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Oil prices rise after Gaza ceasefire rejection; Weak China data limits gains

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Oil prices rise after Gaza ceasefire rejection; Weak China data limits gains
© Reuters.

Investing.com– Oil prices rose slightly on Thursday as the rejection of an Israel-Hamas ceasefire deal pointed to continued unrest in the Middle East, although weak economic signals from China put a lid on gains.   

Prices extended gains from Wednesday after Israeli Prime Minister Benjamin Netanyahu rejected a ceasefire deal proposed by Hamas leaders, dashing hopes for an end to the conflict that has now appeared to have spilled over into more Middle Eastern territories. 

U.S.-led forces continued with their strikes against the Iran-aligned Yemeni Houthi group, which in turn gave little indication of ceasing its attacks on vessels in the Red Sea. This heralded more potential supply disruptions in the Suez Canal, which is expected to disrupt Asian and European oil supplies. 

expiring in April rose 0.3% to $79.47 a barrel, while rose 0.4% to $74.19 a barrel by 20:59 ET (01:59 GMT). 

Still, bigger gains in oil prices were held back by weak economic signals from top importer China, as well as mixed cues from U.S. inventory data. 

Markets weigh weak China inflation, mixed US inventories 

Chinese grew less than expected in January, official data showed on Thursday, while remained in contraction for a 16th consecutive month. 

The readings pointed to sustained economic weakness in the world’s largest oil importer, and factored into concerns over sluggish oil demand in the coming months. 

China has remained a key pain point for oil markets, as a post-COVID economic recovery in the country largely failed to materialize over the past year. 

U.S. inventory data also provided middling signals on supply and demand. While and inventories saw modest draws in the week to February 2, overall U.S. grew much more than expected as production recovered from a cold snap through January.

While record-high U.S. production has also served as a pain point for oil prices, the Energy Information Administration forecast a reduction in output through 2024, and that production will only retake record highs in early-2025. The forecast offered some support to oil prices this week. 

But gains in crude were largely held back by a strong , as markets began steadily pricing out the chances of early interest rate cuts by the Federal Reserve this year. 

The central bank is now only expected to begin cutting rates by June 2024, with a chorus of Fed officials this week downplaying bets on early cuts. 

Recent signs of resilience in the U.S. economy are also expected to give the Fed more headroom to keep rates higher for longer.

Commodities

Oil hovers near 3-week high on Middle East tensions, China demand

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Oil dips as questions remain around demand
© Reuters. FILE PHOTO: Oil rig pumpjacks, also known as thirsty birds, extract crude from the Wilmington Field oil deposits area near Long Beach, California July 30, 2013. REUTERS/David McNew/File Photo/File Photo

By Paul Carsten

LONDON (Reuters) -Oil prices fell on Tuesday, with an uncertain outlook for global demand knocking value off crude futures contracts, despite some risk premium from the Israel-Hamas conflict.

futures dipped 80 cents or 0.96% to $82.76 a barrel by 1255 GMT.

U.S. West Texas Intermediate (WTI) crude for April delivery fell 92 cents, or 1.17%, to $77.54 a barrel, after earlier paring $1. The March WTI contract lost 51 cents or 064% to $78.68 a barrel ahead of its expiry during the session.

There was no settlement for WTI on Monday due to a U.S. public holiday.

Crude markets were “marginally lower” in “quiet trading over the Presidents’ Day holiday in the U.S. and as demand concerns offset ongoing Middle Eastern geopolitical tensions”, IG market analyst Tony Sycamore said in a note.

Israel now plans to storm the city of Rafah, where more than 1 million of the 2.3 million Palestinians in Gaza have sought shelter, prompting international concern that an assault would sharply worsen the humanitarian crisis in Gaza. The U.N. has warned it “could lead to a slaughter”.

Various countries are increasing efforts to secure a ceasefire as the threat of an assault on Rafah looms.

A total of 29,195 Palestinians have been confirmed killed and 69,170 injured in Israeli strikes on Gaza since Oct. 7, the Gaza health ministry said in a statement on Tuesday.

Shipping has suffered as the conflict threatens to escalate in the Middle East, with energy markets particularly vulnerable. In support of Palestinians, Iran-aligned Houthis have increased attacks on shipping lanes in the Red Sea and Bab al-Mandab Strait, with at least four more vessels hit by drone and missile strikes since Friday.

But the conflict in the Middle East, one of the world’s major oil-producing regions, has not been enough to counter crude investors’ worries about flagging global demand.

A bearish International Energy Agency (IEA) report last week revised the 2024 oil demand growth forecast downward, to almost a million barrels a day less than producer group OPEC’s outlook.

The IEA estimated global oil demand will grow by 1.22 million barrels per day (bpd) this year, while OPEC’s growth forecast is 2.25 million bpd.

The two are clashing in part over the shift to renewable and cleaner energy, with the IEA, which represents industrialised countries, predicting oil demand will peak by 2030 while OPEC expects oil use to keep rising for the next two decades.

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Goldman, hedge funds step up activity in physical uranium as prices spike

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Goldman, hedge funds step up activity in physical uranium as prices spike
© Reuters. FILE PHOTO: Barrels with uranium oxide are stored at the Ulba Metallurgical Plant in the northeastern industrial city of Oskemen (Ust-Kamenogorsk), Kazakhstan May 26, 2017. REUTERS/Shamil Zhumatov/File Photo

By Eric Onstad and Nell Mackenzie

LONDON (Reuters) – Investment banks Goldman Sachs and Macquarie as well as some hedge funds are positioning themselves to reap the benefits of a newly buoyant uranium sector as prices of the nuclear fuel ingredient spike.

While many other investment banks are still avoiding uranium, Goldman and Macquarie are boosting trading in physical uranium and in Goldman’s case trading its options as well, five industry and hedge fund sources with knowledge of the deals said.

The heightened activity comes as utilities seek new supplies amid shortfalls that have lifted prices to 16-year highs.

A few hedge funds are also stepping up involvement in both equities and physical uranium, a sign that the metal is starting to broaden its appeal to financial institutions after a decade in the doldrums following the Fukushima nuclear disaster.

“With the headlines and positive momentum in nuclear more generally, hedge funds and other commodity investors are back in the (uranium) sector. A lot of it is done via physical funds, the easiest way to get exposure to uranium prices,” said Bram Vanderelst at trading firm Curzon .

The metal has captured investors’ attention after prices doubled over the past year to $102 a pound as top producers Kazatomprom (LON:) and Cameco (NYSE:) cut production guidance because reopened mines that had been mothballed struggled to ramp up production to meet renewed demand.

It also comes with the revival of nuclear energy to help countries cut their carbon emissions, which was highlighted in the December 2023 Group of Seven most industrialised nations’ statement that envisioned tripling nuclear energy capacity from 2020 to 2050.

Goldman Sachs has started writing options on physical uranium for hedge funds, the first time it has created a derivative for the metal.

“Goldman has been increasing their visibility, they’ve been increasing their book steadily,” a source who dealt with the bank said, declining to give details of the transactions because they are confidential.

Goldman is largely dealing with financial clients like hedge funds while Macquarie’s main focus is boosting trading and marketing output from miners, another source who dealt with both banks said, also declining to elaborate because the data is confidential.

All five sources Reuters spoke to declined to be named because they did not want to discuss publicly private trading details.

Both banks declined to comment.

NUFCOR’S URANIUM INVENTORIES

Goldman has been involved in the uranium market since 2009, when it bought Nufcor, a London-based nuclear fuel trader.

Five years later, however, in the wake of Japan’s Fukushima nuclear plant disaster in 2011 when uranium prices plummeted, Goldman aimed to offload Nufcor, but was unable to find a buyer and said it planned to wind down the business.

The business never closed and Nufcor held $356 million worth of uranium inventories at the end of 2022, the most recent regulatory filings showed.

That is enough uranium to fuel 17 large nuclear reactors for a year, based on Reuters calculations and data from the World Nuclear Association.

Investor buying of physical uranium by publicly-traded funds and hedge funds represented nearly 15 million pounds of uranium oxide concentrate (U3O8), or about 26% of the total traded on the spot market in 2023, according to consultancy UxC.

This was down from 22 million pounds of investor buying in 2022 as higher prices in 2023 meant each dollar bought fewer pounds of uranium.

“We’ve especially seen large volumes purchased by investors in 2021-2023,” said Jonathan Hinze, president of UxC. 

See factbox.  

U3O8 or yellowcake is a fine powder packaged in steel drums that is produced when uranium ore is chemically processed.

While the biggest amount of investor-held physical uranium is by exchange-listed funds, a few hedge funds have been investing in shares of uranium miners and other nuclear-related firms for several years and are also now investing in physical uranium.

Sachem Cove Partners, a uranium-focused investment strategy with about $250 million in assets under management, started investing in the sector in 2018 with equities and proxies for physical uranium, like the Sprott Physical Uranium Trust.

It began buying physical uranium last year. 

    “It gives us a look into both markets, the physical market

itself and the equity markets,” said Mike Alkin, chief investment officer. 

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Commodities

Oil steadies as demand jitters counter Middle East conflict

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Oil steadies as demand jitters counter Middle East conflict
© Reuters. Army soldier miniatures and stock graph are seen in this illustration taken October 9, 2023. REUTERS/Dado Ruvic/Illustration/file photo

By Natalie Grover

LONDON (Reuters) -Global oil benchmark was little changed on Monday, hovering around $83 a barrel as festering demand concerns were offset by continuing conflict in the Middle East.

Brent crude futures eased by 14 cents to $83.33 a barrel by 1243 GMT.

The March contract for U.S. West Texas Intermediate (WTI) crude, which expires on Tuesday, was up 7 cents at $79.26 in tepid trade while the WTI April contract slipped 13 cents to $78.33.

Front-month Brent and WTI futures last week gained about 1.5% and 3% respectively, reflecting increasing risk of Middle East conflict widening.

Capping those gains was slowing demand forecasts from the International Energy Agency and a bigger than expected increase to U.S. producer prices in January, amplifying inflation concerns.

“WTI and Brent eased on Monday morning as investors re-adjust to demand-side fears after a significant jump in U.S. producer price index numbers,” Phillip Nova analyst Priyanka Sachdeva said in a note.

Demand jitters were magnified on Friday when U.S. Federal Reserve policymakers signalled the need for “patience” over expectations of cuts to interest rates.

Markets are also awaiting indications of the direction of demand from China after it returns from a week-long Lunar New Year holiday while Presidents’ Day in the United States is set to keep trade relatively muted.

The conflict in the Middle East continued over the weekend as Israeli raids put the Gaza Strip’s second-largest hospital out of service.

On Saturday Yemen’s Iran-aligned Houthi fighters claimed responsibility for an attack on an India-bound oil tanker.

A British-registered cargo ship was deemed to be at risk of sinking in the Gulf of Aden on Monday after a Houthi attack. Another cargo ship, this time U.S.-owned, reported two missile attacks in the Gulf of Aden on Monday and called for military assistance.

Houthi forces have carried out attacks on shipping in the Red Sea and Gulf of Aden since November in what they say is support of Palestinians in the war between Israel and Hamas militants in the Gaza Strip.

The Organization of the Petroleum Exporting Countries (OPEC) would be able to cover “most levels of disruption”, ANZ Research analysts said in a note, citing spare capacity at an eight-year high of 6.4 million barrels of oil per day.

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