Commodities
Oil at $116 per barrel: forecast and cause of rising oil prices
The price of oil may rise to $115-116 per barrel. The ambitious plans of G7 may be broken because of the difference of interests. The day before, oil prices grew amid moderately harsh rhetoric from the U.S. Federal Reserve and bullish statistics from the country’s Energy Department. According to London’s ICE, Brent crude was at $107.8 at the time of writing. Who benefits from rising oil prices?
Cause of rising oil prices
Commercial oil inventories in the US fell by 4.5 mln barrels, while stocks in Strategic Petroleum Reserve (SPR) decreased by 5.6 mln barrels. This happened despite an increase in production by 200,000 bpd to 12.1 mln bpd. The reason was a surge in exports: black gold shipments to foreign markets increased by 1.5 million bpd, of which a little more than half were crude oil.
There was a trend last week which indicated weak gasoline demand, but it was not confirmed in the latest data. Gasoline inventories fell by 3.3 million barrels. Consumption of the resource jumped 0.7 million bpd to 9.2 million bpd, and RBOB futures have added 6% since the beginning of the week.
Total petroleum product shipments fell 1 million bpd, to 20 million bpd, due to declines in the propane/propylene categories (a seasonal factor) and other (regression to the average after the spike). Overall, demand remains strong, which is helping oil prices.
Also, the day before, the U.S. Federal Reserve raised the benchmark rate by 0.75 p.p., to 2.5%, which was expected. The regulator expects the rate to be at the level of 3-3.5% by the end of the year. Markets were expecting more hikes, so equities and commodities traded positive after the meeting. The lower the interest rates, the lower the risks of recession and oil demand destruction.
The next meeting of the U.S. regulator will be held on September 20-21. Until then, the market will be keeping an eye on inflation, employment, and business activity indicators. How do rising oil prices affect inflation? It is speeding it up considerably.
The Fed’s decision was received positively, as there were some fears of a 100 bps rate hike, as the Head of The Regulator, Jerome Powell, said at a press conference that if necessary, the Fed would not hesitate to raise the rate even higher. but given the current data, it was considered advisable to raise it a little less.
The Fed’s rate is now at a long-term neutral level that neither accelerates nor slows economic growth. However, U.S. inflation remains at record levels since the 1980s – the June CPI reached 9.1% and the regulator intends to bring it down to 2%. Therefore, the Fed will continue to raise rates and reduce the balance sheet – since September, the volume of QT on the plan to double and reach $95 billion per month.
The market was positive about the absence of a 100bp rate hike, the Fed’s admission that the U.S. economy is slowing, and Powell’s statement that the scope of the next rate hikes could be reduced if inflation slows.
The regulator will have to continue to go further into territory where interest rates and financial conditions are leading to a slowdown in economic growth. After all, the rising oil prices effect on the economy is hard to overstate.
Investing.com– Gold prices were slightly in the red on Friday amid thin year-end trading, although they were set to edge higher this week amid a cautious outlook following the U.S. Federal Reserve’s hawkish tilt.
was marginally lower at $2,628.22 per ounce, while expiring in February edged 0.4% lower to $2,643.05 an ounce by 07:38 ET (12:38 GMT).
Trading in gold typically sees thin volumes and subdued prices toward the year-end as many institutional traders and market participants close their books ahead of the holiday season.
Additionally, at year-end, economic data releases and major policy decisions are typically fewer, reducing catalysts for significant price volatility.
The yellow metal was set to edge up 0.3% for the week after losing more than 1% in the previous one. A strong dollar after the Fed’s hawkish shift last week has continued to put downward pressure on bullion.
Gold under pressure from strong Dollar
The was slightly higher in Asian trade on Friday and hovered near a two-year high it touched last week.
A stronger dollar often weighs on gold prices as it makes the yellow metal more expensive for buyers using other currencies.
Gold prices had fallen sharply after the Fed policy meeting indicated only two more rate cuts in 2025, against previous expectations of four.
Higher interest rates put downward pressure on gold making it more attractive compared to interest-bearing assets like bonds
Other precious metals were also muted on Friday. were unchanged at $954.50 an ounce, while were steady at $30.380 an ounce.
Copper gains on concentrate shortage news, strong dollar caps gains
Among industrial metals, copper prices were higher after a Reuters report showed China’s leading copper smelters have set lower processing charge guidance for the first quarter of 2025 compared to this quarter, reflecting an ongoing shortage of copper concentrates.
At a meeting in Shanghai, representatives from the China Smelters Purchase Team agreed on new rates for copper concentrate treatment and refining charges, setting them at $25 per metric ton and 2.5 cents per pound, down 28.6% from the fourth-quarter guidance of $35 per ton and 3.5 cents per pound.
The red metal failed to fully capitalize on this news, as a strong dollar weighed.
Benchmark on the London Metal Exchange rose 0.4% to $8,950.50 a ton, while February edged down 0.3% to $4.0945 a pound.
Ayushman Ojha contributed to this report.
Investing.com– Oil prices rose slightly on Friday as a holiday-shortened week led to thin volumes, while traders exercised caution around the year-end while assessing the outlook for the upcoming year.
At 07:28 ET (12:28 GMT), were slightly up at $73.74 a barrel, and edged higher to $69.71 a barrel.
Trading volumes were thin ahead of the new year’s start as many institutional investors and traders typically take time off during the holiday season. Additionally, year-end profit-taking and portfolio rebalancing reduce trading activity.
EIA data awaited after API shows fall in US crude inventories
The U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, is scheduled to release its weekly report later on Friday.
These figures provide insights into the supply and demand dynamics of the oil market, influencing pricing and economic decisions.
Earlier this week, media reports stated that U.S. oil inventories fell by 3.2 million barrels during the week ended Dec. 20, citing the American Petroleum Institute (API) data.
“Probably we are moving back up again in anticipation of a crude draw in the U.S.,” said UBS analyst Giovanni Staunovo. “Some support for oil might come soon from cold weather supporting demand.”
This drawdown indicates a tightening supply in the U.S. crude oil market, which has implications for global oil prices. Following the API’s report, oil prices had edged higher, supported by hopes for additional fiscal stimulus in China and the reported decline in U.S. crude inventories.
Gasoline inventories rose by 3.9 million barrels last week, while distillate inventories—which include diesel and heating oil—fell by about 2.5 million barrels.
China stimulus hopes persist
Chinese authorities have decided to issue a record-breaking 3 trillion yuan ($411 billion) in special treasury bonds next year, in an intensified fiscal effort to stimulate a struggling economy, Reuters reported on Tuesday.
Moreover, China is allowing local officials to broaden investments with key government bonds and simplifying approvals to better utilize public funding for economic growth, a government document showed on Wednesday.
On Thursday, the World Bank revised its economic growth forecast for China upward for 2024 and 2025 but cautioned that weak household and business confidence, combined with challenges in the property sector, would continue to hinder growth in the coming year.
The outlook for oil demand hinges on the hope that China, the world’s largest oil importer, can revive its economy, especially as there are concerns about a potential oversupply due to expected increases in production from non-OPEC countries.
Ayushman Ojha contributed to this report.
Commodities
Shell shuts down oil processing unit to investigate leak, Singapore’s port authority says
(Reuters) -Shell has shut down an oil processing unit at its Pulau Bukom facility to investigate a suspected leak, Singapore’s Maritime and Port Authority (MPA) and National Environment Agency (NEA) said on Friday.
The oil company estimates that a few tonnes of refined oil products, along with cooling water discharge used in the refining process, have leaked.
Pulau Bukom, site of Singapore’s first refinery, now houses Shell (LON:)’s only energy and chemicals park in Asia, according to the company’s website.
Shell confirmed in an emailed statement to Reuters that oil sheens were spotted alongside a wharf on Dec. 26, 2024 at Shell Energy and Park Singapore.
The company stated it has taken steps to contain the leak and prevent it from spreading into the sea and has deployed boats alongside the MPA to clean up light oil sheens observed near the leak site.
The MPA said investigations are ongoing, and navigation traffic in the area remains unaffected.
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