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Commodities

Oil falls more than $1 as Fed rate outlook stokes demand fears

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By Noah Browning

(Reuters) -Oil prices dropped by more than $1 on Tuesday, extending losses on the potential for lingering U.S. inflation to keep interest rates higher for longer, depressing consumer and industrial demand.

futures fell by $1.54, or 1.8%, to $82.17 a barrel by 1210 GMT. U.S. West Texas Intermediate crude (WTI) futures for June, which are set to expire on Tuesday, slipped by $1.49 cents, or 1.8%, to $78.31.

The more active July contract lost $1.55, or 1.9%, to $77.75.

Both benchmarks fell by nearly 1% on Monday after U.S. Federal Reserve officials said they were awaiting more signs of slowing inflation before considering interest rate cuts.

“Fears of weaker demand led to selling as the prospect of a Fed rate cut became more distant,” said analyst Toshitaka Tazawa at Fujitomi Securities.

Fed Vice Chair Philip Jefferson said it was too early to tell whether the inflation slowdown is long lasting while Vice Chair Michael Barr said restrictive policy needs more time. Atlanta Fed President Raphael Bostic said it will “take a while” for the central bank to be confident that a price growth slowdown is sustainable.

The Fed officials’ comments pointed to interest rates staying higher for longer than markets previously expected.

That has implications for the oil market because higher borrowing costs tie up funds in a blow to economic growth and demand for crude.

The market appeared largely unaffected by political uncertainty in two major oil-producing countries.

Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, died in a helicopter crash on Sunday. Separately, Saudi Arabia’s Crown Prince Mohammed Bin Salman deferred a trip to Japan because of the health of his father, the king.

“The (oil) complex continues to lack major bullish or bearish influences to nudge prices out of the current narrow band, which has become entrenched since the start of May,” said Vandana Hari, founder of Vanda (NASDAQ:) Insights.

Meanwhile, the structure of the Brent contract is weakening in an indication of a softer market and strong supply.

The front-month Brent contract’s premium to the second-month contract narrowed to 10 cents, its weakest since January.

© Reuters. FILE PHOTO: A view shows the Yan Dun Jiao 1 bulk carrier in the Vostochny container port in the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

Investors are focusing on supply from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+. They are scheduled to meet on June 1 to set output policy, including whether to extend some members’ voluntary supply cuts of 2.2 million barrels per day.

OPEC+ could extend some voluntary cuts if demand fails to pick up, people with knowledge of the matter have told Reuters.

Commodities

Oil prices steadies despite weak China GDP, stronger dollar

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Investing.com– Oil prices steadied Monday despite underwhelming growth data from China presenting a weak outlook for demand. 

At 09:20 ET (13:20 GMT), slipped marginally to $85.02 a barrel, while dropped slightly to $81.00 a barrel. 

Chinese GDP underwhelms 

Concerns over waning oil demand in top importer China were furthered Monday by the release of gross domestic product data showing the economy grew less than expected in the second quarter.

grew 4.7% year-on-year, less than a rise of 5.1% expected and slowing from the 5.3% seen in the prior quarter.

The world’s second-largest economy registered its weakest growth since the first quarter of 2023, with the softer reading largely driven by laggard consumer spending, which slowed in the face of heightened economic uncertainty. 

While the country still remained on track to meet its 5% annual GDP target, Monday’s data showed that it faced increased economic headwinds. This could bode poorly for crude demand in the world’s biggest oil importer. 

Additionally, China’s imports fell 2.3% in the first half of this year to 11.05 million barrels a day, amid disappointing fuel demand.

“Given that China is expected to make up the majority of oil demand growth this year, it is not surprising signs of weakness in Chinese demand are a concern,” said analysts at ING, in a note.

Focus is now squarely on the Third Plenum of the Chinese Communist Party, set to begin from this week, for more cues on the economy. 

The event is a meeting of top Chinese officials, and could potentially yield more stimulus measures to support the economy.

Dollar gains after Trump shooting 

Also weighing was the rise in the against a basket of currencies on Monday, seeing some safe haven demand after a shooting at a Trump rally in Butler, Pennsylvania on Saturday.

A stronger dollar makes commodities, like oil, which are denominated in the greenback, more expensive for foreign buyers.  

Trump’s ear was grazed by a bullet, but he was otherwise unharmed. He is likely to make an appearance at the 2024 Republican convention later this week, and is widely expected to be officially nominated as the Republican candidate for the 2024 presidential elections. 

Analysts speculated that the shooting could improve Trump’s prospects for a victory over Joe Biden in the race. 

But the move also ramped up uncertainty over the U.S. political climate, largely offsetting optimism over lower interest rates in the country. 

The volatile situation in the Middle East also continues to provide a geopolitical premium for oil.

(Ambar Warrick contributed to this article.)

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Oil holds its ground as Chinese demand concerns weigh

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By Alex Lawler and Arunima Kumar

LONDON (Reuters) – Oil held its ground on Monday as downward pressure from concern about demand in top importer China offset support from strong demand elsewhere, OPEC+ supply restraint and geopolitical tensions in the Middle East.

The reaction of the wider markets to the attempted assassination of former U.S. President Donald Trump was in focus. The U.S. dollar steadied after gains earlier in the session that had weighed on oil.

futures were down 20 cents, or 0.2%, at $84.83 a barrel by 1220 GMT. U.S. West Texas Intermediate crude lost 14 cents, or 0.2%, to $82.07.

“Chinese data including refinery runs and crude imports are not supportive,” said UBS analyst Giovanni Staunovo. “But demand growth elsewhere is still healthy.”

Crude fell last week after four weeks of gains as hopes of strong U.S. summer demand were countered by concern over demand in China.

Chinese data on Monday added to that concern. The world’s second-largest economy grew by 4.7% in the April to June quarter, official figures showed, the slowest growth since the first quarter of 2023.

On Friday separate figures showed China’s imports fell 2.3% in the first half of this year.

However, the volatile situation in the Middle East continues to provide a geopolitical premium for oil, though ample spare capacity held by Saudi Arabia and other members of OPEC has limited price support, analysts say.

“Geopolitical tensions in the Middle East, including volatile Israel-Hamas clashes and stalled peace talks, could remain a driving factor for oil prices due to concerns over regional stability,” said George Pavel, general manager at Capex.com Middle East.

The oil market is also broadly underpinned by supply cuts from the OPEC+ group of producers. Iraq’s oil ministry said at the weekend that it will compensate for overproduction since the beginning of 2024.

Market sentiment was supported by a U.S inflation report for June that came in below expectations, raising hopes for an interest rate reduction, though challenges persisted as China’s crude imports in June declined, highlighting ongoing market difficulties, Pavel added.

© Reuters. FILE PHOTO: A pumpjack operates at the Vermilion Energy site in Trigueres, France, June 14, 2024. REUTERS/Benoit Tessier/File Photo

Federal Reserve Chair Jerome Powell is due to speak later in the day, and is likely to be asked for his reaction to last week’s subdued inflation reading.

Markets are pricing in a 96% chance the Fed will cut rates in September, up from 72% a week earlier. [FEDWATCH]

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Gold prices edge lower as dollar firms after Trump attack

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Investing.com– Gold prices fell slightly in early Asian trade on Monday, remaining in sight of a record high but seeing few increases in safe haven demand after an alleged assassination attempt on former U.S. President Donald Trump. 

Safe haven buying, in the face of increased U.S. political uncertainty, favored the dollar, with the greenback recovering a measure of recent losses on Monday. Still, the dollar remained weak amid growing bets on U.S. interest rate cuts, which buoyed gold in recent weeks. 

fell 0.2% to $2,407.49 an ounce, while expiring in August fell 0.4% to $2,412.20 an ounce by 20:34 ET (00:34 GMT). 

US political uncertainty grows after Trump attack

Markets were still grappling with an uncertain political outlook for the U.S. after a failed assassination attempt on Trump at a campaign rally in Butler, Pennsylvania on Saturday.

The assailant shot at Trump and hit him in the ear, although the former president was still seen urging supporters to “fight!” 

Heightened political jitters in the wake of the attack were initially expected to support safe haven plays into gold. But such a scenario did not play out as expected, as the dollar benefited from some inflows, while the yellow metal largely retreated after the attack. 

Analysts speculated that the attack improved Trump’s chances of a victory over Democratic frontrunner Joe Biden later this year. A Trump presidency is expected to potentially add to inflation and debt- a scenario that usually results in a stronger dollar. 

The rose about 0.2% against a basket of currencies, although it was nursing steep losses over the past two weeks. 

Traders were somewhat cautious towards gold with the yellow metal trading close to a record high of $4,050 an ounce hit earlier this year. Historically, gold has always fallen sharply after marking brief record highs. 

The yellow metal, along with broader metal markets, benefited greatly from increased speculation over interest rate cuts by the Federal Reserve. Soft consumer price index inflation reading from last week saw traders ramp up bets the Fed will cut rates by 25 basis points in September- a notion that battered the dollar. 

Other precious metals also retreated on Monday, seeing little immediate safe haven demand. 

fell 0.6% to $1,007.65 an ounce, while fell 0.9% to $30.890 an ounce. 

Copper edges lower as China woes mount ahead of GDP data

Among industrial metals, copper prices fell on Monday, extending losses from last week amid persistent concerns over top importer China.

Data on Friday showed China’s imports of the red metal fell in June, raising questions over domestic demand. 

Benchmark on the London Metal Exchange fell 0.4% to $9,841.50 a tonne, while one-month fell 0.4% to $4.5633 a pound. 

Focus is now squarely on key Chinese data for the second quarter, due later on Monday. The reading is expected to show some cooling in growth, which bodes poorly for copper demand.

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