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Oil bulls turn red week to neutral by clinging onto Russia cuts story



Oil bulls turn red week to neutral by clinging onto Russia cuts story
© Reuters.

By Barani Krishnan — Oil bulls turned a losing week into a neutral one by leveraging upon an unverified report about deep production cuts planned by Russia to send crude prices up a second day in a row, despite U.S. inflation data suggesting the Federal Reserve could turn aggressive again on rate hikes.

The Fed’s preferred inflation indicator — the , or PCE, Index — grew 5.4% in the year to January, beating forecasts for the month as well as its previous growth in December, the Commerce Department reported on Friday.

That was a day after the Energy Information Administration, or EIA, said that U.S.  rose for a ninth straight week, adding a cumulative 60 million barrels to inventories since the end of last year.

Those long oil, however, ignored both the inflation and inventory data, remaining wide-eyed over a Reuters report that Russia will cut crude exports from its western ports by up to 25% in March. 

For context, the cut was way above the 5% reduction in output announced by Deputy Prime Minister Alexander Novak two weeks ago. 

If true, it would be significant. 

But more than 24 hours after it appeared, the report remained unproven, with no comment or verification from a single official in Moscow. 

Yet, oil bulls managed to turn around an initial market slump on Friday by hedging on the so-called production cuts story to buy every price dip triggered by the heady inflation in the PCE data.

The hit a seven-week high against a basket of major currencies while the yields on the U.S. note hit their highest since 2007 amid a near reach of the 4% level for the benchmark note.

All these were on the back of expectations that the Fed will resort to more hawkish monetary action amid the “hotter inflation in the U.S.,” economist Greg Michalowski said in a post on the ForexLive forum.

U.S. , meanwhile, hit a 13-month high in February, according to a survey by the University of Michigan that showed Americans more optimistic about spending at a time the Fed actually needs them to show restraint.

New York-traded West Texas Intermediate, or WTI, crude for settled up 93 cents, or 1.2%, at $76.32 per barrel. Earlier in the session, WTI fell as much as $1.28. But after the turnaround, the U.S. crude benchmark finished the week down just 2 cents, practically flat.

Brent for settled up 95 cents, or 1.2%, at $83.16. Brent fell as much as $1.12 earlier in the session. For the week, the global crude benchmark finished up 13 cents, or nearly flat too.

“It’s what you call the ‘buy-on-Friday-so-you-can-sell-on-Monday’ syndrome,” said John Kilduff, partner at New York energy hedge fund Again Capital. “This was a trait we used to regularly see last year when supply was at severe threat in the early days of the Ukraine invasion and sanctions on Russia.”

“Now we have enough prompt oil supply in the U.S. to be swimming in it,” added Kilduff. “The bulls, of course, want to revert to the undersupplied mantra and this unverified report on Russian cuts has given them just the right cover for that. I doubt the long-side of oil can keep doing this if risks to the economy from inflation keep growing.”

Ed Moya, analyst at online trading platform OANDA, had a similar view. “The risks that the Fed will have to send the economy into a recession are growing,” said Moya. “It is getting ugly on Wall Street as risk aversion runs wild and that could keep oil prices heavy.“​ 

Economists had expected the annualized January growth of the PCE to at least match December’s 5%, after aggressive rate hikes by the Fed for almost a year now.   

Without volatile food and energy prices, the so-called was up 4.7% during the 12 months to January versus a forecast 4.3% and a previous growth of 4.4% in the year to December.

“The PCE report shows that the Fed needs to do a little more,” Loretta Mester, Fed president for the region of Cleveland, said in comments carried by Bloomberg. “It is gratifying that inflation declined from [its] peak, but more is needed.”

President Joe Biden, in a statement released by the White House, concurred. “Today’s report shows we have made progress on inflation, but we have more work to do.”

The , a broader gauge of inflation, stood at a four-decade high of 9.1% for the year to June. It has moderated since to an annualized growth of 6.4% in January. The Fed’s target for inflation is just 2% per year.

“Wage growth is still running too high to be consistent with timely, and a sustainable return to 2% inflation,” ​​Philip Jefferson, a board member at the Fed, said.

To clamp down on runaway price growth, the Fed added 450 basis points to interest rates since March via eight hikes. Prior to that, rates stood at nearly zero after the global outbreak of the coronavirus in 2020. 

The Fed’s first post-COVID hike was a 25-basis point increase in March last year. It then moved up with a 50-basis point increase in May. After that, it executed four back-to-back jumbo-sized hikes of 75 basis points from June through November. Since then, it has returned to a more modest 50-basis point increase in December and a 25-basis point hike in February.

for the Fed’s March 22 policy meeting, monitored by foreign exchange traders, remained at 25 basis points on Friday, though it could end up being twice as much amid increasing calls for tighter policing from the central bank’s hawks.

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French climate investments to drive up national debt burden – think-tank




French climate investments to drive up national debt burden - think-tank
© Reuters. FILE PHOTO: French President Emmanuel Macron visits Institut Curie laboratory ahead of announcements on biomedical research in Saint-Cloud, France, May 16, 2023. REUTERS/Benoit Tessier/Pool

PARIS (Reuters) – Investments that France needs to finance its transition to a low-carbon economy are set to add 25 percentage points to its debt burden by 2040, a report from the government-funded France Strategie think-tank said on Monday.

France will need to make additional annual investments of about 67 billion euros ($74 billion) – more than 2% of economic output – by 2030 to meet its objectives for reducing its dependence on fossil fuels, France Strategie calculated.

The think-tank, which is part of the prime minister’s office, said the financial effort would weigh heavily on public finances partly because the investments imply lower potential growth, which would cut tax revenues.

As a result, the debt burden would rise by 10 percentage points by 2030 and 25 percentage points by 2040, which France Strategie suggested might need to be financed in part by a temporary tax on wealthy households.

President Emmanuel Macron’s government has hoped to chip away in the coming years at France’s national debt, which currently stands at slightly more that 111% of gross domestic product after surging during the COVID crisis.

The report said the financial burden of investing in Europe’s energy transition also posed a risk in terms of international economic competition, as other major economies such as the United States and China were less concerned about budgetary constraints.

About 100 experts in French and European research groups as well as public French institutions participated in the report, which was led by economist Jean Pisani-Ferry, who previously helped Macron draft his economic programme.

($1 = 0.9084 euros)

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Crude oil largely flat; Caution ahead of debt ceiling meeting




Crude oil largely flat; Caution ahead of debt ceiling meeting
© Reuters — Oil prices traded largely unchanged Monday, with traders cautious ahead of the resumption of U.S. debt ceiling negotiations while supply concerns add support. 

By 09:30 ET (13:30 GMT), futures traded 0.1% lower at $71.59 a barrel, while the contract fell 0.1% to $75.52 a barrel.

U.S. President Joe Biden and Republican House Speaker Kevin McCarthy are set to meet later this session to try and agree on a deal to raise the more than $31 trillion debt ceiling.

Concerns that a failure to come up with an acceptable compromise have weighed heavily on the market over the recent weeks, as this would result in the U.S. defaulting on its debt obligations, likely plunging the global economy into recession.

The U.S. Treasury has warned that the government could run out of money to pay its bills as soon as June 1.

That said, both crude benchmarks managed to post gains last week, ending four straight weeks of heavy declines, helped by the U.S. starting to refill its Strategic Petroleum Reserve as well as the supply disruptions in Canada, due to early wildfires in the crude-rich Alberta province. 

Additionally, the latest data from showed the U.S. oil rig count fell by 11 over the last week, to its lowest count since June 2022.

“A slowdown in U.S. drilling activity is a concern for the oil market, which is expected to see a sizable deficit over the second half of the year,” said analysts at ING, in a note. 

“Producers appear to be responding to the weaker price environment, rather than expectations for a tighter market later in the year.”

This brings the Organization of Petroleum Exporting Countries and allies, known as OPEC+, firmly into focus, with its next meeting in early July. 

The cartel surprised the market with an output cut at the last meeting, which came into effect at the start of this month. However, this has done little to support crude prices, implying the members may be looking at a further reduction in production.

The fact U.S. producers are not increasing in number will be good news for OPEC+, ING added, “as it suggests that they will be able to continue supporting prices without the risk of losing market share to U.S. producers.”

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California grid operator signs off on $7.3 billion of power lines




California grid operator signs off on $7.3 billion of power lines
© Reuters. FILE PHOTO: A woman jogs by power lines, as California’s grid operator urged the state’s 40 million people to ratchet down the use of electricity in homes and businesses as a wave of extreme heat settled over much of the state, in Mountain View, Californi

(Reuters) – California’s electric grid operator has approved a plan expected to cost $7.3 billion for 45 new power transmission projects over the next decade and made it easier for new power plants in high-priority areas to connect to the grid.

The projects will support the development of more than 40 gigawatts (GW) of new generation resources, the California Independent System Operator (CAISO) said on Thursday.

“With electrification increasing in other sectors of the economy, most notably transportation and the building industry, even more new power will be required in the years ahead,” the CAISO said.

The vast majority of the transmission projects will be built in California, with some in neighboring Arizona, it said.

The power lines recommended by CAISO’s 2022-2023 Transmission Plan will allow the state’s grid to add more than 17 GW of solar resources, 8 GW of wind generation, 1 GW of geothermal development, and battery storage projects.

CAISO will prioritize connecting power plants to the grid in specific geographical zones identified by its plan where developing new power lines and plants “make the most economic and operational sense.”

The grid operator also approved proposed reforms to account for “increasing levels of net load forecast uncertainty between day-ahead and real-time markets … as the generation fleet evolves towards a cleaner, but more variable, resource mix.”

It projected that its transmission plan next year could include the need to add 70 GW of new power to the grid by 2033, rising to 120 GW as the state seeks to meet its goal of a carbon-free power system by 2045.

Power supply in the U.S. West is vulnerable to extreme heat as it relies on regional energy transfers to meet demand at peak or when solar output is diminished, the North American Electric Reliability Corp (NERC) said in its summer outlook on Wednesday.

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