Commodities
As Russian oil crosses G7’s price cap, US eyes soft enforcement
© Reuters. FILE PHOTO: Bulk carriers lie at anchor in Nakhodka Bay near the port city of Nakhodka, Russia, December 4, 2022. REUTERS/Tatiana Meel
By Timothy Gardner and Laura Sanicola
WASHINGTON (Reuters) -The Biden administration is poised to increase outreach to western trading houses, insurers and tanker owners to remind them to abide by the Group of Seven’s price cap on Russian oil as the crude trades over that level, sources and experts said.
The approach reflects a desire by Washington to encourage buyers to adhere to the $60 per barrel cap imposed last December on sea-borne exports of Russian crude by the G7, the European Union and Australia in retaliation for Russia’s war on Ukraine.
The administration is expected to use “soft” tactics, instead of widespread threats of harsh enforcement on potential violators as that could upend energy markets, they said.
“The initial inclination on the part of Treasury is to be soft on it, not to come down like a hammer on tankers and tanker owners, to enforce, but enforce quietly with letters, phone calls,” said a source familiar with the administration’s thinking on the matter.
U.S. officials will likely increase communications with trading houses, tanker owners, insurers and others, reminding them that if western maritime services are used, attestations must be kept showing Russian oil was bought under $60, the source said.
A Biden administration source said such conversations with service providers about their requirements have been constant during the implementation of the caps.
“We’ve been having these types of conversations already and they will continue,” the source said.
The price cap bans Western companies from providing services such as transportation, insurance and financing for the oil sold above the cap.
According to Reuters data, Russian Urals crude has been trading at or above the cap for nearly two weeks. Treasury uses a monthly average of prices to calculate the Urals price, which means it may be a while before the Russian oil price can be considered over the cap.
The Treasury’s Office of Foreign Assets Control (OFAC) says individuals or companies who evade, avoid, or violate the cap could face civil or criminal enforcement actions, including fines, and that it will work with other countries to share information about evasion.
“We are hell bent on ensuring that evasions are not distorting the market,” a senior U.S. Treasury official said.
‘POLICY PICKLE’
The administration, however, is set to move slowly, wary of creating ripples in a market that could send rising global oil prices higher.
The administration is in a “policy pickle” because it does not want to come down too hard with enforcement threats and risk boosting global petroleum prices by interfering with the movement of oil, the source with knowledge of administration thinking said.
“They’ll spook the service providers facilitating exports, they certainly don’t want to do that.”
High consumer energy prices are a political risk for President Joe Biden, who is seeking reelection in 2024.
The cap has always had two objectives: reducing Russia’s revenues from oil exports, and ensuring that oil continues to flow to global markets. The administration insists the cap is effective.
Deputy Treasury Secretary Wally Adeyemo has recently spoken with countries with large shipping fleets and shipping trade, while Elizabeth Rosenberg, Treasury’s assistant secretary for terrorist financing and financial crimes, has called protection and indemnity insurance providers, known as P&I clubs, to remind players of requirements related to Russian oil purchases, the administration source said.
COSTS TO RUSSIA
Another U.S. government source said that the Urals price is high because of recent deals to countries that are outside the cap.
Such sales, mainly to India and China, are expensive for Russia, the source said. Russia has to spend money on a ghost tanker fleet and other expenses to ship oil long distances instead of via pipelines mainly to Europe.
Adeyemo said last month the Russian central bank has guaranteed about $9 billion in a reinsurance scheme intended to replace western reinsurance, due to the price cap, money the Kremlin cannot invest in weapons to fight its war in Ukraine.
The State Department is “closely monitoring all vessels engaged in loading of and petroleum products from Russia, as well as potential evasion or non-compliance, including the use of deceptive practices to access coalition services for oil traded above the caps,” a spokesperson said.
If Urals prices continue to climb above the cap, Washington could urge fellow G7 countries and the EU to raise the cap, but that would be a diplomatic and political undertaking that faces resistance from Eastern European countries and U.S. lawmakers.
Ben Cahill, an energy security and climate expert at the Center for Strategic and International Studies, agreed enforcement will proceed slowly.
“We could see stronger enforcement on the tanker fleet and the tracking of the ownership of vessels, better quality of attestation of paperwork,” said Cahill. “But there won’t likely be a dramatic change unless oil prices stay high for a while.”
(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.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Forex2 years ago
Unbiased review of Pocket Option broker
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
- Stock Markets2 years ago
Morgan Stanley: bear market rally to continue
