Commodities

Middle East violence rattles markets, oil jumps

Published

1 year ago

October 9, 2023

Middle East violence rattles markets, oil jumps

LONDON (Reuters) -Oil surged, along with European defence stocks, while airline shares plunged after Israel pounded the Palestinian enclave of Gaza in retaliation for one of the bloodiest attacks in its history, unleashing fears of a wider Middle East conflict.

Fighters from Islamist group Hamas killed 700 Israelis and abducted dozens more as they attacked Israeli towns on Saturday, leaving hundreds dead, in the deadliest incursion into Israeli territory since Egypt and Syria’s attacks in the Yom Kippur War 50 years ago.

MARKET REACTION:

– Oil prices surged, with trading at $87.25 a barrel – up around 2.5% on the day, after having risen by as much as 5.2% earlier on.

– Israel’s shekel weakened sharply. The dollar was last up 1.75% at 3.906 shekels, recovering somewhat after the Bank of Israel said on Monday it will sell up to $30 billion of foreign currency.

-Israel’s dollar- and euro-denominated bonds headed for their biggest daily price fall in two years.

– The safe-haven dollar and Japanese yen edged higher. The was at 106.32, a touch firmer on the day, while the euro shed 0.6% against the yen.

– rose around 1% to $1,850 an ounce.

-Safe-haven bonds gained, with U.S. Treasury futures up 0.3% and Germany’s 10-year Bund yield down 5 bps at 2.839%, moving off last week’s highs.

– An index of shares in European defence companies rose 1.2%, while travel and leisure stocks dropped 1.2%, as the likes of British Airways parent IAG fell 5%.

COMMENTS:

PETER SCAFFRIK, CHIEF EUROPEAN MACRO STRATEGIST, RBC CAPITAL MARKETS, LONDON:

“The uncertainty about what it means for the region means that oil is going up, and there is a bit of ‘risk off’ and hence, bond markets are performing and equity markets are down a little bit.

Whether or not that continues, remains to be seen. When you look at the pictures, you can’t help but feel sympathy for the people on the ground. But the market, if it doesn’t impact the wider economy, can easily shrug things off, even though it is obviously a very grim situation. In market terms, for me, this would need to escalate beyond the Israeli borders to have a much broader impact.”

NORBERT RÜCKER, HEAD ECONOMICS AND NEXT GENERATION RESEARCH, JULIUS BAER, ZURICH:

“The geopolitical shock seemingly brings a boost in safe-haven flows, which raises oil and gold prices and could pressure yields.”

The key question is how lasting these safe-haven flows are if this weekend has brought some tectonic shifts in the geopolitical landscape. There are very few signposts to date, but it seems as if the conflict erupted along the known conflict lines without an unusual and new involvement of other parties, surprising with its significant intensity.”

FILIZ ERYILMAZ, CHIEF ECONOMIST, ALB YATIRIM BROKERAGE, ISTANBUL:

“If we consider the developments so far, I expect the demand for precious metals, especially gold, and safe havens will increase. Today we saw gold prices climb in the morning.

“For now, we should not expect a serious impact on stock exchange and markets. Even though there are partial selloffs in the U.S, Europe and Asia, we should not expect strong sell off for now.”

BARTOSZ SAWICKI, MARKET ANALYST, CONOTOXIA, WARSAW:

“Unsurprisingly, the biggest shake-up in the currency market has been in the Israeli currency. The shekel has plunged by a maximum of almost 2% and is at its weakest level since 2016 against the recently strengthening US dollar.

“The pair started to retreat towards 3.90 after the central bank launched a $30 billion programme aimed at reducing the volatility of the shekel’s quotations. These are the first interventions in about two years. Israel’s foreign exchange reserves amount to more than $200 billion, equivalent to almost 39% of the country’s GDP. Liquidity of the local market is to be further supported by up to $15 billion (through swaps).”

MOHIT KUMAR, CHIEF EUROPE ECONOMIST, JEFFERIES, LONDON:

“The coming days are likely to be driven by geopolitical risks, rather than fundamentals. The scale of the attack and loss of lives imply that the response is likely to last for a few months, potentially till year-end. From a market’s perspective, key would be whether Iran gets drawn into the conflict and what happens to oil prices over the coming weeks.”

“For markets, the geopolitical risks add another uncertainty for investors when convictions are already low.”

CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG GROUP

“As we saw following the start of the Russo-Ukrainian war, the focus will now be on attempting to assess the ramifications of the conflict, and whether it will widen to include other states.”

“Oil prices will be under the spotlight, with supply disruption fears providing a reason for Brent and WTI to rally.”

“However, a repeat of the 1973 oil price spike seems unlikely, given the diminished role of OPEC and a changed diplomatic landscape. U.S. and European futures point to a weaker open, though how much of this is down to profit-taking from Friday’s surge is hard to say. A risk-off mood could well prevail for the time being, at least until the scope of the conflict becomes clearer.”

CAROL KONG, CURRENCY STRATEGIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:

“USD and JPY strengthened modestly in the Asia session as markets reacted to Hamas’ assault on Israel. U.S. equity futures fell by 0.6%‑0.8%. The cash US Treasury market is closed because the US and Japan are on holiday.”

“… the risk is higher oil prices, a slump in equities, and a surge in volatility supports the USD and JPY and undermine ‘risk’ currencies such as AUD and NZD. A response by Iran in the Straits of Hormuz is the wild‑card for oil supply and currency reaction.”

MICHAEL HEWSON, CHIEF MARKET ANALYST, CMC MARKETS, LONDON:

“The events over the weekend and the Hamas atrocities in Israel, and the latter’s reaction to them and subsequent declaration of war, have prompted a move into the U.S. dollar, gold as well as a modest bid into bonds, as concerns over escalation risks move to front of mind.”

ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBS (LON:) CAPITAL MARKETS:

“The current scope of the conflict has no direct impact on global oil supply, but the worry is that it might drag in Iran.”

“U.S. Secretary of State Blinken said over the weekend that there was no evidence of Iran being “directly involved” in the attack on Israel, but there is indeed a longstanding relationship between Iran and Hamas.”

IPEK OZKARDESKAYA, SENIOR ANALYST, SWISSQUOTE BANK, GENEVA:

“From a geopolitical perspective, this war is different from the one in 1973 because the political and the geopolitical landscape is unalike.

“First Arabic countries are not attacking Israel together.

“Second, OPEC countries do have spare capacity that they restrict willingly to maintain oil price at above $80 (per barrel), but they don’t necessarily think of tripling oil prices – which would only accelerate the energy transition.

“Third, yes, the U.S. could continue to tap into its strategic oil reserves to level out a potential price shock even though SPR is down to a 40-year low following the Ukrainian war and finally, the Ukrainian war and embargo on Russian oil are already in play and the West has little margin to impose another embargo on Arab oil.

“This being said, potential retaliation against Tehran is a serious upside risk for oil prices. We will keep an eye on developments, but don’t speculate on a full-blast rise in oil prices for now.”

Commodities

Oil jumps more than 3% on concern over more sanctions on Russia and Iran

Published

22 hours ago

January 10, 2025

By Anna Hirtenstein

LONDON (Reuters) -Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.

futures gained $2.66, or 3.5%, to $79.58 a barrel by 1154 GMT, reaching their highest in more than three months. U.S. West Texas Intermediate crude futures advanced $2.64, or 3.6%, to $76.56.

Over the three weeks to Jan. 10, Brent has climbed 9% while WTI has jumped 10%.

“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the U.S., driving up demand for fuels.”

Ahead of U.S. President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.

This could materialise even earlier, with U.S. President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil and shipping industry.

“That would be the farewell gift of the Biden administration,” said PVM analyst Tamas Varga. Existing and possible further sanctions, as well as market expectations of draws on fuel inventories because of the cold weather, are driving prices higher, he added.

The U.S. weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.

“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for , kerosene and LPG,” they said in a note on Friday.

Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.

Inflation worries are also delivering a boost to prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.

Oil prices have rallied despite the U.S. dollar strengthening for six straight weeks, making crude oil more expensive outside the United States.

Commodities

Will USDA data dump spoil the bullish party for corn? -Braun

Published

22 hours ago

January 10, 2025

By Karen Braun

NAPERVILLE, Illinois (Reuters) -If anything can derail a price rally, it is a curveball from the U.S. Department of Agriculture.

Chicago corn futures have ticked slightly lower to start the year, but they had climbed nearly 12% in the final two months of 2024, an unusually strong late-year run.

Speculators now hold their most bullish corn view in two years, and luckily for them, the trade has already accepted that last year’s U.S. corn yield was a whopper.

Friday will feature USDA’s biggest data release of the year, with primary focus on the most recent U.S. corn and soybean harvests. U.S. quarterly stocks, U.S. winter wheat seedings and routine global supply and demand updates will also compete for attention.

U.S. CORN AND BEANS

On average, analysts peg U.S. corn yield at 182.7 bushels per acre, down from 183.1 in November. The trade estimate is more than 5 bushels above last year’s record and above USDA’s initial trendline yield for the first time in six years.

Bearish yield outcomes are less likely when the estimates are already large, and only four of 19 polled analysts see corn yield rising from November. However, the range of trade estimates (2.4 bpa) is smaller than usual, flagging the potential for surprise.

In the last decade, analysts anticipated the wrong direction of U.S. corn yield in January only once (2019). They did so three times for soybean yield (2016, 2019, 2022).

But bets are somewhat off for U.S. soybean yield outcomes because USDA’s slashing of the forecast in November was the month’s largest cut in 31 years. Trade estimates indicate some uncertainty around U.S. soybean production as the ranges for both yield and harvested area are historically wide.

Regardless, U.S. soybean supplies are expected to remain ample and at multi-year highs. However, USDA last month pegged 2024-25 U.S. corn ending stocks below the prior year’s level for the first time.

If USDA cuts U.S. corn ending stocks on Friday as expected, it would be the agency’s seventh consecutive monthly reduction. Such a streak has not been observed in at least two decades, reflective of the strong demand that has recently lifted corn prices.

From a market reaction standpoint, these demand dynamics could be somewhat insulating if the U.S. corn crop comes in larger than expected. The last two times CBOT corn had a distinctly negative reaction on January report day were 2012 and 2024, the latter sparked by a huge yield above all trade estimates.

U.S. WHEAT

USDA will not officially issue 2025-26 outlooks until May, but the wheat market will receive its first piece of 2025-26 U.S. crop intel on Friday with the winter wheat planting survey. Total (EPA:) U.S. winter wheat acres are pegged at 33.37 million, very close to both last year and the five-year average.

Analysts have had a rough time anticipating the planting survey in the last two years, coming in almost 1.4 million acres too high last year but lowballing by nearly 2.5 million acres in 2023.

Wheat traders have struggled to find viable bullish narratives despite wheat stocks among major exporters seen dropping to 17-year lows, so another big miss in the U.S. wheat acreage could either support or undermine the recent sentiment.

SOUTH AMERICA

The U.S. crops will probably dominate the headlines on Friday, but it is not too early to watch out for forecast changes in South America. Analysts see USDA upping Brazil’s 2024-25 soybean harvest to a record 170.28 million metric tons from the previous 169 million.

USDA has increased Brazil’s soy crop in three of the last eight Januarys, both on area and yield improvements, and many industry participants have already been factoring in a number north of 170 million tons.

For Argentina, there are already fears that ongoing dry weather could eventually warrant more significant cuts to soybean and corn crops than are anticipated for Friday. American and European weather model runs on Thursday remained stingy with the rainfall over the next two weeks.

USDA already hiked Argentina’s soybean output last month on higher area. The agency increased the crop last January but reduced it in the prior three Januarys. Current crop conditions are slightly worse than a year ago but better than in the prior three years.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

Commodities

Oil prices steady; traders digest mixed US inventories, weak China data

Published

2 days ago

January 9, 2025

Investing.com– Oil prices steadied Thursday as traders digested data showing an unexpected increase in US product inventories, while weak economic data from top importer China weighed.

At 05:25 ET (10:25 GMT), expiring in March gained 0.1% to $76.25 a barrel, while rose 0.1% to $73.37 a barrel.

The crude benchmarks had slumped more than 1% on Wednesday, but trading ranges, and volumes, are likely to be limited throughout Thursday with the US market closed to honor former President Jimmy Carter, ahead of a state funeral later in the session.

China inflation muted in December

Chinese inflation, as measured by the , remained unchanged in December, while the shrank for a 27th consecutive month, data showed on Thursday.

The reading pointed to limited improvement in China’s prolonged disinflationary trend, even as the government doled out its most aggressive round of stimulus measures yet through late-2024.

China is the world’s biggest oil importer, and has been a key source of anxiety for crude markets. Traders fear that weak economic growth in the country will eat into oil demand.

The country is also facing potential economic headwinds from the incoming Donald Trump administration in the US, as Trump has vowed to impose steep trade tariffs on Beijing.

US oil product inventories rise sharply

U.S. gasoline and distillate inventories grew substantially more than expected in the week to January 3, government data showed on Wednesday.

inventories grew 6.3 million barrels against expectations of 0.5 mb, while grew 6.1 mb on expectations of 0.5 mb.

Overall crude also shrank less than expected, at 0.96 mb, against expectations of 1.8 mb.

The build in product inventories marked an eighth straight week of outsized product builds, and spurred concerns that demand in the world’s biggest fuel consumer was cooling.

While cold weather in the country spurred some demand for heating, it also disrupted holiday travel in several areas.

EIA data also showed that US imports from Canada rose last week to the highest on record, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.

Canada has been the top source of U.S. oil imports for many years, and supplied more than half of the total U.S. crude imports in 2023.

Strength in the also weighed on crude prices, as the greenback shot back up to more than two-year highs on hawkish signals from the Federal Reserve.

A strong dollar pressures oil demand by making crude more expensive for international buyers.

(Ambar Warrick contributed to this article.)