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Commodities

U.S. crude oil hits year high, stoking inflation fears

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U.S. crude oil hits year high, stoking inflation fears
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The U.S. benchmark has achieved a record high for the year, with prices exceeding $90 per barrel on Friday, September 15, 2023. This increase accompanies a notable rise in diesel costs, adding to the ongoing inflationary pressures felt by consumers. The October contract for West Texas Intermediate crude settled at $90.77 a barrel, marking the highest front-month price since November of the previous year. The primary driver behind this surge is the anticipation of supply constraints, following reports from the Organization of Petroleum Exporting Countries (OPEC) about a potential supply deficit in Q4.

Earlier this week, OPEC and the International Energy Agency released monthly reports predicting a global oil supply deficit in Q4. This forecast comes after Saudi Arabia and Russia decided to extend their voluntary crude production cuts until the end of the year.

High oil prices can impact various sectors of the economy, reminiscent of the effects seen in March and April last year after the onset of the Russia-Ukraine war in February 2022. Despite this historical precedent, experts suggest that this time around, the effects might not be as severe.

Inflation escalated to 3.7% in August, surpassing the Federal Reserve’s target rate of 2%. This spike in oil prices could challenge expectations of inflation returning to target levels. Consumers are already shouldering higher energy costs due to rising gasoline prices. On Friday, regular gasoline averaged $3.835 a gallon, an increase from $3.808 a week ago and up 15.4 cents from a year ago.

However, gasoline prices might ease towards the end of this year due to cheaper components that refiners and blenders can incorporate into motor fuel. Most U.S. states transitioned to higher Reid vapor pressure gasoline on Friday, moving away from summer-grade fuels and allowing for the inclusion of less expensive components like butane, naphtha, and natural gasoline in finished motor fuel.

Despite this transition, current U.S. fuel prices at the pump are over $1 a gallon higher than when domestic crude oil first surpassed $90 in the fall of 2007. This increase is largely attributed to significantly higher refinery margins and increased profits for gasoline distributors and retailers.

Diesel prices have also seen a significant rise, with average retail prices reaching $4.5515 a gallon on Friday, the highest since February. These rising costs have broad economic implications, affecting not only the price of manufactured goods but also food prices. These rising costs were a significant factor in driving wholesale inflation higher in August.

In addition to oil and diesel, the cost of jet fuel has also risen due to increasing labor costs, pushing airfares higher in Q3. While travel demand remains robust for now, it may fluctuate in Q4.

By year-end, Saudi Arabia is expected to have withheld more than 180 million barrels of oil from the global market since July. This figure is comparable to the volume that the U.S. released from its Strategic Petroleum Reserve following Russia’s invasion of Ukraine in 2022.

As we move into Q4, there are three potential tailwinds for oil: increased demand from China, a stronger U.S. dollar, and weather-related demand spikes. If these factors align, oil prices could continue their upward trend, exerting further pressure on inflation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Commodities

Oil prices dip on US interest rate jitters, Middle East uncertainty

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Investing.com– Oil prices fell Tuesday on concerns high U.S. interest rates will eat into demand this year, amid continued uncertainty in the Middle East. 

At 08:15 ET (12:15 GMT),  fell 1.8% to $82.17 a barrel, while fell 1.9% to $77.77 a barrel. 

US rate fears cloud demand outlook 

Fears of high-for-longer U.S. rates were a key point of pressure for crude markets, after a string of Fed officials warned of such a scenario amid sticky inflation.

Vice Chair Philip Jefferson said on Monday that it was too early to tell if the slowdown is “long lasting,” and Vice Chair Michael Barr noted that restrictive policy needs more time, dulling hopes for early cuts.

There are more Fed speakers to digest Tuesday, including Barr once more, as well as FOMC members Thomas Barkin, John Williams and Raphael Bostic, ahead of the release of the  of the Fed’s late-April meeting on Wednesday.

High rates are expected to dull activity in the largest economy in the world, likely hitting crude demand, while also limiting money for investment and economic growth, which usually support oil demand. 

The International Energy Agency last week trimmed its outlook for crude demand this year, citing concerns over weaker economic conditions due to pressure from interest rates. 

On the flip side, the Organization of Petroleum Exporting Countries maintained its demand forecast, citing strength in top exporter China. 

China has been a point of confidence for oil demand, especially as Beijing rolled out a string of stimulus measures in recent weeks to support growth. 

Political uncertainty in Middle East

Iranian President Ebrahim Raisi, who was seen as a successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash over the weekend, while there are concerns over the health of Saudi King Salman bin Abdulaziz after Crown Prince Mohammed Bin Salman deferred a trip to Japan.

While these events have not had an impact on supplies yet, they have created a degree of political uncertainty in two major oil-producing countries.

OPEC meeting awaited for more cues

Oil markets were also awaiting an in June, where the cartel, along with its allies including Russia, will discuss output policy, including whether to extend the voluntary supply cuts of 2.2 million barrels per day from mainly Saudi Arabia.

The group, known as OPEC+, could well extend some voluntary cuts past their initial June-end deadline if demand fails to pick up.

“As the market waits for clarity from OPEC+ on its output policy for the second half of the year, there are some signs of weakness in the market,” said analysts at ING, in a note.

“Refinery margins have been trending lower for some time, raising the prospect of cuts in refinery runs, particularly in Asia. In addition, the physical crude market is also weaker.” 

(Ambar Warrick contributed to this article.)

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Commodities

Copper prices hit record highs, here’s what Morgan Stanely sees as a bull case

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Investing.com– Copper prices are set to see some near-term volatility after surging to record highs in recent sessions, Morgan Stanley analysts said in a note, although the red metal is still expected to push higher this year. 

A mix of strong demand-supply fundamentals and outsized speculative trading drove stellar gains in over the past few sessions, putting prices at lifetime highs.

Bulls expect copper demand to increase in the coming months amid a greater global push into green energy and electrification, and that copper mines will be unable to meet this increased demand.

This notion was a key driver of copper gains, and also triggered a short squeeze on the Comex, which furthered copper’s rally. on the London Metal Exchange hit a record high of $11,101.50 a ton on Monday. 

But copper prices fell sharply from these records on Tuesday, with MS analysts stating that the red metal was set for some near-term volatility after the abrupt gains. 

Still, they expect the red metal to rally further in 2024, and presented a bull case of $13,125 a ton for LME copper, along with a base case of $10,500 a ton. 

MS analysts said the physical copper market was likely tighter than initially anticipated, especially amid low U.S. inventory and staggered China shipping. 

The growing popularity of artificial intelligence, and the industry’s large energy requirement is also expected to drive up copper demand. Copper plays a key role in electricity transmission infrastructure. 

“We remain bullish on copper as persistent supply challenges widen our deficit for 2024,which looks set to persist into 2025. Demand and narrative tailwinds from data centres/AI should also boost participation, with long positioning rising,” MS analysts wrote in a note.

China is the world’s biggest copper importer, and is expected to see an economic rebound in 2024 on sustained stimulus support from Beijing. Such a scenario is expected to push up the country’s appetite for copper, although weakness in the property market may limit its demand. 

 

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Gold prices fall from record highs as rate fears persist; copper retreats

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Investing.com– Gold prices fell in Asian trade on Tuesday, retreating from record highs as some easing uncertainty over Iran cooled safe haven demand for the yellow metal, while pressure from concerns over U.S. interest rates persisted. 

Among industrial metals, a rally in copper, to record highs, also reversed course on Tuesday amid some profit-taking, and as traders gauged just how much potential the red metal had this year. 

Gold surged to a record high on Monday, benefiting from increased safe haven demand as traders feared some geopolitical instability in the Middle East after Iran’s President was killed in a helicopter crash. But the immediate impact of his death remained unclear. 

fell 0.5% to $2,413.77 an ounce, while expiring in June fell 0.9% to $2,416.75 an ounce by 00:59 ET (04:59 GMT). Spot gold hit a record high of nearly $2,450 on Monday. 

Gold stalls as safe haven demand ebbs, rate fears persist

The lack of any major instability in the Middle East sapped safe haven demand for gold, leaving it more vulnerable to concerns over U.S. interest rates.

A string of Federal Reserve officials warned on Monday that the central bank needed much more convincing that inflation was easing before it could begin trimming interest rates. The central bank is likely to keep rates high for longer.

The firmed as markets now positioned for the of the Fed’s late-April meeting, due Wednesday, which in turn pressured broader metal prices and cut short a rally in prices.

High-for-long interest rates diminish the appeal of non-yielding assets such as gold by increasing the opportunity cost of investing in them.

Other precious metals also sank on Tuesday. fell 1.6% to $1,042.60 an ounce, while fell 2.5% to $31.628 an ounce. But both metals retained a bulk of their gains made through the past few sessions.

Copper comes off record highs

Copper prices retreated sharply from record highs made on Monday, as investors stepped back to see just how much potential the red metal had this year. 

Copper’s recent rally was sparked chiefly by a speculative frenzy over a potential supply deficit of the red metal, which in turn had caused a short squeeze on the Comex exchange and triggered even more gains. 

But these gains were seen cooling on Tuesday, with focus on whether copper shipments could be sourced in time to meet immediate demand. 

on the London Metal Exchange fell 1.3% to $10,825.0 a ton, after hitting a record high above $11,100 on Monday.

fell 1.1% to $5.0510 a pound, also retreating from record highs. 

 

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