Oil climbs towards $75 a barrel to reach highest point since 2014

Oil prices climbed towards $75 a barrel on Thursday, hitting the highest level since 2014 and taking the rally over the past year to almost 50%, with traders pointing to tightening supplies at a time when political risks to the market are mounting. The rise in price, which has spurred a sharp rally in energy shares, follows 16 months of supply cuts by Opec and Russia that have removed at least 1.8m barrels a day from the market. Prices were slightly softer in early Asian trading on Friday.

But in recent months the supply cuts have mopped up the worst of the oil glut that hammered prices four years ago, with Saudi Arabia, Opec’s de facto leader, showing little sign of moving to cool the rally as it tries to fund an ambitious — and expensive — programme of economic and social reform. The latest surge over the past two weeks, however, has largely reflected rising political risk, traders say.

Tighter supplies in the market increase the importance of production threats, ranging from Venezuela’s economic collapse to the risk of the US reimposing sanctions on Iran’s oil exports. Brent, the international benchmark, touched $74.75 a barrel on Thursday, having gained 10 per cent since the start of this month. Prices eased in late US trading and on Friday morning in Asia Brent was at $73.83.

Saudi Arabia’s energy minister said on Friday that the world economy had the “capacity” to absorb higher prices, the day after crude hit the highest level since 2014.

Khalid al-Falih, who has led Opec’s 1.8m barrel a day supply reduction deal with Russia, said that while the kingdom was not targeting a specific price, it had little fear current levels above $70 a barrel would cut into rising consumption.

“I have not seen any impact on demand with current prices. We have seen prices significantly higher in the past, twice as much as where we are today,” Mr Falih said before the start of a technical meeting in Jeddah to review the impact of the cuts.

GBP Remains Under Pressure Due to UK Inflation Data

Today, the British pound remains under pressure, following two days of heavy selling. Pound bulls came in for a shock yesterday as UK inflation data came in well below estimates. CPI, RPI, PPI and HPI all came in below estimates, putting paid to previous expectations for an early Bank of England rate hike. The GBP/USD is now down on the week, as is the GBP/JPY, while the EUR/GBP has reversed higher.

The dollar index is flat this morning after climbing yesterday. Dollar pairs have been mixed, with the AUD/USD making gains for the last two days, while the NZD/USD has fallen flat for three days by contrast.

The euro has held firm despite the pound’s travails, with the EUR/JPY making gains since yesterday.

The USD/CAD rose yesterday after the BOC opted to keep rates on hold. The Canadian dollar is generally weaker after officials provided a more mixed message than expected.

Silver surged yesterday, while gold held ground.

The yen remains range bound, with the USD/JPY making gains since yesterday.

Hot topic

Energy stocks are higher after a fall in US supp lies sparked a rally in oil prices while easing concern about the international trade dispute helped to support wider sentiment.

Brent crude oil is up 1.5% to $74.61 a barrel, crossing $74 for the first time in four years. The milestone came after a gain of almost 3% over the previous session following news of the 1.1m barrels drawdown in US crude stocks. Analysts are also expecting Opec to reinforce supply limits when the oil exporters’ group meets next week.

US West Texas Intermediate is up 1.4% at $69.41 after it too touched its highest level since 2014, when oil crashed from above $100 a barrel to below $30 after a glut in US shale supplies spooked the market.

 

Oil Hits Fresh 3.5-year High Across the Global Markets

In short: Oil at four-year high as Saudis eye supply constraints and US inventories fall. Energy, resources stocks gain across Asia, Europe set to follow. Hong Kong dollar jumps on HKMA comments as macro back in focus as trade tension eases.

Energy stocks are higher after a fall in US supplies sparked a rally in oil prices, while easing concern about the international trade dispute helps support wider sentiment.

Brent crude oil is up 0.5% at $73.84 a barrel, crossing $74 for the first time in four years. The milestone came after a gain of almost 3% over the previous session following news of the 1.1m barrels drawdown in US crude stocks. Analysts are also expecting Opec to reinforce supply limits when the oil exporter’s group meets next week.

US West Texas Intermediate is up by 0.4% at $68.74 after it too touched its highest level since 2014, when oil crashed from above $100 a barrel to below $30 after a glut in US shale supplies spooked the market.

The energy segment was one of the best performers in Tokyo, helping the Topix index to hold steady. Hong Kong’s Hang Seng is up 1.3%. The CSI 300 of major Shanghai and Shenzhen companies is up 1 per cent and the Kospi Composite in Seoul gained 0.3 per cent.

US commercial oil inventories dropped by 1.1 million barrels in the week through April 13, according to the US Energy Information Administration (EIA). Meanwhile, gasoline stocks fell by 3 million barrels and distillate fuels, including diesel, declined by 3.1 million barrels.

Also, the involvement of Russia and Iran (two of the biggest oil producers) in the Syrian crisis and the fears of supply disruptions seem to have played a major role in boosting oil prices in recent weeks.

What’s more, the rumors are doing the rounds that Saudi Arabia is hoping to push oil prices to $80, so the valuation of Saudi Aramco improves. Further, the OPEC output cuts deal compliance rate hit a new record high of 164% in March. So, it appears, there is no stopping the oil rally, at least in the short-run.

Aluminium hits 6-1/2-year peak on supply worries as nickel rallies

Aluminium prices hit a fresh seven-year high Wednesday and the price for nickel also jumped to its highest level since 2015 as concerns rise about Russian supplies following US sanctions.

Aluminium prices have rallied by over 20% since the US Treasury sanctioned Russian producer Rusal on April 6, abruptly cutting off its supply to global markets. They rose by 3% Wednesday to hit $2,490 a tonne.

The price could hit as high as $3,000 a tonne if Rusal’s exports remain locked out of global markets. Rusal is the biggest producer of aluminium outside of China, accounting for around 7% of global production. It also relies on international imports of bauxite and alumina to make the metal, a supply chain that could also be in jeopardy following the sanctions.

Miner Rio Tinto said Wednesday it is “in the process of declaring force majeure” on its contracts with Rusal, which include an agreement to supply alumina as well as bauxite to Rusal’s refinery in Ireland.

Russia also accounts for around 10% of the global supply of nickel, which is used to make stainless steel and batteries for electric cars. That’s raised fears that the metal could struggle to reach global markets. The nickel price rose by 3% in trading on the London Metal Exchange Wednesday to hit $14,870, its highest level since February 2015.

UK Inflation Drops More Than Expected and GBP drops follows

Sterling dropped abruptly on Wednesday after data on UK inflation came in substantially below market estimates.

The pound was recently lower by 0.54% to $1.4208. Sterling had climbed on Tuesday to $1.4376, the highest level since the Brexit vote in June 2016.

Inflation fell much more sharply than expected in March, raising questions over whether the Bank of England will push forward with a widely expected increase in interest rates in May. UK economic data outcomes have increasingly underperformed relative to consensus forecasts in recent months, warning that analysts’ models may be overly rosy and opening the door for another downside surprise. Such a result may clash with a recent build in priced-in BOE rate hike expectations, cooling bets on a near-term increase and sending the British Pound lower.

The annual change in the consumer price index fell to 2.5% in March from 2.7% in February. Analysts had expected the rate of inflation to remain unchanged.

How and why did it happen though? The decline in the headline inflation rate came from a fall in the rate of goods inflation from 3% in February to 2.4% in March. Goods prices are thought to be more sensitive to the exchange rate. The year-on-year change in the retail price index, which is used in some government debt contracts, fell to 3.3% from 3.6%.

USD Continues to Remain Soft Against The G10 Trading Pairs

Trump’s currency comments weigh on US dollar outlook heavily. The US president tweeted on Monday that “Russia and China are playing the currency devaluation game”. “Not acceptable!” he added.

Mr Trump’s remarks raised quite a few eyebrows among currencies strategists, not least given that China’s currency, has in fact risen 3.6% this year on the dollar, after a 6.8% jump in 2017, according to Reuters data.

Trump’s behaviour is somewhat understandable. Since Trump took office in January 2017, the dollar has weakened substantially against most currencies, including the Chinese yuan and, until the United States imposed sanctions on Russia in the last few weeks, the ruble. Mr Trump is indeed correct that the rouble has been falling heavily lately. However, that is largely a response to new US sanctions on Russia, sparked by Russian support for the Syrian regime. True, the rouble is off 6.5% on the year. But Russia’s currency was down a milder 2.2% before the announcement earlier this month of US sanctions against the country.

While Mr Trump’s comments “make no sense”, they still had an impact on the foreign exchange market. The dollar index, a measure of the buck against half a dozen peers, is down 3% for the year, and has tumbled 11.3% since Mr Trump’s inauguration in January 2017, according to Investing.com data.