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Oil dips as investors weigh up US rate cut outlook

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Oil dips as investors weigh up US rate cut outlook
© Reuters. FILE PHOTO: A flare burns excess natural gas in the Permian Basin in Loving County, Texas, U.S. November 23, 2019. Picture taken November 23, 2019. REUTERS/Angus Mordant//File Photo

By Robert Harvey

LONDON (Reuters) -Oil prices extended losses from the previous session on Wednesday, as growing expectations that cuts to U.S. interest rates will take longer than thought outweighed ongoing concerns over attacks on shipping in the Red Sea.

futures fell by 41 cents, or 0.5%, to $81.93 a barrel by 1223 GMT, while U.S. West Texas Intermediate crude futures (WTI) were lower by 39 cents, or 0.51%, at $76.65.

The Brent and WTI contracts fell from near three-week highs on Tuesday, dropping by 1.5% and 1.4%, respectively.

The premium of front-month April Brent futures over September contracts – known as backwardation, and a sign of a tightly supplied market – hit its highest since Oct. 31 on Monday at $3.64 a barrel, though has since cooled off to around $3.37.

“Oil prices took yesterday as day of correction which was inspired by a lack of any further conflict news from the world’s clash points as markets had to settle on what was bothering the macro world,” PVM analyst John Evans said in a note published on Wednesday morning.

Concerns that rate cuts by the Federal Reserve could take longer than thought have weighed on the outlook for oil demand. U.S. inflation data last week pushed back expectations for an imminent start to the Fed’s easing cycle, with economists polled by Reuters now forecasting a cut in June.

“Investors yet again felt a hiccup in pivot prediction as to when the most important central bank of all, the Fed, might alter course,” Evans added.

Minutes from the Fed’s January monetary policy meeting, due at 1900 GMT, will offer further clues on the timing of potential interest rate cuts.

But Houthi attacks on commercial vessels in the Red Sea and Bab al-Mandab strait have continued to stoke concerns over freight flows through the critical waterway. Drone and missile strikes have hit at least four vessels since last Friday.

Diplomacy in the Middle East continues to face setbacks. Washington on Tuesday again vetoed a draft United Nations Security Council resolution on the Israel-Hamas war, blocking a demand for an immediate humanitarian ceasefire. The U.S. is instead pushing for the Security Council to adopt a resolution tying a ceasefire to the release of Israeli hostages by Hamas.

Commodities

Gold prices slide as M.East fears ease, rate jitters persist

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Investing.com– Gold prices fell in Asian trade on Monday as waning concerns over a bigger war in the Middle East sapped safe haven demand for the yellow metal, while bets on higher-for-longer U.S. interest rates also pressured prices. 

fell 0.9% to $2,370.45 an ounce, while expiring in June fell 1.2% to $2,384.05 an ounce by 00:48 ET (04:48 GMT). 

Gold demand eases as Iran-Israel fears wane 

The yellow metal had strengthened sharply over the past two weeks, hitting record highs above $2,400 an ounce as Iran and Israel carried out strikes against each other.

But Iran was seen downplaying the impact of an Israeli strike on Friday, while also outlining no immediate plans for retaliation. This spurred some hopes that a conflict between the two countries will not intensify, denting some safe haven demand for gold.

But reports on Monday showed that forces in Iraq had carried out some strikes against a U.S. military base in Syria, while Israel was seen continuing its offensive against Gaza. 

This kept some tensions over the Middle East in play, especially as Israel and Hamas failed to reach a ceasefire agreement. 

US rate fears remain in play 

The steadied near five-month highs, while U.S. Treasury yields advanced as traders remained on edge over higher-for-longer interest rates.

Strong inflation readings for March and hawkish signals from Federal Reserve officials saw traders largely price out expectations for a June rate cut by the Fed. 

The prospect of higher-for-longer interest rates pressured gold prices, given that such a scenario increases the opportunity cost of investing in bullion.

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Gold had also recently surged into overbought territory, which, with the prospect of sticky rates, made the yellow metal vulnerable to profit-taking.

Other precious metals fell on Monday. fell slightly to $943.80 an ounce, while slid 2.8% to $28.038 an ounce.

Copper, aluminum prices at 2-year highs on tight supply bets 

Among industrial metals, copper and aluminum prices rose slightly on Monday, notching new peaks for 2024 as the prospect of tighter supplies- following stricter sanctions on Russian metal exports- kept prices high. 

on the London Metal Exchange rose 0.3% to $9,919.50 a ton, while rose 0.4% to $4.5105 a pound. Both contracts were at around two-year highs. 

rose 0.2% to $2,671.0 a ton, and were at their highest level since June 2022.

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Oil prices fall as Iran-Israel fears cool, economic jitters persist

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Investing.com– Oil prices fell Monday, extending losses from the prior week amid growing hopes that the Iran-Israel conflict will not escalate further, limiting the potential disruption of supplies from the key oil-rich region. 

At 08:20 ET (12:20 GMT), fell 1% to $86.41 a barrel, while dropped 1% to $81.40.

Both contracts fell more than 3% each last week as fears of a demand slowdown, amid weak global economic conditions, somewhat offset escalating tensions in the Middle East. 

Iran-Israel escalation bets dwindle after Friday strike 

Bets that a conflict between Iran and Israel will grow have somewhat dwindled in recent sessions, even as Israel was linked to missile strikes against Iran on Friday.

Iran largely downplayed the impact of the Israeli strikes, and flagged no immediate plans for retaliation. 

This lack of immediate retaliation was a key driver of bets that the conflict will not worsen. While oil prices had surged to nearly $91 a barrel in the immediate aftermath of the Israeli strikes, they swiftly curbed most of their gains later in Friday’s session. 

“The market is obviously of the view that spare OPEC production capacity will come into play in the event of any supply shocks, or that ongoing tension is unlikely to lead to significant supply losses,” said analysts at ING, in a note..

But continued tensions in the Middle East, especially as a Israel-Hamas truce appeared unlikely, still kept some concerns over supply disruptions in play. 

Media reports on Monday indicated that rockets were fired at a U.S.-led coalition base in Syria, while Israeli strikes in Gaza continued. 

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Middle East tensions have been the biggest driver of oil price gains in recent months. 

Rate fears, demand concerns weigh on oil prices

Oil prices also faced pressure from a recent surge in the dollar, as traders swiftly scaled back bets on early interest rate cuts by the Federal Reserve. This notion was furthered chiefly by stronger-than-expected U.S. inflation readings for March.

Markets also feared that higher-for-longer U.S. interest rates and sticky inflation will damped economic growth this year, in turn chipping away at global oil demand.

Recent data showing a bigger-than-expected build in U.S. furthered these concerns, while also raising questions over just how tight oil markets will be in the coming months. 

U.S. oil production has remained at record highs in recent months, somewhat offsetting expectations of tighter supplies on production cuts from other producers, specifically the Organization of Petroleum Exporting Countries.

The latest data from shows that U.S. drillers increased their oil rig count by five over the course of last week to 511.

“This is the highest number of active oil rigs since September last year when we saw WTI trading above $90/bbl several times,” added ING.

(Amber Warrick contributed to this article.)

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As shale oil gains slow, deepwater port struggles for customers

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By Arathy Somasekhar

HOUSTON (Reuters) – As U.S. shale oil boomed last decade, an oil pipeline company pitched an ambitious multi-billion-dollar export port off the Texas coast to ship domestic crude to buyers in Europe and Asia.

In April, Enterprise Products Partners (NYSE:)’ SPOT became the first project to receive a license from the U.S. maritime regulator for a deepwater port that could load two supertankers, each of which can carry up to 2 million barrels of oil at a time.

But multi-year regulatory delays, a loss of commercial backers and slowing U.S. shale production has left SPOT, or Sea Port Oil Terminal, and its three rival projects without any secured customers, energy industry executives say.

“There are a lot of gray areas right now with export projects,” said Zack Van Everen, an oil analyst at energy investment banker Tudor Pickering Holt & Co.

Enterprise declined to make an executive available for an interview, but said it continues to develop the project.

Shale producers and traders rely on ports to get their oil to market and are balking at the higher-than-expected loading fees for new projects even if they are able to fully load supertankers, executives said.

HIGHER COSTS

SPOT, proposed for a point 30 miles off the Gulf coast in 2019, is the only Texas deepwater project with its government approvals. But its cost has soared to about $3 billion, two industry experts said, from an original estimate of $1.85 billion for Enterprise.

It has no long-term customer contracts, or joint venture partners, stalling a financial green light from the company, sources said. The project, if approved, is currently expected to start up in 2027.

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A customer willing to commit the largest volume is being offered a $1 per barrel rate by Enterprise to load at SPOT oil transferred from its Houston storage terminal, three people familiar the terms said. Clients with smaller loads have been offered an about $1.20 a barrel fee.

That compares with the all-in cost of about 75 cents per barrel to load in Corpus Christi, Texas, the top U.S. oil export port, a source familiar with export operations said.

To sweeten the deal, Enterprise is offering preferential terms for loading schedules, and may bundle some of its other services to make the price more competitive, two of the people said.

Enterprise disputed the fees, but declined to provide the project’s cost and the per barrel terms.

A deepwater port allows customers to load oil directly onto a supertanker, eliminating the additional cost of loading the oil on smaller ships at shallower ports and then transferring the crude from the smaller vessels to larger ones.

But it has lost Chevron (NYSE:) as an early backer because of the regulatory delays to secure a license, and Canadian oil pipeline operator Enbridge (NYSE:) has released its option to take a stake in SPOT, Enterprise said.

Chevron declined to comment on commercial matters.

An Enbridge spokesperson said it views SPOT “as a valuable option for our Canadian heavy crude customers to be able to access the project,” but declined further comment.

LESS NEED FOR DEEPWATER PORTS

U.S. exports of crude rose to a peak of 5.6 million bpd in February 2023, and existing facilities can handle as much as another 1.5 million barrels, though port congestion could limit that number, according to RBN Energy. Russia’s invasion of Ukraine also has shifted global flows with more U.S. vessels going to Europe instead of Asia, which were primarily geared to using supertankers.

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“The short-term dynamic is less need for big ship capacity, which actually fits the current U.S. export capacity a lot better,” Colin Parfitt, Chevron’s vice president of midstream, said in an interview in March.

Changing flows and slowing shale output gains have created uncertainty for shippers. “That’s changed the dynamic a little about how people want these (deepwater ports),” Parfitt said. “If you get one built, it is going to crowd out the others.”

Currently, there is one U.S. offshore port – called the Louisiana Offshore Oil Port – that can fully load supertankers. However it primarily handles oil produced in the Gulf of Mexico and has few pipes that link to the top U.S. shale field, the Permian, in West Texas.

SPOT’s largest target would be moving shale oil, and those output gains have slowed dramatically. U.S production is expected to rise 280,000 barrels per day to 13.21 million bpd this year, according to the U.S. Energy Information Administration. That compared with a one-year gain of 1.6 million bpd in 2018.

Enterprise said this month that it projects growth in and around the Permian basin past 2030.

Consolidation among top shale players, like Exxon Mobil (NYSE:)’s recent purchase of Pioneer Natural Resources (NYSE:), also took away customers for Enterprise and other players, with some of the largest shale drillers already holding long-term contracts with existing export facilities.

Of the three other deepwater port projects along the Texas coast, private-equity backed Sentinel Midstream, oil refiner Phillips 66 (NYSE:) and pipeline operator Energy Transfer (NYSE:) each have sought U.S. approvals for offshore ports. So far, none have received licenses.

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“Between the current dock capacity along the U.S. Gulf Coast, and the most aggressive production projections, it appears that one, at most two,” could proceed, said oil export consultant Brett Hunter of Energy Hunter LLC.

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