Commodities
Oil tumbles on risk aversion as Q4 starts; bulls look to OPEC
© Reuters.
Investing.com – No market operates in a vacuum — including oil, no matter what the proponents of higher crude prices think.
Worries that inflation will rear its ugly head again to suppress demand in almost everything set off a wave of risk aversion on Monday that handed global markets an ominous start to the fourth quarter.
The surge to a new 10-month high added to the weight of commodities denominated in the U.S. currency. The dollar shot up as a number of policy-makers at the Federal Reserve hinted on Tuesday at another rate hike in either November or December to keep under control and nearer to the central bank’s 2% per annum target from a current 3.7%.
On the crude oil front, New York-traded West Texas Intermediate, or WTI, and London’s Brent fell about 2% each, extending losses from Friday. The two crude benchmarks had risen nearly 30% in the third quarter, threatening a new round of chaos to economies in non-oil producing countries.
While September manufacturing data, via the , improved in both the United States and Europe, economists saw that as more of a work-off on inventories of raw materials in hold. The concern is how the global economy would fare for the rest of 2023 if energy prices continue rising without control, adding an onerous burden to overheads.
“The damage that can be done to the economy by high oil prices is very real and it’s completely delusional to think this is acceptable for the bulk of the world which does not produce oil but instead consumes it,” said John Kilduff, partner at New York energy hedge fund Again Capital.
for delivery in November settled at $88.82 — below the key $90 per barrel mark — after sliding $1.97, or 2.2%, on the day. The U.S. crude benchmark hit a three-week low of $88.47 earlier.
for the most-active December contract settled at $90.71, down $1.49 cents or 1.6%. The global crude benchmark plunged to $90.36 earlier.
On the brighter side of oil, OPEC+, the 23-nation alliance of oil producers, is to meet on Wednesday. The proponents of higher crude prices are counting on OPEC+ — which groups the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 independent oil producers steered by Russia — to reignite the upward momentum held by the market over the past four months.
But sources within OPEC+, speaking privately to media, said the alliance is unlikely to tweak production targets for November and December.
The Saudis and Russians pledged last month to cut at least 1.3 million barrels per day of their regular production until the end of the year, in what many believe was a bid to bring crude back to $100 a barrel or more. U.S. crude went from lows of beneath $64 a barrel in May to above $95 in September, while global benchmark rallied from below $72 to above $97 in the same span.
At the same time, OPEC+ may have paid a different “price” for such action.
Asia’s crude oil imports slipped for a second consecutive month in September as refinery maintenance trimmed demand and the impact of higher prices started to weigh, Reuters reported, citing LSEG data.
The world’s top importing region saw arrivals of 24.95 million barrels per day in September, down from August’s 25.22 million, according to LSEG.
Saudi Arabia and Russia are also anticipating an array of different challenges for the October-December stretch that could make a repeat of their third-quarter market performance difficult.
Notwithstanding the view that OPEC+ might not make changes to its production, pressure appears to be building on the Saudis and Russians to ease back on some of their output cuts in order to have adequate oil for cargoes scheduled for year-end delivery.
There is also the notion, especially among the Saudis, that they need to protect market share for their oil with the current high prices for a barrel that expose them to risk of under-cutting by their allies, including the Russians.
Already, India’s imports of Saudi oil were at below 500,000 barrels per day in September — the lowest in almost a decade.
Mixed Chinese data
On China, ING’s energy analysts observed in a note that while Chinese manufacturing PMI returned to expansion territory in September for the first time since March, “the Saudis have said that there is still concern over Chinese demand”.
Official data on Saturday showed that China’s factory activity expanded for the first time in six months in September, adding to a run of indicators suggesting the world’s second-largest economy has begun to stabilize.
However, a private-sector survey on Sunday was less encouraging, showing the country’s factory activity expanded at a slower pace in September.
Indeed, a durable recovery in China’s economy is being delayed by a property slump, falling exports and high youth unemployment, raising fears of weaker fuel demand.
Saudis might need to produce more oil, not less
Thus, the Saudis might need to produce more in October — not the same of what they pumped in September and certainly not less — to keep China, India and other important customers happy.
In fact, crude shipments from Saudi ports likely rose between 300,000 and 400,000 barrels per day last month from August — despite their so-called “lollypop cut” of one million barrels per day — OilPrice.com noted in a roundup of market intelligence gathered from various sources.
And the trend could continue, it said.
The Saudis have also been quite restrained in adding to the Official Selling Price, or OSP, of their crude despite Brent’s runaway rally, that market roundup showed. Saudi Arabia’s medium sour crude grades were hiked by $0.10 per barrel each, moving Arab Light to a $3.60 per barrel premium vs Oman/Dubai. The only Saudi crude grade that saw a notable increase in October was Arab Super Light, a very rare condensate-like grade that sees 1-2 cargoes per month, which rose by $0.50 per barrel.
“In an environment like this, Saudi Arabia’s national oil company Saudi Aramco (TADAWUL:) was expected to hike Asian prices by a solid margin,” the OilPrice roundup said. “Surprisingly, the anticipated OSP increase did not happen.”
“Overall, the lack of pricing ambition reflected wider worries about the health of Chinese demand into the remaining months of 2023, as well as significantly lower Indian nominations lately.”
To Moscow’s benefit, India has begun buying Russian urals crude at around $80 per barrel — markedly higher than the $60 price cap set by the G7, but still lower than the flat price of Brent.
But Russia, which has committed to the Saudi production squeeze plan by announcing a 300,000-barrel per day cut of its own, is also under pressure to keep up with deliveries promised to customers.
Russia seen rolling back on fuel export ban
Moscow recently eased its separate ban on fuel exports introduced to stabilize the domestic market. Analysts do not expect those restrictions to stay for long because they may hit refinery runs and impact relations with customers.
Turkey, Brazil, Morocco, Tunisia and Saudi Arabia were among the main destinations for Russian diesel this year, JPMorgan said in a note.
“(A) protracted export ban would negatively impact the relationship with the new customers that Russian oil companies have so painstakingly built over the last year and a half,” according to JPMorgan.
Even so, Russia has not discussed a possible crude oil supply increase to compensate for Moscow’s fuel exports ban with OPEC+, the Kremlin has said.
That communication might be made directly when the Russians and Saudis hold talks at Wednesday’s OPEC+ meeting.
After having psyched the trade into believing their production cuts could go on indefinitely and against market reality, it would be important for neither side not to publicly admit anything to the contrary and work instead in keeping up the narrative they have created.
By Anna Hirtenstein
LONDON (Reuters) -Oil prices surged on Friday and were on track for a third straight week of gains as traders focused on potential supply disruptions from more sanctions on Russia and Iran.
futures gained $2.66, or 3.5%, to $79.58 a barrel by 1154 GMT, reaching their highest in more than three months. U.S. West Texas Intermediate crude futures advanced $2.64, or 3.6%, to $76.56.
Over the three weeks to Jan. 10, Brent has climbed 9% while WTI has jumped 10%.
“There are several drivers today. Longer term, the market is focused on the prospect for additional sanctions,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Short term, the weather is very cold across the U.S., driving up demand for fuels.”
Ahead of U.S. President-elect Donald Trump’s inauguration on Jan. 20, expectations are mounting over potential supply disruptions from tighter sanctions against Iran and Russia while oil stockpiles remain low.
This could materialise even earlier, with U.S. President Joe Biden expected to announce new sanctions targeting Russia’s economy before Trump takes office. A key target of sanctions so far has been Russia’s oil and shipping industry.
“That would be the farewell gift of the Biden administration,” said PVM analyst Tamas Varga. Existing and possible further sanctions, as well as market expectations of draws on fuel inventories because of the cold weather, are driving prices higher, he added.
The U.S. weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and are likely to continue to experience a colder than usual start to the year, which JPMorgan analysts expect to boost demand.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for , kerosene and LPG,” they said in a note on Friday.
Meanwhile, the premium on the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.
Inflation worries are also delivering a boost to prices, said Saxo Bank’s Hansen. Investors are growing concerned about Trump’s planned tariffs, which could drive inflation higher. A popular trade to hedge against rising consumer prices is through buying oil futures.
Oil prices have rallied despite the U.S. dollar strengthening for six straight weeks, making crude oil more expensive outside the United States.
By Karen Braun
NAPERVILLE, Illinois (Reuters) -If anything can derail a price rally, it is a curveball from the U.S. Department of Agriculture.
Chicago corn futures have ticked slightly lower to start the year, but they had climbed nearly 12% in the final two months of 2024, an unusually strong late-year run.
Speculators now hold their most bullish corn view in two years, and luckily for them, the trade has already accepted that last year’s U.S. corn yield was a whopper.
Friday will feature USDA’s biggest data release of the year, with primary focus on the most recent U.S. corn and soybean harvests. U.S. quarterly stocks, U.S. winter wheat seedings and routine global supply and demand updates will also compete for attention.
U.S. CORN AND BEANS
On average, analysts peg U.S. corn yield at 182.7 bushels per acre, down from 183.1 in November. The trade estimate is more than 5 bushels above last year’s record and above USDA’s initial trendline yield for the first time in six years.
Bearish yield outcomes are less likely when the estimates are already large, and only four of 19 polled analysts see corn yield rising from November. However, the range of trade estimates (2.4 bpa) is smaller than usual, flagging the potential for surprise.
In the last decade, analysts anticipated the wrong direction of U.S. corn yield in January only once (2019). They did so three times for soybean yield (2016, 2019, 2022).
But bets are somewhat off for U.S. soybean yield outcomes because USDA’s slashing of the forecast in November was the month’s largest cut in 31 years. Trade estimates indicate some uncertainty around U.S. soybean production as the ranges for both yield and harvested area are historically wide.
Regardless, U.S. soybean supplies are expected to remain ample and at multi-year highs. However, USDA last month pegged 2024-25 U.S. corn ending stocks below the prior year’s level for the first time.
If USDA cuts U.S. corn ending stocks on Friday as expected, it would be the agency’s seventh consecutive monthly reduction. Such a streak has not been observed in at least two decades, reflective of the strong demand that has recently lifted corn prices.
From a market reaction standpoint, these demand dynamics could be somewhat insulating if the U.S. corn crop comes in larger than expected. The last two times CBOT corn had a distinctly negative reaction on January report day were 2012 and 2024, the latter sparked by a huge yield above all trade estimates.
U.S. WHEAT
USDA will not officially issue 2025-26 outlooks until May, but the wheat market will receive its first piece of 2025-26 U.S. crop intel on Friday with the winter wheat planting survey. Total (EPA:) U.S. winter wheat acres are pegged at 33.37 million, very close to both last year and the five-year average.
Analysts have had a rough time anticipating the planting survey in the last two years, coming in almost 1.4 million acres too high last year but lowballing by nearly 2.5 million acres in 2023.
Wheat traders have struggled to find viable bullish narratives despite wheat stocks among major exporters seen dropping to 17-year lows, so another big miss in the U.S. wheat acreage could either support or undermine the recent sentiment.
SOUTH AMERICA
The U.S. crops will probably dominate the headlines on Friday, but it is not too early to watch out for forecast changes in South America. Analysts see USDA upping Brazil’s 2024-25 soybean harvest to a record 170.28 million metric tons from the previous 169 million.
USDA has increased Brazil’s soy crop in three of the last eight Januarys, both on area and yield improvements, and many industry participants have already been factoring in a number north of 170 million tons.
For Argentina, there are already fears that ongoing dry weather could eventually warrant more significant cuts to soybean and corn crops than are anticipated for Friday. American and European weather model runs on Thursday remained stingy with the rainfall over the next two weeks.
USDA already hiked Argentina’s soybean output last month on higher area. The agency increased the crop last January but reduced it in the prior three Januarys. Current crop conditions are slightly worse than a year ago but better than in the prior three years.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
Investing.com– Oil prices steadied Thursday as traders digested data showing an unexpected increase in US product inventories, while weak economic data from top importer China weighed.
At 05:25 ET (10:25 GMT), expiring in March gained 0.1% to $76.25 a barrel, while rose 0.1% to $73.37 a barrel.
The crude benchmarks had slumped more than 1% on Wednesday, but trading ranges, and volumes, are likely to be limited throughout Thursday with the US market closed to honor former President Jimmy Carter, ahead of a state funeral later in the session.
China inflation muted in December
Chinese inflation, as measured by the , remained unchanged in December, while the shrank for a 27th consecutive month, data showed on Thursday.
The reading pointed to limited improvement in China’s prolonged disinflationary trend, even as the government doled out its most aggressive round of stimulus measures yet through late-2024.
China is the world’s biggest oil importer, and has been a key source of anxiety for crude markets. Traders fear that weak economic growth in the country will eat into oil demand.
The country is also facing potential economic headwinds from the incoming Donald Trump administration in the US, as Trump has vowed to impose steep trade tariffs on Beijing.
US oil product inventories rise sharply
U.S. gasoline and distillate inventories grew substantially more than expected in the week to January 3, government data showed on Wednesday.
inventories grew 6.3 million barrels against expectations of 0.5 mb, while grew 6.1 mb on expectations of 0.5 mb.
Overall crude also shrank less than expected, at 0.96 mb, against expectations of 1.8 mb.
The build in product inventories marked an eighth straight week of outsized product builds, and spurred concerns that demand in the world’s biggest fuel consumer was cooling.
While cold weather in the country spurred some demand for heating, it also disrupted holiday travel in several areas.
EIA data also showed that US imports from Canada rose last week to the highest on record, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.
Canada has been the top source of U.S. oil imports for many years, and supplied more than half of the total U.S. crude imports in 2023.
Strength in the also weighed on crude prices, as the greenback shot back up to more than two-year highs on hawkish signals from the Federal Reserve.
A strong dollar pressures oil demand by making crude more expensive for international buyers.
(Ambar Warrick contributed to this article.)
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