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Gold Down, Investors Digest U.S. Inflation Data

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© Reuters

By Gina Lee

Investing.com – Gold was down on Thursday morning in Asia. Investors are digesting the U.S. consumer price index (CPI), which suggested inflation remains high but has peaked in April, easing some concerns about more aggressive interest rate hikes from the Federal Reserve.

Gold futures were down 0.01% to $1,853.58 by 11:12 PM ET (3:13 AM GMT). The dollar, which normally moves inversely to gold, edged up on Thursday morning.

U.S. inflation eased slightly in April but remained close to a 40-year high.

The CPI rose 0.3% month-on-month in April, the smallest gain since August, said the U.S Bureau of Labor Statistics on Wednesday, compared with the 1.2% month-to-month surge in the CPI in March, the largest advance since September 2005.

The U.S. Federal Reserve raised its interest rate to 1% last week to cool inflation, the biggest hike in 22 years. Investors are concerned about the tightened policies from the Fed might induce a recession. The 10-year US yield extended a decline to 2.90%.

On the data front, the U.S. will release Producer Price Index and initial jobless claims later today. San Francisco Fed President Mary Daly will speak on the same day.

In other precious metals, silver inched up 0.1%. Platinum dipped 0.2% while palladium fell 0.7%.

Commodities

Exclusive-Petrobras warned of diesel shortages before CEO ouster

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© Reuters. A worker paints a tank of Brazil’s state-run Petrobras oil company in Brasilia, Brazil September 30, 2015. REUTERS/Ueslei Marcelino/File Photo

2/2

By Sabrina Valle

(Reuters) -Brazil’s Petrobras alerted the government last week that diesel pumps could run dry this year if the oil company does not sell fuels at market prices, according to four people close to discussions and an internal presentation seen by Reuters.

Just days later, President Jair Bolsonaro fired the chief executive of Petroleo Brasileiro SA, as the state-controlled company is formally known.

Bolsonaro’s chief of staff said the president is “anguished” by rising fuel prices and the pricing policy at Petrobras needs to be more aligned with the government’s thinking.

As Brazil enters a crucial window to secure diesel supplies, Petrobras management warned last week that the firm and other importers would struggle to secure diesel amid the most severe shortage of the fuel in 14 years, the sources said.

Analysts, private importers and officials at oil regulator ANP have echoed those concerns, said people familiar with the talks, who requested anonymity to discuss the politically sensitive matter.

The Petrobras presentation flagged the risk of shortage in the third quarter, when diesel demand surges seasonally in both the United States and Brazil, a major grains exporter expected to start shipping a bumper corn crop in August.

“If there is no signal of market prices ahead, there is material risk of a diesel shortage during the peak of demand during the harvest season, affecting Brazil’s GDP,” Petrobras said in the presentation titled “Fuels: challenges and solutions” and dated May 2022.

Petrobras did not respond to a request for comment.

Diesel supply has become a global concern since sanctions against Russia reshaped fuel trade and sent international inventories to historic lows. Importing countries are sizing up the risk of both rising costs and supply running short, as the industry shuts refineries for repairs or to cut carbon emissions.

Concerns in Brazil about diesel imports in the second half of the year rose after U.S. Gulf refiners, its major suppliers, started redirecting cargoes to Europe, two of the sources said.

“Global diesel inventories are far below the historic average,” Petrobras said in the presentation shared with the Ministry of Mines and Energy. “Petrobras alone cannot solve the global rise of energy prices.”

Energy Minister Adolfo Sachsida on Friday called oil analysts to ask about diesel shortages in the second half of the year, said a person directly involved in the matter. The ministry did not respond to a comment request.

“If Petrobras stops selling diesel at international prices for more than two or three weeks, there is a chance pumps will run dry,” a top executive from a large diesel producer said.

SUGGESTING SUBSIDIES

Executives at Petrobras, whose bylaws bar it from selling fuel at a loss without compensation, suggested in the presentation that Brazil could cut taxes or otherwise subsidize fuels to consumers, citing the example of several European Union nations.

Fuel subsidies cost Brazil about 7.5 billion reais ($1.6 billion) in 2018, when former President Michel Temer implemented them for a few months to halt a national trucker protest.

The cost of a similar measure this year could surpass 60 billion reais, estimated one of the people close to the discussions.

Russia’s invasion of Ukraine sent crude oil prices to a 14-year high. This month, global shortages led diesel traders to pay a premium of more than $50 per barrel.

At their maximum, Brazilian diesel inventories can cover about a month of national demand. At Petrobras, supplies are at about half capacity, according to two sources.

Brazil books cargoes in June for the August-October harvest season, when most grains reach port via long trucking routes.

The company has begun turning to more distant providers in Western Africa and India, one of the sources said. But while a Gulf diesel cargo takes two to three weeks to arrive in Brazil, a ship from India could take 45-60 days.

“If refineries in the U.S. get damaged during the hurricane season, or anything else contributes to a tighter market, we could be in real trouble,” a Petrobras executive said on condition of anonymity.

($1 = 4.79 reais)

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Commodities

Oil rises as tight supply counters economy fears and China curbs

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© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

By Alex Lawler

LONDON (Reuters) -Oil rose on Tuesday, recovering earlier losses, as tight global supply and an expected pick-up in fuel demand during the U.S. summer driving season balanced concerns over a possible recession and China’s COVID-19 curbs.

In a step that analysts say will further tighten the market, the European Union is moving closer to agreeing a ban on Russian oil imports. Such an embargo is likely to be agreed “within days”, Germany’s economy minister said on Monday.

Another source of support is U.S. gasoline demand. U.S. Memorial Day weekend travel is expected to be the busiest in two years as more drivers hit the road and shake off coronavirus lockdowns despite high pump prices.

“The oil market remains caught between fears of recession and the consequences of the zero-COVID policy in China on the one hand, and tight supply, especially of oil products,” Commerzbank (ETR:CBKG) analyst Carsten Fritsch said in a report.

Brent crude rose 44 cents, or 0.4%, to $113.86 a barrel by 1110 GMT. U.S. West Texas Intermediate (WTI) crude added 36 cents, or 0.3%, to $110.65.

Oil has surged this year, with Brent crude hitting $139 a barrel in March for its highest since 2008 after Russia’s invasion of Ukraine exacerbated supply concerns.

Even so, worries about threats to the global economy – a main theme of the Davos meeting taking place this week – limited gains and were behind price falls earlier on Tuesday.

“Global economic growth is declining precipitously under the collective impact of rising interest rates, Chinese COVID flare-ups and the European war,” said Tamas Varga of oil broker PVM.

Beijing is stepping up quarantine efforts to end its month-old outbreak while Shanghai’s prolonged lockdown is due to be lifted in a little more than a week.

Weekly U.S. inventory reports will be in focus later for a read on the strength of demand. Analysts expect gasoline and crude inventories to drop. The first report is from the American Petroleum Institute at 2030 GMT. [EIA/S]

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Indian oil minister says oil at $110 a barrel not sustainable

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© Reuters. FILE PHOTO: India’s Minister of Petroleum and Natural Gas Hardeep Singh Puri speaks during an interview with Reuters in Abu Dhabi, United Arab Emirates, November 15, 2021. REUTERS/Abdel Hadi Ramahi

DAVOS, Switzerland (Reuters) – India’s Oil Minister Hardeep Singh Puri told the World Economic Forum in Davos on Tuesday that a crude oil price of $110 a barrel was not sustainable, as the world faces an energy price crisis which is contributing to rising global inflation.

Oil prices have surged this year, with Brent crude hitting $139 a barrel in March for its highest price since 2008, after Russia’s invasion of Ukraine exacerbated supply concerns. [O/R]

As countries around the world struggle with the impact of inflation on disposable income, India’s Commerce Minister Piyush Goyal said on the same WEF panel that food inflation in the South Asian country was at a “manageable level”.

Goyal also said that India was producing enough wheat for domestic consumption, as some countries face shortages due to price rises and problems in getting the grain from major producer Ukraine following Russia’s invasion.

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