2% gains and Brent up 2.8% higher. 

U.S. to refill strategic reserve

The oil market received a boost with the news that U.S. President Joe Biden has revived his bid to refill the heavily-drawn Strategic Petroleum Reserve.

The Department of Energy announced on Thursday two separate offers of crude purchases totaling 6 million barrels, to be delivered between December this year and January 2024.

The U.S. government had drawn about 200 million barrels from the SPR since early-2022, bringing the reserve to its lowest level in nearly 40 years in a bid to combat high gasoline prices following the onset of the Russia-Ukraine war. 

Middle East conflict escalation concerns remain

Crude prices have been supported through the week by the ongoing Israel-Hamas conflict. Israel has vowed to wipe out the Hamas group that rules Gaza, after its gunmen killed hundreds of Israeli civilians earlier this month, and has pounded the enclave with air strikes, preparing for a ground assault.

“Signs that an Israeli ground offensive in the Gaza Strip is imminent have been pushing oil prices up significantly since yesterday. A barrel of Brent now costs $93 again. So far, however, the supply situation on the market has not changed,” analysts at Commerzbank (ETR:) wrote in a note.

Concerns remain that the conflict could spread further in the volatile region, especially after the Pentagon said U.S. forces intercepted three cruise missiles and several drones launched by the Houthi movement in Yemen, potentially toward Israel.

The Houthi, like Hamas in Gaza and Lebanon’s Hezbollah, are backed by Iran.

U.S. economy remains resilient – Powell

Oil markets also took some support from comments by Federal Reserve Chair Jerome Powell, who said that the U.S. economy remained resilient, spurring bets that fuel consumption in the country will remain strong.

This was backed up by another larger-than-expected draw from the U.S., the world’s biggest oil consumer.

Oil markets were also encouraged by data earlier this week showing better-than-expected economic growth in China, the world’s largest crude importer.

“Oil numbers were also supportive with refineries in China processing a record 15.5MMbbls/d of crude oil over the September,” said analysts at ING, in a note. “In addition, domestic demand remains robust, coming in at around 15.2MMbbls/d, up 3% MoM and 5% higher YoY. Given these stronger numbers, domestic crude oil inventories fell at a rate of around 200Mbbls/d last month.” 

(Ambar Warrick contributed to this article.)

 

Commodities

Oil prices flat as investors await US inventory data

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LONDON (Reuters) -Oil prices were broadly flat on Thursday as investors waited on developments in the Middle East, the release of official U.S. oil inventory data and details on China’s stimulus plans.

futures were up 25 cents to $74.47 a barrel at 0834 GMT, while U.S. West Texas Intermediate crude futures were at $70.64 a barrel, also up 25 cents.

Both benchmarks settled down on Wednesday, closing at their lowest levels since Oct. 2 for a second day in a row, after OPEC and the International Energy Agency cut demand forecasts for 2024 and 2025.

Prices have also fallen as fears eased that a retaliatory attack by Israel on Iran for the latter’s Oct. 1 missile strike could disrupt oil supplies, though uncertainty remains over how the conflict in the Middle East will develop.

“The country’s forthcoming retaliatory measures against Iran are still not clear,” said John Evans of oil broker PVM.

He added that the Middle East “will certainly provide enough reason to move oil prices again soon enough and investors today will also be preoccupied with an abundance of financial data”.

Among that data are U.S. oil inventories. The Energy Information Administration (EIA) will release its official government data at 11 a.m. EDT (1500 GMT).

The American Petroleum Institute’s Wednesday figures showed crude and fuel stocks fell last week, market sources said, against expectations of a build-up in crude stockpiles. [EIA/S]

“Any signs of weak demand in EIA’s weekly inventory report could put further downward pressure on oil prices,” ANZ analysts said.

PVM’s Evans also cited Thursday’s U.S. jobless claims data at 8.30 a.m. EDT (1230 GMT) and a rate decision from the European Central Bank.

© Reuters. FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

That decision may support oil prices if the bank goes ahead with lowering interest rates again, the first back-to-back rate cut in 13 years, as it shifts focus from cooling inflation to protecting economic growth.

Investors are also waiting for further details from Beijing on broad plans announced on Oct. 12 to revive its ailing economy, including efforts to shore up its ailing property market.

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Commodities

Is gold a safer investment than bonds? BofA answers

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Investing.com — Bank of America analysts argued in a note Thursday that gold is emerging as a more attractive safe-haven asset than government bonds, driven by fiscal concerns and global economic dynamics.

While falling real interest rates typically boost gold prices, BofA notes that “higher rates do not necessarily put pressure on gold,” signaling a shift in how the yellow metal reacts to macroeconomic conditions.

One of the key drivers, according to BofA, is growing fiscal pressure. The U.S. national debt is expected to reach unprecedented levels in the next three years, and interest payments on this debt are likely to increase as a share of GDP.

As BofA explains, “This makes gold an attractive asset,” prompting them to reaffirm their bullish target of $3,000 per ounce.

BofA also highlights that both leading U.S. presidential candidates—Kamala Harris and Donald Trump—show little inclination toward fiscal restraint.

In fact, “policymakers strongly favor fiscal expansion” globally, the bank points out.

Future commitments, including climate initiatives, defense spending, and demographic challenges, could raise spending by as much as 7-8% of GDP annually by 2030, said the bank, citing IMF estimates.

If markets struggle to absorb the increasing debt issuance, volatility could rise, further supporting demand for gold. “Central banks in particular could further diversify their currency reserves,” BofA notes, adding that gold holdings by central banks have grown from 3% to 10% of total reserves over the past decade.

Western investors have also stepped back into the gold market in recent months. Although China’s gold imports fell during summer amid stimulus efforts, non-monetary gold demand from Western participants has increased.

However, BofA warns that short-term gains may be limited as markets factor in “a no-landing scenario for the U.S. and a slower pace of rate cuts,” which could cap gold’s near-term upside.

“There is also a risk that gold may give back some of the recent gains, although we ultimately see prices supported at $2,000/oz,” BofA concluded.

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Commodities

Oil prices: Bank of America sees ‘more downside to $70 than upside’

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Investing.com — Bank of America (BofA) is forecasting more downside risk than upside to oil prices, with likely settling around $70 per barrel.

In a Thursday note, the bank’s commodities team shared a cautious view on oil due to several factors influencing the market, including OPEC’s supply dynamics and non-OPEC production growth.

“Our base case is $70/bbl (which we think is priced in), but we see more downside oil price risk than upside (OPEC spare capacity could easily cover most scenarios of barrels threatened by wider Middle East conflict),” strategists noted.

A key driver of this risk is the potential for OPEC to bring back an additional 2 million barrels per day to the market, on top of expected non-OPEC supply growth of 1.6 million barrels per day. BofA forecasts that global demand for oil is projected to grow by only 1 million barrels per day next year.

“Our call on OPEC is a very slow return of the ~2mbd – and this suggests ~6-7% of demand as OPEC spare capacity, according to energy data firm Woodmac,” the note continues.

“This ceded share has been higher in the past, but generally only in short, surprise demand downturns, not as a norm. To us, this suggests limited upside to our $70 Brent price and potential downside should OPEC regain share.”

In the current environment, BofA strategists said they prefer gas-linked stocks, particularly midstream companies. They note that while there is currently an oversupply of gas, the medium-term prospects are improving, with positive catalysts expected in 2025 as data center growth and liquefied (LNG) demand start to accelerate.

The team believes the market is underestimating the free cash flow (FCF) potential of their preferred companies, some of which could see payouts increase by 50% by 2027.

Cheniere Energy (NYSE:) remains BofA’s top Buy-rated pick, with the bank predicting FCF inflection towards more than $20 per share in the next three years.

Other Buy-rated energy names include Kinder Morgan (NYSE:), Williams Companies (NYSE:), and Chevron (NYSE:), among others.

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