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Commodities

Oil posts weekly loss as interest rate policy spurs fuel demand worries

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By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices rose about 1% on Friday, but fell for the week on worries that strong U.S. economic data would keep interest rates elevated for a longer period, curbing fuel demand.

The July contract rose 76 cents to $82.12 a barrel. The more-active August contract closed up 73 cents at $81.84.

U.S. West Texas Intermediate (WTI) crude futures settled 85 cents, or 1.1%, higher to $77.72.

On Thursday, Brent closed at its weakest since Feb. 7 and U.S. WTI futures at their lowest since Feb. 23.

Summer demand in the United States is expected to pick up starting this weekend, and some investors are wondering if the selloff was exaggerated, said Dennis Kissler, senior vice president of trading at BOK Financial.

Brent closed down 2.1% for the week. It declined for four straight sessions this week, its longest losing streak since Jan 2. WTI settled down 2.8% for the week.

Worries over Federal Reserve interest rate policy and last week’s bump in US crude oil inventories weighed on market sentiment, said Tim Evans, an independent energy analyst.

Minutes of the Fed’s latest policy meeting released on Wednesday showed policymakers questioning whether interest rates were high enough to tame stubborn inflation. Some officials were willing to raise borrowing costs again if inflation surged.

Fed Chair Jerome Powell and other policymakers have since said they feel further increases are unlikely.

Higher interest rates increase the cost of borrowing, which can slow economic activity and dampen demand for oil.

Consumer sentiment also fell to a five-month low on mounting fears about borrowing costs staying high. At face value, pessimism among households would imply slower consumer spending, though the relationship between the two has been weak.

Oil demand is still robust from a broader perspective, analysts at Morgan Stanley wrote in a note, adding they expect total oil liquids consumption to increase by about 1.5 million barrels per day this year.

Soft U.S. gasoline demand has been offset by global demand, which surprised to the upside, especially in the early parts of the year, the analysts said.

U.S. gasoline product supplied, a proxy for demand, reached its highest level since November in the week to May 17, the Energy Information Administration (EIA) said on Wednesday.

On the supply side, the oil rig count, an early indicator of future output, was unchanged at 497 this week, energy services firm Baker Hughes said.

Meanwhile, the market is awaiting a June 2 online meeting of the OPEC+ producer group comprising the Organization of the Petroleum Exporting Countries and its allies to discuss whether to extend voluntary oil output cuts of 2.2 million barrels per day.

Analysts largely anticipate that current production cuts will be extended at least to the end of September.

Russia, in a rare admission of oil overproduction, said this week it exceeded its OPEC+ production quota in April for “technical reasons,” a surprise that analysts and industry sources say shows Moscow’s challenges in curbing output.

© Reuters. FILE PHOTO: A tug boat pushes an oil barge through New York Harbor in New York City, U.S., May 24, 2022.  REUTERS/Brendan McDermid/File Photo

Venezuela aims to produce 1.23 million barrels per day (bpd) of oil in December, adding about 290,000 bpd compared to the start of the year, following the addition of drilling rigs, oil minister Pedro Tellechea said.

Money managers raised their net long futures and options positions in the week to May 21, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

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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