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Commodities

Oil prices settle higher, but fall to heavy weekly losses on rate, demand jitters

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Investing.com– Oil prices settled higher Friday, but that did little to prevent heavy weekly losses Friday as concerns over sticky inflation and high interest rates spurred doubts that demand will remain robust this year. 

At 14:30ET (18:30 GMT), rose 1% to $82.14 a barrel, but posted losses of about 2% for the week. While rose 1.1% to $77.74 a barrel, but still slipped to a more than 2% loss for the week. 

Oil heads for weekly losses as rate jitters weigh 

Both contracts were set to lose around 4% this week, with Brent at its weakest level in two months and WTI at a three-month low. Pressure has come chiefly from concerns over sticky U.S. inflation and the potential for interest rates remaining elevated for a long time.

A string of signals from the Federal Reserve reflected increased anxiety among policymakers that inflation will be slow in reaching the central bank’s 2% annual target – a scenario that is expected to push the central bank into keeping rates high.

Analysts at Goldman Sachs have pushed back when they expect the Federal Reserve to cut interest rates this year, citing comments from central bank officials this week calling for more evidence that inflation in the world’s largest economy is sustainably cooling down to their 2% target.

In a note to clients on Friday, Goldman Sachs analysts said they now do not expect the Fed to roll out a rate cut until September. They had previously estimated that the reduction — which would be the first since the Fed embarked on a steep run of policy tightening in 2022 — would come in July.

The tool now shows a nearly equal probability of a cut or a hold in September.

Baker Hughes rig unchanged

Oilfield services firm Baker Hughes reported Friday its weekly U.S. rigs were unchanged at 497. The ongoing lull in drilling activity hasn’t done much to dent domestic output, which remains near record highs at 13.1 million barrels per day. That is above the average of 12.936 million barrels a day seen last year. 

In a trend that has stoked fears of non-OPOC-led oversupply, the U.S. has led global oil production for six years in a row. OPEC and its allies, OPEC+, have attempted to curb global supply through a agreements that seek to limit output of member countries. 

OPEC+ meeting in focus for more supply cues 

Markets were now looking to a meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+), which is set for the start of June. 

Focus will be largely on whether the cartel will extend voluntary production cuts totalling about 2.2 million barrels per day past an end-June deadline.

These voluntary cuts from the cartel of major producers come on top of earlier reductions of 3.66 million barrels per day that were announced in various steps since late 2022 and which are valid until the end of 2024.

Total pledged cuts therefore currently amount to 5.86 million barrels per day, equal to about 5.7% of daily world demand.

But just how tight markets will be this year remains uncertain, especially as production remained at record highs. 

Some easing tensions in the Middle East also pointed to fewer supply disruptions for crude, while U.S. oil demand is expected to pick up in the coming weeks with the travel-heavy summer season. The Memorial Day weekend holiday usually marks the beginning of the season, with gasoline demand already seen picking up in the world’s biggest fuel consumer. 

(Peter Nurse, Ambar Warrick contributed to this article.)

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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