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Commodities

Oil prices in weekly loss as prospect of Iran-Israel escalation cools

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Investing.com– Oil prices fell to weekly loss despite settling higher in volatile trade Friday as investors cooled bets on a wider Middle East conflict after Isreal launched measured attacks on Iran and the latter signaled little appetite to escalated the tit-for-tat skirmish. 

At 14:30 ET (18:30 GMT), rose 0.5% to $83.14 a barrel, while rose 0.3% to $87.33 a barrel. Both contracts ended the week about 3% lower as a stronger dollar on expectations for higher for longer U.S. interest rates weighed. 

Middle East tensions back in focus after Iran explosions

Both benchmarks had soared 3% earlier Friday following reports of the missile strikes in Iran, but geopolitical tensions cooled after Iran played down the attack and appeared to signal no intention to retaliate. 

Iran’s Fars News Agency saying explosions were heard in Isfahan in central Iran, in parts of southern Syria and in parts of Iraq. ABC news reported that U.S. officials said Israel had retaliated against Iran.

Israel’s response following Iran’s attacks against Tel Aviv last week, which was in retaliation for an alleged Israeli strike on an embassy in Damascus/

UN reports recently showed Iran was enriching uranium up to 60%, which was more than levels required for commercial power generation. But it was also below the 90% enrichment level required for an atomic bomb. 

Baker Hughes rig count rises 

Oilfield services firm Baker Hughes Co (NYSE:BKR) reported its weekly U.S. rig count, a leading indicator of future production, rose to 511 from 506, signalling a step up in drilling activity amid a boost from higher oil prices. 

The number of oil rigs are still lagging behind the nearly 600 rig count seen at the same time last year, but domestic oil output is still expected to hit record highs this year as drillers continue to boost efficiency by focusing on the most promising drilling sites. 

Goldman lifts oil forecasts 

“After rallying sharply to just over $90/bbl on rising geopolitical risks, Brent prices have declined to $87/bbl,” said analysts at Goldman Sachs, in a note.

We still see a $90/bbl ceiling on Brent in our base case of nogeopolitical supply hits,” the influential investment bank said. “The reasons are that high spare capacity and higher prices will likely lead OPEC+ to raise production in Q3, inventories remain flat over the past year, and prices are already triggering stabilizing responses, including rises in OPEC exports and lower crude demand from the US SPR and refineries.”

That said, the bank lifts its floor for Brent to $75 a barrel, from $70, saying it assumes only a gradual normalization in the risk premium, and think that OPEC will manage to keep spot prices above long-dated prices through a smaller unwind of production cuts than we assumed before.

Additionally, “we still see value in long oil positions given significant portfolio hedging benefits against geopolitical shocks, and an attractive 10% annualized roll yield.”

It also lifts its Brent forecast to $86 a barrel for the second half of 2024, versus $85 prior, and to $82 a barrel for 2025, from $80.

(Ambar Warrick contributed to this article.)

Commodities

Analysts are out with their updated copper prices forecast for 2024 

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Following the recent rally, the spotlight is on , and analysts have been busy assessing their forecasts for copper prices, reflecting a complex set of factors from supply constraints and geopolitical factors to evolving demand trends in various sectors.

Copper prices rally

While copper prices slumped on Wednesday, the metal has experienced a significant rally over the past couple of months, with prices hitting record highs on Monday this week. 

Copper, which is a vital industrial metal whose price movements have significant implications for global markets and industries, hit an intraday record of  $5.1990 a pound or $11,460 a tonne. This year, copper is up 27%. 

The rally was fueled in part by traders betting on a soft supply of the metal in the coming months as miners’ production cuts began to take effect. 

Copper prices forecast for 2024

Despite the rally, analysts at Citi believe the price of copper is set to consolidate over the next three to six months.

The bank’s forecast for a stabilisation in prices comes with LME prices currently trading close to their zero to three-month point price target of $10,500 a ton after reaching their six to 12-month target of $11k a ton last week.

Citi believes “investors have been right to push copper up from $8-8.5k/t to $10.5k/t over the past 3-4 months.”

However, they explained they think machines are likely a large share of the ~$30bn of copper fund length additions this year. 

“In the coming months, some of this length is likely to turn over to consumer hedgers, along with macro and commodity-specific hedge funds, for whom we consider sub-$10k/t as inexpensive,” said Citi.”Indeed, physical indicators (such as visible inventories, spreads and premiums) aren’t going to look great for some time as China semi-fabricators de-stock refined metal and as global scrap dealers de-stock scrap.”

The current price levels are seen as sufficient to avoid huge deficits in the copper market this year as the scrap market responds.

Meanwhile, JPMorgan analysts believe pricing expectations are overshooting the fundamentals while copper stocks are currently trading at fair value. 

“Copper has been on a tear thus far this year, rising 27% YTD amid what we view as relatively overdone refined supply-side concerns,” said JPMorgan. “This has translated into strong re-rating for copper-levered stocks FCX (+20% YTD) and TECK (+24%) with near-term investor sentiment now seemingly more bearish relative to the start of the year.”

“Pricing sentiment appears to have overshot underlying fundamentals, which are more sound than recent pricing momentum infers, largely driven by resilient China refined supply and seemingly elastic demand,” they add.

The bank also notes that the latest copper forward curve now exceeds both their base case and JPM’s Commodities team’s copper price forecast through the remainder of the year and into next year, suggesting further upside potential should bullish expectations materialize.

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Commodities

Oil creeps back up after three days of losses

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By Paul Carsten

LONDON (Reuters) -Oil prices crept up on Thursday, clawing back some of the previous three days’ losses despite the U.S. Federal Reserve entertaining further tightening of interest rates if inflation remains sticky, a move that could hurt oil demand.

futures were up 51 cents, or 0.6%, at $82.41 a barrel by 1121 GMT. U.S. West Texas Intermediate crude (WTI) futures were also up 51 cents, or 0.7%, at $78.08. Both benchmarks fell more than 1% on Wednesday for their third straight day of losses.

Minutes released on Wednesday from the Federal Reserve’s most recent policy meeting showed the U.S. central bank discussed the potential to raise interest rates in the face of continued stubborn inflation.

“Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate,” the Fed minutes said.

Higher interest rates boost borrowing costs, crunching funds that could boost economic growth and oil demand in the world’s largest oil consuming nation.

Also weighing on the market, stocks rose by 1.8 million barrels last week, according to the Energy Information Administration, compared with an estimated draw of 2.5 million barrels.

Globally, physical crude markets have been pressured by soft refinery demand and ample supply.

“Recent market softness has come on the back of weaker data, including rising oil inventories, tepid demand and refinery margin weakness and the increasing risk of run cuts,” Citi analysts said in a note on Thursday.

Russia said it exceeded its OPEC+ production quota in April for “technical reasons” and will soon present to the Organization of the Petroleum Exporting Countries (OPEC) Secretariat its plan to compensate for the error, the Russian Energy Ministry said late on Wednesday.

OPEC+, which groups together OPEC and allies led by Russia, will meet on June 1 to decide on production cut levels.

© 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

“June’s meeting is seen as difficult in being able to tighten the market further and there is a growing consensus that the best the cartel will come up with is a rollover of current voluntary cuts,” said John Evans of oil broker PVM.

“This may show results in the autumn, but for now it will do little to assuage a market lacking in confidence.”

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Commodities

Oil prices rebound; US rate jitters, surprise inventory build weigh

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Investing.com– Oil prices rose Thursday, rebounding after three consecutive losing sessions, although sentiment remains pressured by persistent concerns over high for longer U.S. interest rates as well as an unexpected build in U.S. inventories.

At 09:10 ET (13:10 GMT),  rose 1.1% to $82.77 a barrel, while rose 1.1% to $78.44 a barrel. 

Both benchmarks fell more than 1% on Wednesday for their third straight day of losses. 

US rate jitters grow after Fed minutes, policymaker comments 

The minutes of the Fed’s late-April meeting showed waning confidence among policymakers that inflation was easing as expected, potentially necessitating interest rates remaining at elevated levels for a lengthy period of time.

A string of Fed officials also warned of such a scenario in recent weeks, and that any potential plans for rate cuts will be largely contingent on confidence in inflation coming back within the central bank’s 2% annual target.

Several policymakers also said they were open to raise interest rates further should the need arise, the minutes showed. 

The minutes, along with the comments, boosted the dollar on Wednesday, which in turn pressured oil prices.

The prospect of high U.S. rates also spurred persistent concerns that global economic activity will cool substantially in 2024, pressuring oil demand. 

US inventories see unexpected build 

Fears of sluggish demand and well-supplied markets were furthered by official data on Wednesday showing that U.S. saw an unexpected build in the week to May 17. 

also grew, while saw a smaller-than-expected draw. 

The reading set a dour tone ahead of the Memorial Day holiday weekend, which usually marks the beginning of the travel-heavy summer season, which is expected to boost demand. 

OPEC+ meeting in spotlight 

On the supply front, markets were awaiting a meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+) in early-June, where the cartel could potentially extend its current run of production cuts.

“The weakness in oil prices increases the likelihood that OPEC+ members fully roll over their additional voluntary supply cuts into the second half of the year,” ING said, in a note.

OPEC+ oil producers are making voluntary output cuts totalling about 2.2 million barrels per day for the first half of 2024, led by Saudi Arabia rolling over an earlier voluntary cut.

These curbs come on top of earlier reductions announced in various steps since late 2022 and bring the total pledged cuts to about 5.86 million barrels per day, equal to just under 6% of daily world demand.

(Ambar Warrick contributed to this article.)

 

 

 

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