Oil recovered amid signs of tight supplies in the physical market, but prices still were headed for a weekly loss on concerns that demand is weakening. West Texas Intermediate rallied above $71 a barrel on Friday, gaining in tandem with broader equity markets, after a tumultuous week that saw crude swing in a $13-per-barrel range. Oil is still headed for a third weekly decline — the longest run of losses this year — amid instability among regional US lenders and fears the economy is headed into a recession. Signs of strength in the physical oil market suggest this week’s selloff — which included a brief, dramatic plunge to the lowest intraday level since 2021 on Thursday — may have been excessive. Shell Plc Chief Executive Officer Wael Sawan said this week the market was actually “pretty tight.” In the Middle East, Iraq said it’s yet to strike a deal with Turkey that would allow for the resumption of almost half a million barrels a day of Iraqi oil exports through the country. The standoff between Baghdad and the Kurdistan Regional Government has halted shipments from the port of Ceyhan since late March.
“There is good reason to be bullish — the trouble is that oil traders are a fickle bunch,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “It will only be a matter of time before OPEC production cuts, lackluster supply from non-OPEC+ and the constructive demand picture in China take center stage once more.” Oil prices have dropped about 11% this year, showing that a plan by the Organization of Petroleum Exporting Countries and its allies to regain control of the market by cutting output starting this month isn’t yet working. The losses have been driven by concerns that global growth is slowing, potentially hurting energy demand. NN: here is a breaking news flash. the global economy is not slowing.
Prices of gold and silver dropped on Friday after a report by the United States Bureau of Labor Statistics revealed that nonfarm employment in the country rose by 253,000 in April, going above analysts’ projections. The hotter-than-expected reading appears to show that the labor market is still able to withstand tight monetary conditions. The policymakers unanimously agreed to increase interest rates by half a percentage point this week, seemingly fueling up concerns over the United States economic outlook. Gold lost 2.02% to sell for $2,008.71 at 9:12 am ET, while silver slid 2.14% to $25.49 a minute later. NN: the FED has a license to kill inflation and gold will be collateral damage. Continuing shorting the shit out of it.
Physical market is ‘pretty tight,’ Shell CEO Wael Sawan says
China is getting a flood of crude while local travel rebounds.
Crude markets have suffered a disastrous few weeks, dragged down by alarm over the wider economy. But real oil demand still looks strong enough to foster a rebound in prices. International benchmark Brent almost dropped to $70 a barrel on Thursday after losing 17% since mid-April on fears of a US recession and signs of a disappointing recovery in China. Crude in New York plunged at the open to take the decline over the past three weeks to $20, before recovering. Nonetheless, there are signs the underlying oil market is resilient. China is sucking in a flood of cargoes as domestic travel rebounds, and traders expect the country’s crude purchases to remain high in the next few months. Inventories are tightening around the world, and should deplete even faster as Saudi Arabia and its OPEC+ allies implement new supply cutbacks. That’s reassuring even some of the industry’s most bearish forecasters a supply deficit is coming which will trigger a recovery in prices. “The selloff was far greater than what market balances are showing — namely lower inventories with the prospect of inventory draws as the northern hemisphere’s summer unfolds,” said Ed Morse at Citigroup Inc. The bank has held one of the most cautious price outlooks on Wall Street this year. Crude’s retreat offers some respite for consumers after the inflationary shock inflicted by Russia’s invasion of Ukraine. It also brings pain for bullish oil traders, and puts in peril the windfall being reaped by major oil companies and producing nations like Saudi Arabia and Iraq. Buying by refineries in Asia was subdued in April as margins for making fuels dipped. In a nod to some of that weakness, Saudi Arabia cut its oil prices for Asian processors for June on Thursday. Meanwhile, supplies from top exporter Russia have remained stubbornly high despite Moscow’s threats to slash output in retaliation for sanctions over its invasion of Ukraine.
Russia’s Seaborne Crude Exports Remain Strong
Shipments jumped above 4 million barrels a day in week to April 28
Source: Vessel tracking data monitored by Bloomberg
The market was faltering and Morgan Stanley — once at the forefront of calls for $100-a-barrel — on Tuesday abandoned projections for any substantial rally this year. The big drop-off came with worries over the economy and persistent trouble with banks that rippled through markets everywhere. Short-sellers have crept back into the market for the first time since the Saudi-led OPEC+ alliance unveiled new production curbs in early April.
But oil consumption continues to appear healthy and may even rise further over the coming months, according to UBS Group AG, which advised clients in a note on Thursday to add long positions in Brent. The physical market, where actual oil is traded, remains strong and supply is “pretty tight,” Shell Plc Chief Executive Officer Wael Sawan said Thursday.
The market’s strength is reflected in the pricing structure, with Brent futures for immediate delivery commanding a premium over later months in a curve known as backwardation. “I don’t think anything has changed fundamentally,” said Paul Horsnell, head of commodities research at Standard Chartered Bank. Instead, these are “perfect conditions to be driven by top-down macro and momentum trading.” While traders are still waiting to see how much crude Asia buys this month for further clues on demand, China is attracting cargoes as it emerges from its restrictive Covid rules. Flights in the country surged over the five-day Labor Day holidays with 9.42 million air passenger trips — an increase of 4.2% over the same period in 2019.
World oil use too remains on track to climb by a healthy 2 million barrels a day this year to a record 101.9 million barrels a day, according to the International Energy Agency in Paris. And should fundamentals deteriorate, the Saudis and their OPEC+ colleagues are likely to intervene further to shore up prices, several analysts said. “For now, the oil market remains mired in a wall of recessionary worry,” Helima Croft, chief commodity strategist at RBC Capital Markets. But “OPEC remains fully committed to trying to midwife a recovery.” The latest slump in crude, coming just days into the output cuts by the Organization of Petroleum Exporting Countries, has been a warning light for the group and its partners. They will gather in person for their next monthly meeting for a detailed review of market trends. “The OPEC cuts should help mitigate” the bearish market backdrop, said Christyan Malek, head of energy strategy at JPMorgan Chase & Co. “OPEC’s role as central bank for energy couldn’t come at a more critical time.” NN: Its still a binary trade and China is opening up and oil consumption is soaring. As far as i am concerned they gave us a chance to buy or rebuy oil at lower prices… Thankyou very very muck
Markets Sink on Fears About Banks and Weaker Economic Outlook
The relative calm that met the collapse of First Republic Bank on Monday was shattered on Tuesday, with broad-based declines across industries.
Performance of regional bank stocks since start of 2023
Stocks slumped on Tuesday, as fears about the health of the financial sector after the collapse of First Republic Bank collided with broader anxiety stemming from signs of a weakening economy. Some regional banks, which have been under pressure since Silicon Valley Bank and Signature Bank failed in March, took sizable hits on Tuesday, shattering the relative calm that prevailed after First Republic was seized and sold to JPMorgan Chase by regulators on Monday. PacWest’s stock lost almost 30 percent of its value, its worst single-day drop since the height of the banking turmoil in March. Western Alliance sank about 15 percent, while Comerica and Zions also suffered double-digit percentage declines. The moves came alongside data showing U.S. manufacturers received fewer new orders than expected in March and a continued cooling of the labor market that month, with job openings falling and layoffs rising. Oil prices fell sharply, too, as the prospects of an economic downturn would likely cut energy demand. The price of a barrel of Brent crude, the international benchmark, dropped to around $75, near its lowest level for the year. The S&P 500 dropped 1.2 percent. Energy stocks fell by the most, with the sector as a whole down more than 4 percent, followed by financials, down 2.3 percent.
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“The bank problem is going to be ongoing,” said Andrew Brenner, the head of international fixed income at National Alliance Securities. “The idea that giving First Republic to JPMorgan would end this, I never believed it. There is a real fear of instability and an economic slowdown.” Some investors have made bumper returns betting on the drops in bank stocks, a practice known as short selling. Metropolitan Bank has seen the biggest increase in bearish bets over the past 30 days, according to data from S3 Partners. More than 10 percent of the bank’s stock is now lent to short-sellers. Nearly 20 percent of PacWest’s shares are out on loan, however that number has fallen slightly over the past month.
US crude briefly sinks more than 7% in first minutes of trade
After a wave of selling over the last week it was little surprise when US crude futures opened lower on Thursday, but few traders were braced for the 7.2% plunge that unfolded in the first dramatic minutes of trading. West Texas Intermediate plummeted by almost $5 a barrel for a few seconds shortly after the open in Asia at 6 a.m. in Singapore, then recovered. When trading kicked off a couple of hours later in global benchmark Brent, it failed to respond in kind, merely shedding a little more than $1 a barrel.
Puzzled traders and analysts suggested a myriad of possible factors but none was definitive: speculators abandoning bullish bets; a possible fat-finger trade; algorithmic selling; and even a giant options position earlier this week that now looks to be loss-making were all touted as explanations. “My first thought was that it must have been a fat finger,” said Warren Patterson, head of commodities strategy at ING. “But it could just have been someone closing out, and that kind of volume is going to be felt at that time.” Another seasoned market watcher in Singapore, Vandana Hari, talked of “panic selling.” The rapid swoon and swift retracement is the latest wild swing in a tumultuous six-week period in the global oil market, with prices surging on OPEC+ supply cuts only to be dragged back down by concerns that slower global growth and US banking worries will eviscerate demand and sap risk appetite. The bizarre drop came in early Asian hours, often some of the thinnest trading moments. Still, the timing was unusual. Normally, sharp moves happen right at the open, exemplified by the surge that followed the recent OPEC+ reduction. This time, however, it took a few minutes before prices shifted substantially.
In the fifth minute of the session, more than 3,000 June futures contracts changed hands. Over that span, prices suddenly plunged by more than $3 to hit a nadir of $63.64 a barrel, the lowest intraday level since late 2021. Just three minutes later, WTI futures were back at $66 a barrel, and it then took little more than three hours for prices to eventuallyturn higher on the day.
The scale of the move will raise fresh questions about the health of liquidity in the market, particularly given the move was concentrated in WTI, while Brent remained insulated. Thinner volumes and outsized price moves have been a key feature in commodities markets, when elevated margins reduced activity. NN: BlackMask Pod cast:
PacWest Bancorp PACW shares tumbled more than 50% in after-hours trading Wednesday, taking other bank stocks with it after a report that the company’s executives were weighing a possible sale. The report, from Bloomberg News, adds to the concerns over the financial stability of regional banks, following the collapse in March of Silicon Valley Bank and Signature Bank, and the sale of First Republic Bank to JPMorgan Chase & Co. JPM this week. PacWest’s shares have been diving this week in the wake of First Republic’s collapse…. Firms like First Republic Bank, Silicon Valley Bank and Signature Bank all failed recently after clients withdrew money en masse, in social media-driven bank runs linked to the rate hikes. Many regional banks like Silicon Valley Bank relied on deposits into high-dollar accounts over the past few years, which the firms then invested in securities like U.S. Treasuries. But Treasuries—long seen as safe investments—have lost value as interest rates increased, prompting concerns about the stability of banks, and in some cases leading to a rush of customer withdrawals. PacWest CEO Paul Taylor stated in an earnings release last week that “deposits stabilized in the latter part of March and rebounded nicely in April” following significant withdrawals in March after SVB and Signature Bank failed. Inflation has slowed to 5%—well below June’s 9.1% peak, but still far higher than the 2% rate the Fed has targeted. NN: The dominoes keep falling. And this is just the start. Its really simple. The ASSHOLE bankers made loans based on 1% money. And now the cost of money is OVER 5%. THEY LOANED OUT THAT MONEY AT 3% AVERAGE DURATION 7 YEARS. Which means not counting loans going bad they are losing at least 200 bases points…. Without constant bailouts they cannot survive. See the stupid money is now waking up and realiaizng they can get at least 4% on their money. You need to put your money in treasuries. Do not fear we know how to trade them.
Stocks retreated after Jerome Powell said there won’t be any rate cuts if inflation remains too high, while signaling a possible pause in the Federal Reserve’s hiking campaign. Bond yields dropped alongside the US dollar. The S&P 500 edged lower. Treasury two-year rates, which are more sensitive to imminent Fed moves, traded around 3.9%. The greenback retreated for a second day.
“The Fed is dropping hints that we’re nearing the end of the rate hike cycle, even though it wants to maintain some wiggle room in case inflation stops slowing. It’s a fair concern. The good news? If this is the last hike, the S&P 500 has risen a year after six out of the last 9 hiking cycles. But in the three times stocks didn’t climb after hikes, it was because of a recession or market crisis. History doesn’t tell us much, other than the Fed better not screw this up.”
Jason Pride at Glenmede:
“Potential Fed pause, but no Fed pivot yet. The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”
David Russell at TradeStation:
“The Fed took another step back from its super-hawkish stance by saying they need to determine future policy. They’re setting up a potential pivot by outlining a series of reasons to pause. Given developments in the banking sector and slowing inflation, there’s more chance this was the last hike.”
Ronald Temple at Lazard:
“No surprises here. The FOMC struck an appropriate balance between taming inflation while avoiding exacerbating stress in the banking system. Assuming banking issues subside, additional rate hikes may be needed, but it’s time for a pause to allow the full effects of tightening to work its way through the economy.”
Gregory Faranello at AmeriVet Securities:
“The change is language was consistent with our view, and historically the evolution over the prior few meetings, signals the end of a tightening cycle.”
Peter Boockvar, author of the Boock Report:
“It’s just about time to call a time-out, which implies the game/fight against inflation is still ongoing, but at least they can sit back and determine ‘the extent to which additional policy firming may be appropriate to return inflation to 2% over time’.”
Florian Ielpo at Lombard Odier Asset Management:
“The Fed is walking a tight line, but it seems to know what it is doing. This should be comforting to markets and investors. This is probably not the end of a volatility fixed income world, but its main enemy (surprise jumbo hikes) is going away, and this is step 1 to significantly better perspective. From an equity perspective, settling rates is probably a good thing, all the more as the earnings season was still showing a resilient economy.”
Iran has seized a second oil tanker in a week on Wednesday in Gulf waters, the U.S. Navy said, the latest escalation in a series of seizures or attacks on commercial vessels in Gulf waters since 2019. The Bahrain-based Fifth Fleet of the U.S. Navy said the Panama-flagged oil tanker Niovi was seized by Iran’s Islamic Revolutionary Guard Corps Navy (IRGCN) at 6:20 a.m. (0220 GMT) while passing through the narrow Strait of Hormuz. In Iran’s first response, Tehran’s prosecutor announced the oil tanker was seized on a judicial order following a complaint by a plaintiff, the judiciary’s Mizan news agency said. No further details were provided. The incident comes after Iran on Thursday seized a Marshall Islands-flagged oil tanker in the Gulf of Oman called the Advantage Sweet. That tanker is being held by Iranian authorities in Bandar Abbas, the Marshall Islands flag registry said on Tuesday. NN: In normal times this would be a big shit. Markets ignore these kind of things at their own peril
The OPEC+ group is studying the causes of the decline in world oil prices, will monitor the situation to understand the reasons, Russian Deputy Prime Minister Alexander Novak said on Wednesday
MINERALNYE VODY (UrduPoint News / Sputnik – 03rd May, 2023) The OPEC+ group is studying the causes of the decline in world oil prices, will monitor the situation to understand the reasons, Russian Deputy Prime Minister Alexander Novak said on Wednesday. “We will monitor the market. We will monitor the situation. We need to understand the reasons, the prospects. How it will develop further, it may be short-term,” Novak said, commenting on the question about the current situation with world oil prices on the sidelines of the Caucasian Investment Exhibition.
The Federal Open Market Committee (FOMC) of the United States Federal Reserve announced on Wednesday that it will raise the federal funds rate target range by a quarter percentage point to between 5% to 5.25%.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the policymakers underscored in the statement, adding that the economic activity in the country moderately expanded during the first quarter, but warned that inflation still remains “elevated.” “Job gains have been robust in recent months, and the unemployment rate has remained low,” the policymakers added.
Treasury yields remained lower on Wednesday after Federal Reserve policy makers delivered a widely expected quarter percentage point interest rate hike that pushed its policy rate above 5% and left the door open for additional action if needed.
