Tag: Commodity markets

Chevron and Exxon’s latest buys could usher in a new era of oil megamergers

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Marathon Petroleum’s oil refinery in Anacortes, Washington.

David Ryder | Reuters

Energy heavyweights Chevron and Exxon Mobil announced shiny new acquisitions this month — and some industry watchers say it could be the start of more multibillion megadeals to come.

Chevron on Monday said it’s buying Hess for $53 billion in stock, allowing Chevron to take a 30% stake in Guyana’s Stabroek Block — estimated to hold some 11 billion barrels of oil.

The announcement comes just weeks after Exxon Mobil announced its purchase of shale rival Pioneer Natural Resources for $59.5 billion in an all-stock deal. While this marks Exxon’s largest deal since its acquisition of Mobil, the merger would also double the oil giant’s production volume in the largest U.S. oilfield, the Permian Basin.

“The big-money acquisition of Hess by Chevron accelerates the trend of consolidation and big-money deals,” energy consultancy Rystad Energy said in a note.

Although Chevron’s acquisition is the continuation of a story started by the Exxon-Pioneer deal, its motivation and impact is slightly different, the note stated.

Exxon is zoning in on its core operations in the Permian basin, while Chevron has decided to expand into where it does not yet have existing assets: Guyana and the Bakken shale.

These megadeals are just a prelude to this large investment wave I expect in coming years.

Bob McNally

President of Rapidan Energy Group

Kpler’s economist Reid I’Anson said the Exxon-Pioneer deal is “likely a bit less risky” compared to the Chevron-Hess deal.

Exxon will see more immediate returns and Pioneer alone would add 711,000 barrels per day, he said comparing it to just 386,000 barrels per day from Hess.

“However, the Chevron acquisition likely has more upside given the future production growth potential out of Guyana,” he noted.

That said, both Exxon and Chevron’s megadeals are indicative of a larger, overarching ambition.

The two oil giants plan to continue pumping investments into fossil fuels as demand for crude remains strong, especially amid tightening global supplies fueled by years of chronic underinvestment.

Consolidation has been a focus in the North American shale space in the past year, especially in the Permian basin where larger exploration and production (E&Ps) have “swallowed up” smaller operations in the bid to bolster drilling inventories and boost free cash flow, Rystad’s senior shale analyst Matthew Bernstein told CNBC.

Silhouette of Permian Basin pumpjacks taken at dusk, north of Midland, Texas, U.S. in late 2019.

Richard Eden | via Getty Images

The upstream segment of the oil and gas industry refers to the exploration for oil or gas deposits, as well as extraction and production of those materials.

The Permian basin is a shale patch that sits between Texas and Mexico, which saw a slew of deals this year.

“These megadeals are just a prelude to this large investment wave I expect in coming years,” Bob McNally, president of Rapidan Energy Group, told CNBC via email. With Exxon deepening its presence in the U.S. shale sector, and Chevron’s eyes on Guyana, the two deals will instill more confidence in the wider oil industry to overcome any hesitation and invest in oil and gas, McNally continued.

“These deals signify the shift from a multi-year bust phase in oil that began in 2014 to a multi-year boom phase that should last well through this decade,” he forecasts.

No peak demand for oil just yet?

The deals by the two largest publicly traded major oil companies appear to confirm that crude oil demand will remain strong over the long term, said Andrew Woods, Mintec’s industrial analyst.

Dan Pickering, founder of Pickering Energy Partners, echoed similar sentiments, saying that both energy behemoths believe oil demand has not yet peaked.

On Tuesday, the International Energy Agency reported that demand for oil, coal and natural gas is set to peak before the end of the decade, on the back of rising clean energy technologies.

Oil prices year-to-date

A peak in oil demand refers to the point in time when the highest level of global crude demand is reached, in which a permanent decline would then follow. This would theoretically decrease the need for investments in crude oil projects as other energy sources take precedence.

“We are clearly entering into a period of consolidation,” Pickering said, adding it is not just megadeals that the oil industry will be seeing, but also many “merger-of-equals” amongst small or mid-sized companies with market capitalizations between $3 billion to $30 billion.

Pickering said investors currently do not want volume growth, but prefer capital discipline — a shift from focusing on production volume to a focus on financial value.

“Instead of drilling to grow production or cash flow, companies are now combining to gain scale, lower costs and grow earnings and cash flow without meaningful incremental volumes,” he said.

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October 27, 2023
Here’s what the Israel-Hamas war has done to U.S. gasoline and diesel prices

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Fuel prices, with the cost of gasoline and diesel at the pump both down from a month ago, don’t appear to be fazed by the escalating risks to oil supplies in the Middle East from the Israel-Hamas war, but they are.

The decline in fuel prices seen nationally is actually a “bit above what would be ‘normal’ for this time of year,” said Patrick De Haan, head of petroleum analysis at GasBuddy. However, he believes “prices won’t fall as far as they would have had the attacks on Israel not happened.”

On Friday, the average retail price for a gallon of regular gasoline stood at $3.528, down 5.7 cents from a week ago, while the average retail diesel price was at $4.465 a gallon on Friday, down 7.8 cents from Sept. 30, according to data from GasBuddy.

U.S. retail gasoline prices have fallen so far this month.

GasBuddy

“Geopolitical risk is now heightened, changing the calculus” for the fuel market, said Brian Milne, product manager, editor and analyst at DTN.

‘Seasonal component’

In considering retail gasoline prices during the fourth quarter, the “seasonal component is less pronounced than in years past,” said Milne. Demand for gasoline tends to fall following the summer travel season. Combined with a “strong slate of refinery maintenance,” which led to less fuel supply on the market, the rise in crude oil prices has slowed the decline in fuel prices, said Milne.

If not for the heightened geopolitical risk in the Middle East, he said he might have expected to see gasoline prices decline by another 30 cents to 40 cents per gallon into late December because of lower demand.

Retail gas prices may fall another 20 cents a gallon or more, depending on the location within the U.S., if we avoid broader hostilities in the Middle East, said Milne.

However, if a conflict breaks out beyond Israel and the Gaza Strip, gasoline prices are likely to move sharply higher because of a spike in crude costs, he said.

For its part, oil has seen volatile trading following the Hamas attack on Israel on Oct. 7, with futures prices for U.S. benchmark West Texas Intermediate crude
CLZ23,
-0.42%

CL.1,
-0.39%
higher for the week, but lower for the month.

California prices ‘plummet’

For now, California, which typically is among the states that pays the most per-gallon for gasoline partly due to taxes on the fuel, is seeing prices “plummet” — down nearly 60 cents in the last three weeks, said GasBuddy’s De Haan.

“The West Coast is certainly seeing a much larger decline than is ‘normal’ and it’s due to the refinery situation now improving drastically,” as well as California’s RVP waiver, he said.

The California Air Resources Board allowed gasoline sold or supplied for use in California that exceeds the RVP, or Reid Vapor Pressure, limits through the end of Oct. 31, marking an early transition for the state from the lower RVP gas used in the summer to help cut gasoline emissions to the higher RVP gas used in the winter.

On Friday, the average price for a gallon of regular gasoline in California sold for $5.476, GasBuddy data show. That’s down 16.7 cents in just the last week.

Gas price outlook

De Haan said he does not expect to see a spike in gas prices nationally at this point, and there’s still room for prices to fall — just not as much following the Hamas attack on Israel.

“If we get to November and Iran gets involved in the situation, then we certainly could see gas prices impacted in some way as the current drops will likely be fully passed on by then, giving stations no ‘room’ to absorb higher prices reflected by a potential rise in oil,” said De Haan.

Still, falling demand, as well as “seasonality in general,” are what are pushing prices down, “enhanced by refinery improvements in areas” that saw price surges, he said.

Prices may even fall further after refinery maintenance season wraps up in mid-November, and refiners have to find places to put even more gasoline output, said De Haan.

He’s comfortable with the gasoline price forecasts GasBuddy issued in December of last year, which predicted a monthly national average for the fuel of $3.53 for October — matching the current price. The forecast also called for an average of $3.36 a gallon for November and $3.17 for December.

GasBuddy doesn’t have a forecast for 2024 yet, but prices may look similar to this year, as long as the situation in the Middle East doesn’t further crumble,” said De Haan.

View on diesel

Diesel, however, is another story.

Price for that fuel have dropped by 85.5 cents a gallon from a year ago to Friday’s $4.465 level, GasBuddy data show.

U.S. retail diesel prices are sharply lower than a year ago.

GasBuddy

While down from a year ago, diesel prices are currently at a “very high level historically” because global supply is low, said DTN’s Milne.

At this time in 2022 diesel fuel inventory was even tighter than it is now, and Europe was heading into winter without Russian natural gas after it was cutoff following the invasion of Ukraine, he said.

That led to a spike in natural-gas prices and prices for gasoil, a European heating oil, also surged, lifting heating oil and diesel prices globally, explained Milne.

Like gasoline, diesel prices could move “sharply higher if the war in Israel expands, and oil flow is put at greater risk,” he said.

De Haan, meanwhile, said diesel prices could climb closer to $5 a gallon if there’s a “squeeze,” with relief then [coming] in the spring/summer” seasons.

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October 20, 2023
Latest News – MarketWatch

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U.K. retail sales fell 0.9%, more than expected in September

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October 19, 2023
Latest News – MarketWatch

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U.K. retail sales fell 0.9% in September vs. expectations for 0.4% drop

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October 19, 2023
Dow Jones ekes out gain Friday, stocks mostly advance for the week as Israel-Gaza war escalates

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U.S. stocks closed mostly lower Friday, but the Dow Jones and S&P 500 posted weekly gains, as the Israel-Gaza war appeared to escalate heading into the weekend. The Dow Jones Industries
DJIA,
+0.12%
rose about 39 points, or 0.1%, on Friday, ending near 33,670, according to preliminary FactSet data. The S&P 500 index
SPX,
-0.50%
fell 0.5% and the Nasdaq Composite Index
COMP,
-1.23%
closed 1.2% lower. The S&P 500’s energy segment outperformed Friday, gaining 2.3%, as U.S. benchmark crude surged nearly 6% after Israel ordered more than a million people in Gaza to evacuate to the south. Treasury yields fell, with the 10-year Treasury
TMUBMUSD10Y,
4.626%
rate retreating to 4.628% Friday, snapping a 5-week yield climb, according to Dow Jones Market Data. Bond prices and yields move in the opposite direction. Investors bought other haven assets too, including gold
GC00,
+0.23%
and the U.S. dollar
DXY,
+0.07%.
Wall Street’s “fear gauge”
VIX,
+15.76%
also touched its highest level in more than a week. Even so, the Dow Jones booked at 0.8% weekly gain, the S&P 500 advanced 0.5% and the Nasdaq fell 0.2%.

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October 13, 2023
Why uranium prices have climbed to their highest in over a decade

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Uranium prices have reached their highest level in more than a decade as a global supply shortage persists, with the bull market for uranium investments still in its “earliest days.”

The market is “definitely in a structural deficit as demand is growing at a 5% annual rate and the current (2023) gap between global production and consumption remains at over 50 million pounds,” Scott Melbye, executive vice president at mining company Uranium Energy Corp.
UEC,
+0.78%,
told MarketWatch.

Weekly spot uranium prices stood at $72.75 a pound as of Oct. 2, the highest since February 2011, according to data from nuclear-fuel consulting firm UxC, and were last at $69 as of Oct. 9. Weekly prices have climbed nearly 45% since the end of last year.

Weekly prices for uranium have climbed around 45% year to date, data from UxC show.

UxC

In late August, Jonathan Hinze, president at UxC, told MarketWatch that the market was seeing the “best set up for nuclear power expansion” that he’d ever seen. That observation still holds, he said.

It is clear that the uranium supply/demand balance remains “extremely tight, and it will likely only get tighter” in the coming 12 to 24 months as demand continues to rise, “while new supplies are taking more time to materialize, and inventories keep getting drawn down,” he said.

Read: Uranium prices are still ‘nowhere near the peak of the last cycle’: Here’s why nuclear energy ETFs could power your portfolio

Since late August, financial players, including hedge and publicly traded funds active in uranium, have been quite active buying additional uranium off the spot market, said Hinze. These funds “clearly believe that prices are set to rise further, and investors are therefore adding money to their coffers to allow them to buy physical uranium.”

This is demand that isn’t fully anticipated in the market and this has added to the overall positive demand picture, he said.

Price pullback

Still, Melbye pointed out that uranium prices have pulled back a bit more recently as some traders took some “very handsome profits on their accumulated long positions.”

That pullback may have also come as an “overreaction,” he said, to news from Kazakhstan, which produced the world’s largest share of uranium from mines in 2022, according to the World Nuclear Association. Kazatomprom, Kazakhstan’s national operator for the export and import of uranium, announced in late September a return to full production in 2025 to meet global nuclear energy demand.

Melbye believes there was an overreaction in uranium prices because “this will ultimately have little impact on Western supply and demand as most analysts had them producing close to those levels by that time in their forecasts.”

Even with that production assumption, the market is “still dramatically undersupplied,” and based on Melbye’s estimation, requires eight to 10 new mines starting up globally by 2030, he said.

And while uranium has been among the best performing commodities year to date, it has only recently reached the level which “incentivizes the world’s best mines,” he said.

This bull market in uranium investments is “still in its earliest days,” said Melbye.

Among the exchange-traded funds, the Global X Uranium ETF
URA
has gained more than 25% on the year through Friday afternoon, while the Sprott Uranium Miners ETF
URNM
has added almost 36%. The Sprott Physical Uranium Trust
SRUUF,
a closed-end fund, trades nearly 39% higher.

Broader new mine developments with significant capital investments in an inflationary environment require higher prices to move ahead, Melbye said. “Even at those levels, the long lead times needed to achieve these necessary start ups could leave the market in a short squeeze for several years.”

The recent spot market move lower in prices marks a “temporary pause, and not a peak,” he said. “Buyers should be active on this welcome dip.”

Supply ‘challenges’

Contributing to supply concerns, a July coup has disrupted mining operations in the country of Niger in West Africa. Niger produced just over 4% of the world’s uranium in 2022, according to World Nuclear News.

The coup caused borders to close, and major uranium mine and mill operation called Somair has been halted, said UxC’s Hinze. The mine, operated by the French company Orano, sells most of uranium to customers in Europe, he said.

Meanwhile, Cameco Corp.
CCJ,
+0.64%,
one of the world’s largest providers of uranium, said it’s encountered challenges at its mine and milling operation in Canada. The company now expects to produce nearly 3 million pounds of uranium concentrate less this year than previously anticipated, said Hinze.

“These production challenges add to the overall view that the supply/demand balance is very tight and will get even tighter,” he said.

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October 13, 2023
China’s exports and imports sink in September as global demand falters

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China has reported its exports and imports both fell in September from a year earlier as global demand remained muted

ByZEN SOO AP business writer

October 12, 2023, 11:49 PM

FILE – New cars wait to be transported on a dockyard in Yantai in eastern China’s Shandong province on Aug. 6, 2023. China’s exports and imports both fell in September from a year earlier, though they contracted at a slower pace even as global demand remained muted, according to customs data released Friday, Oct. 23, 2023. (Chinatopix via AP, File)

The Associated Press

HONG KONG — China’s exports and imports both fell in September from a year earlier, though they contracted at a slower pace than the month before even as global demand remained muted.

Customs data released Friday showed exports for September slid 6.2% to $299.13 billion in the fifth straight month of decline. Imports also slid 6.2%, to $221.43 billion.

China posted a trade surplus of $77.71 billion, up from $68.36 billion in August.

Lu Daliang, spokesperson of the General Administration of Customs, said in a press conference Friday in Beijing that the unstable momentum of the global economy’s recovery from the pandemic was the biggest challenge facing China’s exports.

China’s economy has declined at a slower pace after leaders enacted a slew of policy support measures in recent months. However, property sector remains a drag on the economy, with sales slumping and developers struggling to repay massive amounts of debt.

The central bank has eased borrowing rules and and cut mortgage rates for first-time home buyers while providing some tax relief measures for small businesses.

Demand for Chinese exports weakened after the Federal Reserve and central banks in Europe and Asia began raising interest rates last year to cool inflation that was at multi-decade highs.

Exports to the U.S. tumbled 16.4% from a year earlier while those to the European Union declined nearly 11%.

“Measures of foreign orders point to a more substantial decline in foreign demand than what has been reflected in the customs data so far,” Zichun Huang, a China economist with Capital Economics said in a note. “And the lagged impact of higher interest rates is likely to dampen consumer spending in major export markets over the next few quarters.”

However, he said imports are likely to pick up in the coming months as increased spending on construction rises, driving higher demand for building materials and other commodities.

China’s imports from Russia, mostly oil and gas, increased 12.7% in September from a year earlier to $11.53 billion.

Chinese purchases of Russian energy have swelled, helping to offset revenue lost to Western sanctions imposed to punish the Kremlin for its invasion of Ukraine.

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October 13, 2023
China’s exports and imports sink in September as global demand falters

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China has reported its exports and imports both fell in September from a year earlier as global demand remained muted

ByZEN SOO AP business writer

October 12, 2023, 11:49 PM

FILE – New cars wait to be transported on a dockyard in Yantai in eastern China’s Shandong province on Aug. 6, 2023. China’s exports and imports both fell in September from a year earlier, though they contracted at a slower pace even as global demand remained muted, according to customs data released Friday, Oct. 23, 2023. (Chinatopix via AP, File)

The Associated Press

HONG KONG — China’s exports and imports both fell in September from a year earlier, though they contracted at a slower pace than the month before even as global demand remained muted.

Customs data released Friday showed exports for September slid 6.2% to $299.13 billion in the fifth straight month of decline. Imports also slid 6.2%, to $221.43 billion.

China posted a trade surplus of $77.71 billion, up from $68.36 billion in August.

Lu Daliang, spokesperson of the General Administration of Customs, said in a press conference Friday in Beijing that the unstable momentum of the global economy’s recovery from the pandemic was the biggest challenge facing China’s exports.

China’s economy has declined at a slower pace after leaders enacted a slew of policy support measures in recent months. However, property sector remains a drag on the economy, with sales slumping and developers struggling to repay massive amounts of debt.

The central bank has eased borrowing rules and and cut mortgage rates for first-time home buyers while providing some tax relief measures for small businesses.

Demand for Chinese exports weakened after the Federal Reserve and central banks in Europe and Asia began raising interest rates last year to cool inflation that was at multi-decade highs.

Exports to the U.S. tumbled 16.4% from a year earlier while those to the European Union declined nearly 11%.

“Measures of foreign orders point to a more substantial decline in foreign demand than what has been reflected in the customs data so far,” Zichun Huang, a China economist with Capital Economics said in a note. “And the lagged impact of higher interest rates is likely to dampen consumer spending in major export markets over the next few quarters.”

However, he said imports are likely to pick up in the coming months as increased spending on construction rises, driving higher demand for building materials and other commodities.

China’s imports from Russia, mostly oil and gas, increased 12.7% in September from a year earlier to $11.53 billion.

Chinese purchases of Russian energy have swelled, helping to offset revenue lost to Western sanctions imposed to punish the Kremlin for its invasion of Ukraine.

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October 12, 2023
The IMF sees greater chance of a ‘soft landing’ for the global economy | CNN Business

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London
CNN
—

The International Monetary Fund (IMF) sees better odds that central banks will manage to tame inflation without tipping the global economy into recession, but it warned Tuesday that growth remained weak and patchy.

The agency said it expected the world’s economy to expand by 3% this year, in line with its July forecast, as stronger-than-expected growth in the United States offset downgrades to the outlook for China and Europe. It shaved its forecast for growth in 2024 by 0.1 percentage point to 2.9%.

Echoing comments made in July, the IMF highlighted the global economy’s resilience to the twin shocks of the pandemic and the Ukraine war while warning in its World Economic Outlook that risks remained “tilted to the downside.”

“Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled,” IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post. “The global economy is limping along,” he added.

The IMF’s projections for growth and inflation are “increasingly consistent with a ‘soft landing’ scenario… especially in the United States,” Gourinchas continued.

But he cautioned that growth “remains slow and uneven,” with weaker recoveries now expected in much of Europe and China compared with predictions just three months ago.

The 20 countries using the euro are expected to grow collectively by 0.7% this year and 1.2% next year, a downgrade of 0.2 percentage points and 0.3 percentage points respectively from July.

The IMF now expects China to grow 5% this year and 4.2% in 2024, down from 5.2% and 4.5% previously.

“China’s property sector crisis could deepen, with global spillovers, particularly for commodity exporters,” it said in its report

By contrast, the United States is expected to grow more strongly this year and next than expected in July. The IMF upgraded its growth forecasts for the US economy to 2.1% in 2023 and 1.5% in 2024 — an improvement of 0.3 percentage points and 0.5 percentage points respectively.

“The strongest recovery among major economies has been in the United States,” the IMF said.

The agency expects that inflation will continue to fall — bolstering the case for a “soft landing” in major economies — but it does not expect it to return to levels targeted by central banks until 2025 in most cases.

The IMF revised its forecasts for global inflation to 6.9% this year and 5.8% next year — an increase of 0.1 percentage point and 0.6 percentage points respectively.

Commodity prices pose a “serious risk” to the inflation outlook and could become more volatile amid climate and geopolitical shocks, Gourinchas wrote.

“Food prices remain elevated and could be further disrupted by an escalation of the war in Ukraine, inflicting greater hardship on many low-income countries,” he added.

Oil prices surged Monday on concerns that the latest conflict between Israel and Hamas could cause wider instability in the oil-producing Middle East. Brent crude prices were already elevated following supply cuts by major producers Saudi Arabia and Russia.

High oil and natural gas prices, leading to skyrocketing energy costs, helped drive inflation to multi-decade highs in many economies in 2022. The latest jump in oil prices could cause a fresh bout of broader price rises.

Bond investors are already on edge. They dumped government bonds last week in the expectation that the world’s major central banks would keep interest rates “higher for longer” to bring inflation down to their targets.

The IMF also pointed to concerns that high inflation could become a self-fulfilling prophecy. If households and businesses expect prices to go on rising, that could cause them to set higher prices for their goods and services, or demand higher wages.

“Expectations that future inflation will rise could feed into current inflation rates, keeping them high,” the IMF noted.

It added that the “expectations channel is critical to whether central banks can achieve the elusive ‘soft landing’ of bringing the inflation rate down to target without a recession.”

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October 10, 2023
Will Israel-Gaza war sink stocks and shake the global economy? Watch oil prices.

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Wall Street on Monday shook off a bout of selling sparked by the Israel-Gaza war.

That’s in keeping with the historical tendency of investors to look past geopolitical conflict and human tragedy, but it isn’t necessarily the last word. That last word will likely belong to oil traders.

“Oil rallied today yet remains below the near-term peak from last month. If oil prices rise higher for longer, the global economy could feel a resurgence of inflation during a period when investors are hoping inflation is clearly decelerating,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments.

Roach also noted that, in general, markets tend to have difficulty pricing the difference between a temporary shock and a permanent shock.

For now, however, the jump in oil prices isn’t signaling a permanent shock. Sure, Brent crude
BRN00,
+0.11%,
the global benchmark, jumped 4.2% on Monday to end at $88.15 a barrel, while West Texas Intermediate crude
CL.1,
+0.07%

CL00,
+0.07%
surged $3.59, or 4.3% to $86.38 a barrel — the biggest one-day jump for both grades since April 3.

See: Here’s what Israel-Gaza war means for oil prices as fighting continues

The jump was impressive, but it comes after a big pullback last week that saw both WTI and Brent retreat from 2023 highs near $100 a barrel.

So if crude can manage to close above those highs — $93.68 a barrel for WTI — investors across other markets will likely take notice.

What would it take to drive crude back toward the highs? The focus is on Iran.

The Wall Street Journal on Sunday reported that Iranian security officials helped plan the attack by Hamas. The Israeli military has said there is no concrete evidence of Iranian involvement, according to news reports.

A direct role by Iran, a longtime ally of Hamas, would raise the threat of a broader conflict.

Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.

“If Israel discovers that Iran played a role in Hamas’ attack, it could retaliate militarily. At the very least, any warming of relations between Iran and the West is now on hold and this will limit incremental oil supply,” said Nicholas Colas, co-founder of DataTrek Research, in a Monday note.

It’s a reminder that “while neither Israel nor Gaza are major oil producers, everything that happens geopolitically in the Middle East invariably ends up affecting oil prices,” he said.

The potential for a broader conflict could lead to a “sharp market correction,” argued Olivier d’Assier, head of applied research, APAC, at Axioma.

The scale of the conflict, the largest since the Yom Kippur War 50 years ago, renders comparisons with how markets have shaken off past geopolitical incidents, but they may be irrelevant in terms of stress testing, he argued.

“The closest historical scenarios we could use would be 9/11 and the start of the Ukraine war. But because both took place on Western soil, they might not be adequate,” d’Assier said.

On Monday, however, remarks by Federal Reserve officials ultimately trumped the rise in crude prices and jitters over the Middle East. Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson both noted the rise in long-term Treasury yields and their role in tightening financial conditions, which investors took as a signal the Fed may not be as likely to further raise interest rates.

See: An Israel-Hamas war could change what the Fed does about interest rates

Stocks turned north after a morning dip, with the Dow Jones Industrial Average
DJIA
rising nearly 200 points, or 0.6%, while the S&P 500
SPX
also advanced 0.6% and the Nasdaq Composite
COMP
gained 0.4%.

For now, market participants appear set to look ahead to economic data later this week, including September consumer-price index and producer-price index readings.

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October 9, 2023
Oil prices jump 4% after Hamas attack on Israel
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Oil futures opened with strong gains late Sunday as traders reacted to an attack by Hamas on Israel, raising Middle East tensions and stoking worries about the outlook for crude supply.

Price action
- West Texas Intermediate crude for November delivery
  CL00,
  +3.80%
  
  CL.1,
  +3.80%
  
  CLX23,
  +3.80%
  rose $3.60, or 4.4%, to $86.39 on the New York Mercantile Exchange.
- December Brent crude
  BRN00,
  +3.46%
  
  BRNZ23,
  +3.46%,
  the global benchmark, was up $3.54, or 3.2%, at $88.11 a barrel on ICE Futures Europe.
Market drivers

Oil traders were focused on Iran after a weekend attack on multiple fronts by Hamas militants, who are backed by Tehran. The Wall Street Journal reported that Iranian security officials helped Hamas plan the attack, which has left more than 700 Israelis dead and saw dozens of Israeli citizens and soldiers abducted. Israel pounded Gaza in retaliation, where the death toll was also reported in the hundreds.

Analysts said that if Iranian involvement is affirmed, it could lead the U.S. to increase enforcement of sanctions on the country’s crude exports, which have moved back toward pre-2018 levels in recent months.

“Historical analysis suggests that oil prices tend to experience sustained gains after the Middle East crises,” said Stephen Innes, managing director at SPI Asset Management, in a note.

Oil fell last week, retreating after Brent moved within a few dollars of the $100-a-barrel threshold last month and WTI briefly topped $95 a barrel for the first time in more than a year.

Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.

See: U.S. stock futures tumble after Hamas attack on Israel
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October 8, 2023
‘Fear trade’: What Israel-Hamas war means for oil prices and financial markets

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Oil traders on Sunday said crude prices were likely to remain supported in the near term, as investors assessed the fallout from the surprise attack by Hamas on Israel and focused on the role played by Iran and the potential impact on that country’s petroleum exports.

The conflict may also hold market-moving consequences for talks aimed at normalizing relations between Saudi Arabia and Israel.

“While in the short term there is no impact directly on supply, it’s obvious how things play out over the next 24 to 48 hours could change that,” Phil Flynn, an analyst at Price Futures Group in Chicago, told MarketWatch.

Brent crude futures
BRN00,
+4.17%,
the global benchmark, and West Texas Intermediate oil futures
CL00,
+4.35%

CL.1,
+4.35%
jumped more than 3% when the market opened Sunday night. U.S. stock-index futures
ES00,
-0.66%
traded lower, while traditional havens, including gold
GC00,
+0.98%
and the U.S. dollar
DXY
rose.

Movements in oil prices, meanwhile, will also serve as a gauge for broader market worries around the conflict, analysts said.

See: Israeli stocks slump in first day of trade since Gaza attack

Hamas, the Iran-backed, Palestinian militant group that controls the Gaza Strip, staged a sweeping attack on southern Israel early Saturday. News reports put Israeli deaths at more than 700. The Gaza Health Ministry said 413 people, including 78 children and 41 women, were killed in the territory as Israel retaliated, according to the Associated Press. Injuries in Israel and Gaza were both said to be around 2,000.

Israeli troops on Sunday were engaged in fierce fighting in an effort to retake territory in southern Israel as Hamas launched further barrages of missiles. Israeli citizens and soldiers were captured and are being held hostage in Gaza, according to the Israeli military.

Read: Israel declares war, approves ‘significant’ steps to retaliate after surprise attack by Hamas

The Wall Street Journal reported that Iranian security officials helped Hamas plan the attack. U.S. officials said they haven’t seen evidence of Iran’s involvement, the report said.

“Iran remains a very big wild card and we will be watching how strongly [Israeli] Prime Minister Netanyahu blames Tehran for facilitating these attacks by providing Hamas with weapons and logistical support,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a Sunday morning note.

Iranian crude exports have risen in recent years, indicating the Biden administration has adopted a soft approach to sanctions enforcement, Croft said. Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the U.S. out of the Iranian nuclear accord in 2018, according to the Wall Street Journal. Sales fell to around 400,000 barrels a day in 2020 as the U.S. reimposed sanctions.

RBC Capital Markets

Hedge-fund manager Pierre Andurand, one of the world’s best energy traders, said in a social-media post that a large price spike for oil isn’t likely in coming days, but emphasized the market focus on Iran.

“Now, over the last six months we have seen a very large increase in Iranian supply due to weak enforcement of sanctions. As Iran is also behind Hamas’ attacks on Israel, there is a good probability that the U.S. administration will start enforcing those sanctions on Iranian oil exports more tightly,” he wrote. “That would further tighten the oil market. Also the probability that this will lead to direct conflict with Iran is not zero.”

Meanwhile, the Wall Street Journal late Friday reported that Saudi Arabia had told the White House it would be willing to boost oil production next year if crude prices remained high, as part of an effort aimed at winning goodwill in Congress for a deal that would see the kingdom recognize Israel and in return get a defense agreement with the U.S.

A Saudi production cut of 1 million barrels a day that was implemented in July and recently extended through the end of the year has been given much of the credit for a rally that took global benchmark Brent crude within a few dollars of the $100-a-barrel threshold before retreating this past week. The U.S. benchmark last week briefly topped $95 a barrel for the first time in 13 months.

In a statement, Saudi Arabia’s foreign ministry called on both sides to halt the escalation and exercise restraint, but also recalled its “repeated warnings of the dangers of the explosion of the situation as a result of the continued occupation, the deprivation of the Palestinian people of their legitimate rights, and the repetition of systematic provocations against its sanctities.”

With the Israeli government vowing an unprecedented response, “it is hard to envision how Saudi normalization talks can run on a parallel track to a ferocious military counteroffensive,” said RBC’s Croft.

Beyond oil, much will depend on the potential for the conflict to widen.

Stocks have stumbled, retreating from 2023 highs set in late July, as yields on U.S. Treasurys have jumped. The yield on the 30-year Treasury bond
BX:TMUBMUSD30Y
rose 23.2 basis points last week to end Friday at 4.941%, its highest since Sept. 20, 2007. The 10-year Treasury note yield
BX:TMUBMUSD10Y
topped 4.80% on Oct. 3, its highest since Aug. 8, 2007, and ended the week at 4.783%. Yields and debt prices move opposite each other.

The U.S. bond market will be closed Monday for the Columbus Day and Indigenous People’s Day holiday, while U.S. stock markets will be open.

The S&P 500 index
SPX
rose 0.5% last week, breaking a streak of four straight weekly declines, while the Dow Jones Industrial Average
DJIA
fell 0.3% and the Nasdaq Composite
COMP
gained 1.6%.

“I think there will be a negative reaction. However, I don’t see a meltdown,” Peter Cardillo, chief market economist at Spartan Capital Securities, told MarketWatch.

Traditional haven plays, including gold, the dollar and U.S. Treasurys may see a strong move upward, with price gains for Treasurys pulling yields down.

“Geopolitical crises in the Middle East have usually caused oil prices to rise and stock prices to fall,” said economist Ed Yardeni, president of Yardeni Research Inc., in a note. “More often than not, they’ve also tended to be buying opportunities in the stock market.”

The broader market reaction will depend on whether the crisis turns out to be a short-term flare-up or “something much bigger, like a war between Israel and Iran,” he said. The latter is unlikely, but tensions between the two are likely to escalate.

“The price of oil may be a good way to assess the likelihood of a broader conflict,” he said.

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October 8, 2023
‘Knee-jerk surge’: Oil experts predict market impact of Israel-Hamas conflict

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EDITORS NOTE: Graphic content / TOPSHOT – A plume of smoke rises above buildings in Gaza City on October 7, 2023 during an Israeli air strike. At least 70 people were reported killed in Israel, while Gaza authorities released a death toll of 198 in the bloodiest escalation in the wider conflict since May 2021, with hundreds more wounded on both sides. (Photo by MAHMUD HAMS / AFP) (Photo by MAHMUD HAMS/AFP via Getty Images)

Mahmud Hams | Afp | Getty Images

Crude oil prices could see a spike on Monday but the overall impact of the attack on Israel by Palestinian militants Hamas will likely be limited, energy experts told CNBC.

That’s provided the conflict does not escalate further, they said.

“We may see a knee-jerk surge in crude prices when markets open on Monday,” Vandana Hari, CEO of Vanda Insights, told CNBC via email.

“There will be some risk premium factored in as a default, until the market is satisfied that the event is not setting off a chain reaction and Mideast oil and gas supplies won’t be affected,” said Hari.

Militants from Hamas — designated by the U.S., European Union and the U.K. as a terrorist organization — infiltrated Israel by land, sea and air on Saturday, during a major Jewish holiday. The incursion came hours after the Islamist militants fired thousands of rockets into Israel from Gaza.

Civilians including women, children and the elderly have been abducted, and others killed in their homes, Israeli Prime Minister Benjamin Netanyahu said.

The impact on the oil price will be limited unless we see the ‘war’ between the two sides expand quickly to a regional war…

Iman Nasseri

Facts Global Energy

Israel has begun the offensive phase, and will “continue with neither limitations nor respite until the objectives are achieved,” Netanyahu said.

He vowed to “exact an immense price from the enemy, within the Gaza Strip as well.” Late Saturday, Israel cut off the supply of electricity, fuel and goods to the narrow strip where 2.3 million Palestinians live.

At the time of publication, there were at least 250 Israelis killed and more than 1,860 injured, including 320 in serious condition, NBC News reported. The Palestinian Healthy Ministry recorded 256 deaths and 1,790 injuries in Gaza.

How much oil is involved?

Both Israel and Palestine are not major oil players, but the conflict sits in a wider key oil producing region, analysts told CNBC, warning that it has the potential to conflagrate further.

Hari noted that while the conflict does not directly impact oil production or supply, it is still “on the doorstep of an important oil-producing and exporting region.”

Israel boasts two oil refineries with a combined capacity of almost 300,000 barrels per day. According to the U.S. Energy Information Administration (EIA), the country has “virtually no crude oil and condensate production.” The Palestinian territories produce no oil, data from EIA shows.

It has the potential to widen into regional hostilities.

Vandana Hari

CEO of Vanda Insights

Hari’s sentiments were echoed by other market watchers.

“The impact on the oil price will be limited unless we see the ‘war’ between the two sides expand quickly to a regional war where the U.S. and Iran and other supporters of the parties get directly involved,” Middle East managing director of energy consultancy Facts Global Energy, Iman Nasseri, told CNBC.

Similarly, French businessman and hedge fund manager Pierre Andurand said that since the Levant is not a large oil producing region, the war is unlikely to impact oil supply in the short term.

“One should not expect a large oil price spike in the coming days. But it could eventually have an impact on supply and prices,” he said in a post on X, the social media platform that was formerly Twitter.

Andurand said global oil inventories are low, and production cuts by OPEC kingpin Saudi Arabia, as well as Russia, will lead to more inventory draws over the next few months.

“The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent.”

Crude oil prices recently hit their highest level in more than a year before pulling back.

Still, Hari warned that the ongoing Israeli-Palestinian conflict “has the potential to widen into regional hostilities.”

On Sunday, Lebanon’s Hezbollah militant group confirmed it launched attacks on three sites in the Shebaa Farms — a strip of land that sits at the intersection of the Lebanese-Syrian border and the Golan Heights, which is occupied by Israel.

The Israeli Defense Force confirmed it has returned fire and “struck Hezbollah terrorist infrastructure.”

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October 8, 2023
Exxon expects profit bump from oil prices of around $1 billion in third quarter

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Exxon Mobil Corp. said in a filing late Wednesday that its third-quarter profit is likely to get a bump of around $1 billion from rising crude prices.

Exxon
XOM,
-3.74%
estimated between $900 million and $1.3 billion more than second-quarter profit due to crude-price changes, and between $200 million and $400 million in gas-price changes.

The energy giant is expecting $600 million to $400 million less as a result of thinner margins for its chemicals, however.

Exxon shares dropped 0.5% in the extended session after ending the regular trading day down 3.7%. The stock late last month ended at a record, according to data going back to November 1972.

Oil futures prices on Wednesday ended at their lowest in about five weeks, but had been inching closer to $100 a barrel recently.

Exxon is slated to report third-quarter earnings in early November, with FactSet consensus calling for adjusted earnings of $2.35 a share on sales of $85.6 billion. That would compare with adjusted EPS of $4.45 on sales of $112 billion in the third quarter of 2022.

So far this year, Exxon shares have gained nearly 2%, compared to an advance of around 10% for the S&P 500 index
SPX.

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October 4, 2023
Southeast Asia is set to drive up demand for natural gas — it’s where ‘all the action’ will be

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Liquefied natural gas (LNG) storage units.

Dan Kitwood | Getty Images News | Getty Images

Southeast Asian countries are expected to be key demand drivers for the LNG market by 2030, industry watchers say.

Trade in global liquefied natural gas rose to a record in 2022, fueled largely by a surge in demand from Europe as the region moves away from relying on Russian pipelines following Moscow’s invasion of Ukraine. However, Europe’s demand for LNG is expected to recede in a few years.

Tony Regan, the Asia-Pacific gas lead from NexantECA, an energy and refining advisory, expects LNG demand from Europe to peak in 2027, before falling in 2030.

“This is where I think all the action is actually going to be: Southeast Asia, particularly Vietnam, Thailand, Indonesia,” said Regan.

Vietnam is a bright spot for the LNG market, said Regan forecasting strong growth in demand from the country over the next few years largely because of the government’s Power Development Plan 8.The plan stipulates that all coal plants must be converted to alternative fuels or retired by 2050.

“Very strong growth in demand over the next few years, because 13 of the new power plants that have been proposed on the plan are going to be LNG fired, and then another 10 also gas fired. So that’s going to create a strong pull on energy from Vietnam,” said Regan.

By 2033, Southeast Asia LNG demand is forecast to be 73 million tons per year, making up 12% of the global LNG market. This is almost a quadrupling of demand compared to 2022.

Zhi Xin Chong

S&P Global’s Head of Emerging Asia’s Gas and LNG markets

Vietnam has long been considered an important LNG growth market due to its “strong economic and population growth,” said Columbia University’s Center on Global Energy Policy. That growth is expected to spearhead demand for energy.

Vietnam’s GDP is forecast to surge from $327 billion in 2022 to $760 billion by 2030, S&P Global estimates.

The global LNG market is projected to grow from $74.60 billion in 2023 to $103.41 billion by 2028, according to forecasts by analysis and consulting firm Mordor Intelligence.

Energy giant Shell said it’s seen “tremendous growth” in the LNG market in the last two months, and highlighted three countries that will be pivotal drivers, two of which are from Southeast Asia.

“We’ve supplied three new countries, Germany, Vietnam, and Philippines, and they’re all very significant potential LNG markets,” said executive vice president for Shell Energy, Steve Hill said at the recent Gastech conference held in Singapore.

“These markets have broken the challenge of implementing LNG imports and now there’s this great growth potential,” Hill said, highlighting that these countries recently received their first cargoes, cementing more progress toward their LNG ambitions.

Likewise, S&P Global shares the optimism that Southeast Asia is poised to be a prime market for the LNG natural gas.

“By 2033, Southeast Asia LNG demand is forecast to be 73 million tons per year, making up 12% of the global LNG market,” said Zhi Xin Chong, S&P Global’s head of Emerging Asia’s gas and LNG markets. According to data provided by the analytics firm, that will mark a near quadrupling of demand compared to 2022.

The continued decline in domestic gas supply, alongside the shift from coal to gas in the power sector, will be the main drivers of the growth story, Chong told CNBC.

“The largest markets are likely to be Thailand, Malaysia, Indonesia and Singapore, given that these markets have already been importing LNG for a number of years,” he said.

However, he cautioned that demand for these markets are still fragile, and dependent on stable prices.

“It is crucial that LNG prices remain stable and global funding is forthcoming to finance the necessary infrastructure,” Chong said.

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October 2, 2023
Oil prices surge to highest level in more than a year

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The RN-Tuapsinsky refinery operated by Rosneft Oil Co. in Tuapse, Russia.

Andrey Rudakov | Bloomberg | Getty Images

Oil prices surged to their highest level in over a year during Asian trading hours, after crude stocks at a key storage hub fell to their lowest since July last year.

Crude inventories in Cushing, Oklahoma fell to 22 million barrels in the fourth week of September — hovering close to the operational minimum, according to data from the U.S. Energy Information Administration (EIA). That’s a drop of 943,000 barrels compared to the prior week.

The U.S. West Texas Intermediate futures touched $95.03 per barrel during Asia trading hours, marking the highest since August 2022. It was last trading at $94.61 per barrel. Global benchmark Brent rose 1.05% to $97.56 a barrel.

“Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022,” Bart Melek, managing director of TD Securities, told CNBC.

If the inventories continue to dip below those levels, it’s going to be “rough” getting crude out into the market, Melek said on CNBC’s “Street Signs Asia.”

He forecasts that oil prices will continue to remain at “high level” for the rest of the year, with an upside risk if global oil cartel OPEC+ continues to keep supplies tight.

‘Robust deficit’ in sights

The global oil markets are looking at a “pretty robust deficit” on top of an already significant shortfall this quarter, Malek said, citing the oil production cuts implemented by OPEC and its allies.

In September, OPEC+ kingpin Saudi Arabia extended its 1 million barrel per day voluntary crude oil production cut until the end of the year. It brings Saudi’s crude output to near 9 million barrels per day.

We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.

Bart Melek

managing director, TD Securities

Additionally, Russia has pledged to extend its 300,000 barrels per day export reduction until the end of December.

Malek also highlighted how refinery throughputs will see a decline in the coming months as refinery maintenance season approaches. The refinery crude throughput refers to the volume of crude oil a refinery can produce during a given period of time.

“We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”

It will not be in OPEC’s interest if prices go a lot higher to triple digits, as they will be worried about long term demand destruction, Malek pointed out.

“We do think they will ultimately signal, as we get closer to the end of the year, that they may be very well done with these strong measures to limit supply,” he projected.

Forecasts for $100 per barrel oil have been swirling on the horizon in recent days. Goldman Sachs recently raised its 12-month Brent forecast from $93 per barrel to $100 on the back of “modestly sharper inventory draws,” the investment bank wrote in a recent note dated September 20.

“Overall, we believe that OPEC will be able to sustain Brent in an $80 to $105 range in 2024,” the Goldman report added, citing strong demand growth from the Asia region.

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September 27, 2023
Costco is selling out of small gold bars ‘within a few hours,’ CFO says

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Costco Wholesale Corp. sells lots of things you wouldn’t expect from a big-box retailer: caskets, caviar, six-pound tubs of Nutella. Add to that list one-ounce bars of gold, which the company on Tuesday said were selling out within a matter of hours.

“I’ve gotten a couple of calls that people have seen online that we’ve been selling one-ounce gold bars,” Chief Financial Officer Richard Galanti said on Costco’s
COST,
+2.45%
quarterly earnings call on Tuesday. “Yes, but when we load them on the site, they’re typically gone within a few hours, and we limit two per member.”

Costco did not immediately respond to a request for more information about the types of gold bars it sells, how much they cost or the factors behind the demand. On Wednesday, the site showed a price of $1979.99 per ounce for the bars. Shares of Costco were up 1.3% on Wednesday.

Gold is generally seen as a safe-haven investment and a hedge against inflation. Buying by central banks, lingering worries about a deceleration in the economy and jewelry purchases have helped prop up prices, according to data tracker Goldhub. But higher interest rates have acted as a counterweight, and some analysts have wondered whether more volatility is on the horizon for gold prices.

Costco’s quarterly results, reported Tuesday, topped expectations. Analysts have said the retail chain remains attractive to customers who are looking for a break from higher prices.

Shares of the company are up 23.8% so far this year. The S&P 500 Index
SPX
is up 11.4% over that period.

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September 27, 2023
Dow tumbles by more than 400 points, on pace for biggest one-day decline since March | CNN Business

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New York
CNN
—

Stocks tumbled Tuesday after a slew of economic data stoked fears about the US economy’s cloudy outlook and further interest rate hikes from the Federal Reserve.

The benchmark S&P 500 index slid 1.2%, on track for its lowest close since June. The Dow Jones Industrial Average fell 416 points, or 1.2%, on pace for its biggest one-day drop since March; and the Nasdaq Composite lost 1.5%.

The S&P 500 is hovering around the threshold that it passed to enter bull market territory earlier this summer, which represents a climb of more than 20% off its most recent low last October.

Housing data released Tuesday morning showed that new home sales fell 8.7% in August from July, as mortgage rates edged above 7% to the highest levels in decades.

At the same time, US home prices climbed to a record high in July, marking the sixth straight month of increases as a tight supply of homes continues to drive up prices, according to the latest Case-Shiller home prices index.

“The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer,” said Bill Adams, chief economist at Comerica Bank. “The Fed cannot afford to look past house prices’ influence on the cost of living.”

Investors have been on edge since the Fed last week indicated it could hike interest rates once more this year and delay rate cuts for longer than expected. That sent yields soaring to their highest level in decades, as investors recalibrate their expectations for how long rates will stay higher.

Oil prices gained on Tuesday after paring back their recent gains earlier. West Texas Intermediate crude futures, the US benchmark, rose to roughly $90 a barrel. Brent crude, the international benchmark, climbed to $94 a barrel.

JPMorgan Chase CEO Jamie Dimon said Tuesday in an interview with the Times of India that he is preparing the bank’s clients for a 7% interest rate scenario, further spooking investors.

The possibility of a government shutdown also looms over Wall Street as the fiscal year’s end on September 30 fast approaches without any spending deal.

Moody’s warned Monday that such an event could be negative for America’s credit rating, which already saw a downgrade from Fitch earlier this year after the federal government narrowly avoided breaching the debt ceiling.

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September 26, 2023
Why higher oil prices aren’t likely to make it into Fed’s inflation or rate outlook

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With the Federal Reserve preparing to release updated inflation and interest-rate forecasts on Wednesday, the proverbial elephant in the room will probably be missing from the equation: The full impact of rising oil prices, according to investors, traders and strategists.

Oil prices touched fresh 2023 highs on Tuesday and settled above $90 a barrel, a byproduct of this month’s decision by Russia and Saudi Arabia to extend production cuts into year-end. Just a day ago, Mike Wirth, chief executive of Chevron
CVX,
-0.01%,
put the prospect of oil crossing $100 a barrel on the map and the price at the gas pump went above $6 a gallon in Southern California — reigniting fears about a revival of inflation.

It’s too soon to say whether the run-up in energy prices will spill over into the narrower core inflation gauges that the Fed cares most about, TD Securities strategist Gennadiy Goldberg said via phone. As a result, policy makers may look past the impact of higher energy prices on their longer-term inflation and rate outlook Wednesday, he said. Fed officials are hesitant to place too much weight on energy or food as components of inflation, anyway, because of their volatile natures.

In One Chart: Why crude-oil rally can’t be ignored by investors — or the Fed

However, some traders are worried that such an omission could be a mistake considering all the other price pressures playing out, such as strikes against the three major U.S. automakers.

UAW strike: Union sets Friday deadline for further possible strikes

“Is it a mistake to not factor in oil? I personally think it is, but I’m probably in the minority on that,” said Gang Hu, an inflation trader at New York-based hedge fund WinShore Capital. “The combination of oil and strikes by the United Auto Workers presents a structurally unstable inflation picture.”

“If the Fed is the one that provides insurance against inflation and is not doing anything, the market will seek inflation protection by itself and it will look like inflation expectations are unanchored. This is the risk,” Hu said via phone.

Nervousness around the prospect of a higher-for-longer message on rates from the Fed helped send the 2-
BX:TMUBMUSD02Y
and 10-year Treasury rates
BX:TMUBMUSD10Y
to their highest levels in more than a decade on Tuesday. The ICE U.S. Dollar Index was off by less than 0.1%.

Read: How Fed’s higher-for-longer theme may play out in Treasurys and the dollar on Wednesday

U.S. stock indexes
DXY

SPX

COMP
finished lower on Tuesday, led by a 0.3% drop in Dow industrials.

Investors and traders are expected to zero in on the part of the Fed’s Summary of Economic Projections that reflects where the fed-funds rate target, currently between 5.25%-5.5%, could go in 2024. As of June, policy makers penciled in the likelihood of four 25-basis-point rate cuts next year after factoring in more tightening this year, and they saw inflation creeping down toward 2% in 2024 and 2025, as well as over the longer run.

See: Why Fed’s response to this key question could spark 5% stock-market pullback or ‘solid rally’

Many in financial markets are clinging to the likelihood of no Fed rate hike on Wednesday, and see some possibility of just one more increase in November or December before rate cuts begin in the middle or final half of next year. But inflation traders now foresee seven straight months of 3%-plus readings on the annual headline CPI rate, from September through next March; that’s up from five consecutive months seen as of last Wednesday and complicates the question of where the Fed will go from here.

“The Fed’s rate decision on Wednesday was already decided a while ago, when officials started to communicate that a pause would be the likely outcome,” said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management in Horsham, Pa., which oversaw $32 billion as of August.

“On the margin, we might see higher oil prices make a modest impact on rate projections,” he said via phone. However, “it’s too early for the story to change on disinflation and all the progress made so far.”

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September 19, 2023
S&P 500 slumps to bottom of bullish uptrend channel as investors brace for Fed Chair Powell

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U.S. stocks are up in 2023, but the S&P 500 has fallen to the bottom of its bullish trading channel as the index has slumped so far this month, according to Bespoke Investment Group.

The S&P 500
SPX
was trading down 0.3% on Tuesday afternoon at around 4,441, as traders await the outcome of the Federal Reserve’s two-day policy meeting that concludes on Wednesday.

“It’s currently at the bottom of its uptrend channel and below its 50-day moving average,” said Bespoke, in a note Tuesday that tracked the S&P 500’s trading channel in the chart below.

BESPOKE INVESTMENT GROUP NOTE DATED SEPT. 19, 2023

Meanwhile, the S&P 500 has entered its “weakest 10-day period of the year” historically, according to a BofA Global Research on Tuesday. That stretch, which is the last 10 days of this month, began Sept. 18, the note shows.

So far in September, the S&P 500 has fallen 1.5%, but still had gains of more than 15% year to date on Tuesday afternoon, according to FactSet data, at last check. The index was trading below its 50-day moving of almost 4,484, with the U.S. stock benchmark on track for back-to-back monthly losses after strong performance this year through July.

“We’ve begun to notice more stocks across a few sectors that are either breaking down or failing at key resistance levels,” said Bespoke. The weak patterns are “mostly showing up” in sectors such as consumer staples and healthcare, according to the firm’s note.

“On the bullish side, we’re seeing the most strength in energy and financials, particularly insurance stocks within the financials sector,” Bespoke said.

While the S&P 500 has fallen so far in September, the benchmark’s energy sector has climbed more than 3% this month amid a jump in oil prices, according to FactSet data, at last check.

Higher oil prices
CL00,
+0.22%
helped fuel inflation in August, with the consumer-price index rising 0.6% last month for a year-over-year rate of 3.7%. That was up from 3.2% pace in the year through July.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. Eastern Time on Wednesday, after the central bank’s policy meeting wraps up. Investors will be looking for clues about how long the Fed may keep interest rates at elevated levels in its bid to bring inflation down to its 2% target.

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September 19, 2023