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Commodities

Oil extends gains with September Fed rate cut in focus

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By Deep Kaushik Vakil and Robert Harvey

LONDON (Reuters) -Oil extended gains on Thursday, as support from growing expectations of an interest rate cut from the U.S. Federal Reserve in September outweighed higher U.S. inventories and OPEC+ plans to gradually increase supply.

futures were up 56 cents or 0.7% at $78.97 a barrel by 1150 GMT, while U.S. West Texas Intermediate crude futures were up 63 cents or 0.9% at $74.70.

Oil benchmarks rose more than 1% on Wednesday, recovering after sliding by nearly $8 a barrel to four-month lows over the five sessions through Tuesday.

Nearly two-thirds of economists are now predicting the Fed will cut interest rates in September, according to Reuters’ May 31-June 5 poll, offsetting recent bearish supply news.

Lower interest rates decrease the cost of borrowing, which can incentivise economic activity and boost oil demand.

Prices were still headed for weekly declines of about 3%.

Trading house Trafigura’s chief economist Saad Rahim said that the decision by producer group OPEC+ to phase out some of its output cuts, combined with strong supply in the products market, has driven oil prices lower.

OPEC+, which groups members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, agreed on Sunday to extend most of their production cuts into 2025, but left room for voluntary cuts from eight members to be unwound gradually from October.

“However, demand is holding up and product inventories remain relatively low. As such, if demand accelerates in line with normal seasonal trends it could result in tighter markets going forward,” Rahim said.

OPEC Secretary General Haitham Al Ghais and Russian Deputy Prime Minister Alexander Novak defended the OPEC+ deal, expressing optimism about continued strong demand for oil.

“Oil markets have over-reacted to the mildly negative OPEC+ meeting outcome. Demand indicators have certainly softened somewhat recently, but are not falling off a cliff,” Barclays analyst Amarpreet Singh wrote in a note.

Meanwhile, stocks jumped by 1.2 million barrels in the week to May 31 while analysts had expected a drawdown of 2.3 million barrels, data from the U.S. Energy Information Administration showed.

© Reuters. FILE PHOTO: A general view of a French oil Esso refinery by night in Fos-sur-Mer, France, May 13, 2024. REUTERS/Manon Cruz/File Photo

“Summer inventory draws should be enough to get Brent oil back into the high $80s-$90 range by September,” but prices could come under pressure in 2025 from slower demand and non-OPEC supply growth, J.P.Morgan analysts wrote in a note.

The bank forecasts Brent to average $83 this year and $75 next year.

Commodities

BofA: Gold could hit $3,000/oz over the next 12-18 months

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Bank of America analysts predict a potential surge in gold prices, with estimates reaching $3,000 per ounce within the next 12-18 months. However, they acknowledge current market flows don’t necessarily support this price point.

BofA explains that reaching $3,000 hinges on increased non-commercial demand. They believe a Federal Reserve rate cut could trigger this, leading to inflows into physically backed gold ETFs and higher trading volumes.

Central bank purchases are another key factor. “Ongoing central bank purchases are also important, and a push to reduce the share of USD in foreign exchange portfolios will likely prompt more central bank gold buying,” BofA says.

This shift is driven by gold’s status as a long-term value store, hedge against inflation, and effective portfolio diversifier.

BofA’s model considers various factors, including mine output, recycled gold, and jewelry demand. However, to estimate a balanced market price, they also need to factor in investment demand. Currently, non-commercial purchases support an average price of $2,200 per ounce year-to-date. A significant increase could push prices towards $3,000.

The report highlights a recent World Gold Council survey indicating central banks’ intention to purchase more gold. This aligns with the growing concerns around US Treasury market fragility, potentially prompting further diversification into gold by both central banks and private investors.

While a Treasury market breakdown isn’t BofA’s base case, they acknowledge it as a potential risk. “Under this scenario, gold may fall initially on broad liquidations but should then gain,” they conclude.

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Commodities

Oil edges higher as demand expectations offset dollar strength

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By Paul Carsten

LONDON (Reuters) -Oil prices firmed slightly on Monday as traders weighed support from expected summer demand and geopolitical tensions against a stronger dollar.

futures were up 22 cents, or 0.3%, at $85.46 a barrel by 1053 GMT. U.S. West Texas Intermediate crude futures were up 19 cents, or 0.2%, at $80.92. Both benchmarks gained about 3% last week for their second consecutive weekly gains.

“The chief underlying reason behind the price strength … is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

Geopolitical risks in the Middle East and a ramp-up in Ukrainian drone attacks on Russian refineries are also underpinning oil prices.

EU countries on Monday agreed a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied (LNG) in the EU for further shipment to third countries.

However, a strengthening U.S. currency has made dollar-denominated commodities less attractive for holders of other currencies.

“The U.S. dollar … appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election,” said IG analyst Tony Sycamore.

The , measuring performance against six major currencies, climbed on Friday and was up slightly on Monday after data showed U.S. business activity at a 26-month high in June.

© Reuters. FILE PHOTO: A view of the Phillips 66 Company's Los Angeles Refinery (foreground), which processes domestic & imported crude oil into gasoline, aviation and diesel fuels, and storage tanks for refined petroleum products at the Kinder Morgan Carson Terminal (background), at sunset in Carson, California, U.S., March 11, 2022. Picture taken March 11, 2022. REUTERS/Bing Guan/File Photo

In Ecuador, state oil company Petroecuador has declared force majeure on deliveries of Napo heavy crude for export after the shutdown of a key pipeline and oil wells owing to heavy rain, sources said on Friday.

In the United States, the number of operating oil rigs fell by three to 485 last week, the lowest since January 2022, Baker Hughes said in a report on Friday.

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Commodities

Gold prices creep higher; strong dollar, inflation jitters weigh

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Investing.com– Gold prices rose slightly in Asian trade on Monday but remained within a tight trading range amid pressure from a stronger dollar, and as traders positioned for key U.S. inflation data this week. 

The yellow metal has hovered largely around the low $2,300 an ounce level for about two weeks, as uncertainty over U.S. interest rates kept traders averse to the yellow metal. 

rose 0.2% to $2,325.52 an ounce, while expiring in August rose 0.3% to $2,337.85 an ounce by 00:04 ET (04:04 GMT). 

Gold pressured by strong dollar, PCE data awaited 

Gold prices were pressured chiefly by strength in the , as the greenback hovered around its strongest levels since early-May. 

Strength in the dollar came as traders priced out expectations of interest rate cuts by the Federal Reserve, especially after strong purchasing managers index data on Friday.

The reading pushed up fears that strength in the U.S. economy will give the Fed more headroom to keep rates high for longer.

Focus now turns largely to upcoming data, due on Friday. The reading is the Fed’s preferred inflation gauge, and is likely to factor into expectations for interest rate cuts. 

The PCE data is expected to show some cooling in inflation, but is expected to remain well above the Fed’s 2% annual target. 

The prospect of high for long interest rates bodes poorly for precious metals, given that it increases the opportunity cost of investing in non-yielding assets. 

Other precious metals retreated on Monday after remaining largely rangebound in recent weeks. fell 0.3% to $1,005.10 an ounce, while fell 0.2% to $29.895 an ounce.

Copper prices muted amid dollar strength, China jitters 

Strength in the dollar also weighed on industrial metal prices, with copper also coming under pressure from fears of  a trade war between China and the European Union.

Benchmark on the London Metal Exchange fell 0.1% to $9,677.50 a tonne, while one-month steadied at $4.4205 a pound.

Sentiment towards China, the world’s biggest copper importer, was battered after the EU imposed tariffs on Chinese imports of electric vehicles. The move drew ire from Beijing, with Chinese officials raising the possibility of retaliatory tariffs and a potential trade war between the two economic giants.

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