Commodities
Iraq enjoys respite from turmoil but risks remain
Helped by buoyant oil prices and a period of political calm at home and in the region, Iraq appears more stable than any time since the U.S.-led invasion, although the government’s bid to cement gains with a budget splurge may prove a shaky foundation.
In office since October, Prime Minister Mohammed Shia al-Sudani has launched a programme to rebuild infrastructure and attract foreign investors, but analysts say the plans are at risk from an uncertain oil price outlook and face the challenge of maintaining delicate diplomacy in a volatile region.
“We are positive in the short-term outlook but medium to longer-term there are major challenges,” said one Western diplomat.
Brought to power by Shi’ite Muslim groups backed by neighbouring Iran, Sudani passed his first major test this week by getting the state budget through parliament.
He has also performed a tricky diplomatic balancing act in handling relations with archrivals Iran and the United States.
Sudani won Washington’s praise by implementing demands to stop dollars being smuggled to Iran in violation of U.S. sanctions, yet has kept Tehran’s allies in Iraq happy with a state hiring spree and plans for major projects to create new work opportunities for militiamen, many from Iran-backed groups, now that their fight against Islamic State has been won.
A lawmaker from Iraq’s majority Muslim Shi’ite community, who backs Sudani, said the prime minister was working “as a successful diplomat who can keep good relations with the West and Americans and at the same time make sure to send positive messages to Tehran.”
The lawmaker, who declined to be named so he could speak freely about the prime minister, said Sudani’s Iran-aligned backers saw him as a man who would act as a manager to improve basic services while shielding their interests.
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Government foreign affairs adviser Farhad Alaaldin said Sudani served all Iraqis not just those allied to Iran.
“It’s been a long while since we enjoyed this sort of political stability where the crises we face are dealt with in meeting rooms and under the roof of parliament and not outside,” Alaaldin said.
It is a dramatic shift from last year, when rivalry between Shi’ite groups blocked the formation of a government, leading to violence and stoking fears of civil war in a nation that has suffered from conflict and chaos since the 2003 invasion.
The calm is mirrored in other areas of the Middle East where predominantly Shi’ite Iran and mainly Sunni Muslim Saudi Arabia have reestablished ties, easing a rivalry that has often played out across the region.
Yet, analysts say many of Iraq’s problems remain unresolved, ranging from its heavy dependence on oil revenues and the volatile global energy market to graft and sectarianism.
“The system of corruption and political patronage is entrenched and has stifled any reform attempts for the past 20 years,” said Renaud Mansour, director of the Iraq Initiative at London’s Chatham House think tank, adding that a state hiring spree was not a “sustainable fix”.
He said Iraq could easily be destabilised by problems beyond its borders, calling the country a “playground for regional and global problems”. However, he said detente between Saudi Arabia and Iran “potentially gives Iraq some space to breathe.”
Iraq remains vulnerable to geopolitical shocks, including in the Kurdish-controlled north, where rival parties are feuding. Turkey and Iran have mounted military operations against Kurdish militant groups there, saying they threaten their national security.
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Challenges abound elsewhere too. Last year’s fears about civil war only abated when populist Shi’ite cleric Muqtada Sadr stepped back from politics and his huge number of followers moved off the streets. But he has stepped back before and analysts say could fire up the street again if he sought a return.
Nevertheless, Sudani has had successes. His budget was passed after tough negotiations to win the backing of Shi’ite, Kurdish and Sunni Arab factions.
But the budget, Iraq’s biggest, forecasts spending of 198.9 trillion dinars ($153 billion) with plans to add more than 500,000 workers to an already bloated bureaucracy, flying in the face of recommendations from the International Monetary Fund.
Most families rely on income from relatives with state jobs – difficult to cut if oil prices fall and state revenues slide.
Seeking to strengthen the economy, Sudani has courted foreign investment, including reviving a $27 billion deal with France’s TotalEnergies and QatarEnergies to develop oil and gas output.
His diplomatic initiatives, meanwhile, have included visits to Germany, France and Saudi Arabia. But notably he has secured support from the United States, which has 2,500 soldiers in Iraq to advise and assist in fighting remnants of Islamic State.
U.S. Assistant Secretary of State for Near Eastern Affairs Barbara Leaf said the government’s agenda of economic reform and the drive against corruption was “exactly what the doctor ordered”.
“We will support this government working through those steps,” she said in Baghdad in May, calling Iraq a place for cooperation rather than a “battleground”.
By Paul Carsten
(Reuters) – Oil prices rose on Thursday after a large interest rate cut from the U.S. Federal Reserve, but Brent was still hovering around its lowest levels of the year, below $75, on expectations of weaker global demand.
futures for November were up 66 cents, or 0.9%, to $74.31 a barrel at 1156 GMT, while WTI crude futures for October were up 58 cents, or 0.8%, to $71.49 a barrel. The benchmarks had earlier risen more than $1 each.
The U.S. central bank cut interest rates by half a percentage point on Wednesday. Interest rate cuts typically boost economic activity and energy demand, but the market also saw it as a sign of a weaker U.S. labor market that could slow the economy.
“While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates,” ANZ analysts said in a note.
The Bank of England on Thursday held interest rates at 5.0%.
Weak demand from China’s slowing economy continued to weigh on oil prices.
Refinery output in China slowed for a fifth month in August, statistics bureau data showed over the weekend. China’s industrial output growth also slowed to a five-month low last month, and retail sales and new home prices weakened further.
Markets were also keeping an eye on events in the Middle East after walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Security sources said Israeli spy agency Mossad was responsible, but Israeli officials did not comment on the attacks.
Citi analysts say they expect a counter-seasonal oil market deficit of around 0.4 million barrels per day (bpd) to support Brent crude prices in the $70 to $75 a barrel range during the next quarter, but that would be temporary.
“As 2025 global oil balances deteriorate in most scenarios, we still anticipate renewed price weakness in 2025 with Brent on a path to $60/barrel,” Citi said in a note on Thursday.
Investing.com — Brent crude oil prices could be bolstered in the near-term by demand possibly outstripping supply in the fourth quarter, according to analysts at Citi.
A reported decision by the Organization of the Petroleum Exporting Countries and its allies to delay the beginning of a tapering in voluntary output cuts, along with ongoing supply losses in Libya, is predicted to contribute to a oil market deficit of around 0.4 million barrels per day in the final three months of 2024, the Citi analysts said.
They added that such a trend could offer some temporary support to “in the $70 to $75 per barrel range.”
Meanwhile, the benchmark could be further boosted by a potential rebound in recently tepid demand from top oil importer China, the analysts said.
But they flagged that they still anticipate “renewed price weakness” in 2025, with Brent on a path to $60 per barrel due to an impending surplus of one million barrels per day.
On Thursday, crude prices were higher after a super-sized interest rate cut from the US Federal Reserve elicited a mixed reaction from traders, while worries over global demand also lingered.
By 03:30 ET, the Brent contract gained 0.9% to $74.34 per barrel, while futures (WTI) traded 1.0% higher at $70.58 per barrel. The benchmarks had recovered after slipping in Asian trading, with Brent in particular hovering near its lowest mark of the year.
The Fed slashed interest rates by 50 basis points on Wednesday and indicated that it would announce further cuts this year, as the central bank kicks off an easing cycle to shore up the economy following a prolonged battle against surging inflation.
Lower rates usually bode well for economic activity, but the Fed’s aggressive cut also sparked some concerns over a potential slowdown in broader growth.
While Fed Chair Jerome Powell moved to soothe some of these fears, he also said that the Fed had no intention of returning to an era of ultra-low interest rates, and that the central bank’s neutral rate was likely to be much higher than seen in the past.
His comments indicated that while interest rates will fall in the near-term, the Fed was likely to keep rates higher in the medium-to-long term.
Meanwhile, US government data released on Wednesday showed a bigger-than-expected, 1.63 million barrel draw in inventories, which analysts at Citi said was due to lower net imports and domestic production “outpacing” a drop of crude oil consumed by refineries.
“US crude output was hit by Hurricane Francine, with a peak of 732,000 [barrels per day] of offshore Gulf of Mexico oil output shut-in […], with the tail end of the impact reaching until Tues[day] Sept. 17, which should still show up in next week’s data,” the Citi analysts said in a note to clients.
While the fall was much bigger than expectations for a decrease of 0.2 mb, it was also accompanied by builds in distillates and gasoline inventories. The increses in product inventories added to worries that U.S. fuel demand was cooling as the travel-heavy summer season wound to a close.
Investing.com– Gold prices moved in a flat-to-low range in Asian trade on Thursday, and were nursing overnight losses after less dovish signals from the Federal Reserve offset some optimism over a bumper rate cut.
Strength in the pressured bullion prices, as the greenback rose sharply on bets that U.S. interest rates may not fall as much as expected in the medium to long term.
The yellow metal also saw some profit-taking after hitting record highs in the run-up to Wednesday’s Fed decision.
rose 0.1% to $2,561.30 an ounce, while expiring in December fell 0.5% to $2,585.65 an ounce by 00:24 ET (04:24 GMT). Spot prices were nursing some overnight losses, and pulled back further from recent record highs.
Fed cuts rates by 50 bps, but offers less dovish outlook
The Fed by 50 basis points- the upper end of market expectations- in its first rate cut since the COVID-19 pandemic in 2020. The central bank also announced the beginning of an easing cycle.
Fed Chair Jerome Powell quelled some concerns over a slowing economy after the outsized rate cut, stating that risks between rising inflation and a softer labor market were evenly balanced. Powell flagged the prospect of more rate cuts, with markets pricing in a total of 125 bps worth of rate cuts by the year-end.
But Powell also said the Fed had no intention of returning to an ultra-low rate environment as seen during COVID-19, and said the Fed’s neutral rate will be much higher than seen previously.
His comments presented a higher outlook for rates in the medium-to-long term, and somewhat diminished optimism over Wednesday’s cut.
Still, the prospect of lower rates bodes well for non-yielding assets such as gold, given that it decreases the opportunity cost of investing in bullion.
Other precious metals rose on Thursday, but were also nursing overnight losses. rose 0.5% to $978.15 an ounce, while rose 0.2% to $30.755 an ounce.
Copper prices rise, China rate decision awaited
Among industrial metals, copper prices advanced on Thursday amid expectations of more stimulus measures from top importer China, with an interest rate decision from the country due on Friday.
Benchmark on the London Metal Exchange rose 0.4% to $9,425.50 a ton, while one-month rose 0.6% to $4.2970 a pound.
The People’s Bank of China is widely expected to keep its benchmark unchanged on Friday. But persistent signs of economic weakness in the country are expected to eventually spur further cuts in the LPR.
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