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Oil slips as recession fears outweigh tight supply prospects

Oil prices edged lower on Monday as investors weighed economic storm clouds that could foreshadow a global recession, and erode fuel demand, against potentially tighter supply.

Brent crude futures fell 69 cents, or 0.7%, to $97.23 a barrel. West Texas Intermediate crude declined by 36 cents, or 0.4%, to $92.57 a barrel.

U.S. Federal Reserve Chicago President Charles Evans said there was a strong consensus at the Fed to raise the target policy rate to around 4.5% by March and hold it there.

Stubbornly higher rates, which are aimed at giving the U.S. central bank time to evaluate the impact of inflation and allow clogged supply chains to clear, limited oil prices.

“There’s more of the doom and gloom from those folks and what they’re going to do to the economy, because they’re not so convinced they have inflation under control, and that’s the macro play that’s weighing on oil,” said John Kilduff, partner at Again Capital LLC in New York.

Oil prices also struggled under a strengthening U.S. dollar , which rose for a fourth session. A stronger dollar makes crude more expensive for non-American buyers.

The prospect of tightening OPEC+ oil supplies limited declines in prices. But signs that the group’s de facto leader, Saudi Arabia, would continue to serve Asian customers at full levels lowered expectations of the cuts’ impact. 

Saudi Aramco has told at least seven customers in Asia they will receive full contract volumes of crude oil in November ahead of the peak winter season, several sources with knowledge of the matter said.

The Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, decided last week to lower their output target by 2 million barrels per day.

Brent and WTI posted their biggest weekly percentage gains since March after the reduction was announced.

However, the cut has spurred a flurry of activity in the options market – but with more U.S. bettors opting for a bearish stance, data from CME Group showed.

Concerns over still relatively robust demand as the pandemic has eased meeting potentially scarce supply have been deepened as the European Union late last week endorsed a G7 plan to impose a price cap on Russian oil exports.

The complicated new sanctions package could end up shutting in considerable supplies of Russia crude, analysts have warned.

“A recessionary economic outlook will lead to lower oil demand,” Fitch Ratings said on Monday. “However, we expect pricing volatility to remain high in the short term as geopolitical factors, such as further sanctions leading to a reduction in Russian exports.”

Those political factors could alter supply patters and cause greater price volatility, Fitch said.

Meanwhile, services activity in China during September contracted for the first time in four months as COVID-19 restrictions hit demand and business confidence, data showed on Saturday.

The slowdown in China, the world’s second-largest oil consumer behind the United States, adds to growing concerns over a possible global recession triggered by numerous central banks raising interest rates to combat high inflation.

Taiwan stocks down 3% in mixed Asia trade as TSMC plunges 6%

Shares in the Asia-Pacific were mixed on Tuesday, while Taiwan’s benchmark index dropped more than 3% on its return to trade as investors weighed the impact of new U.S. rules on chipmaker TSMC.

Japan and South Korea’s markets also resumed trading after a holiday on Monday. The Nikkei 225 fell around 2% and the Topix lost about 1.5%. In South Korea, the Kospi fell 2.16% and the Kosdaq shed 3.5%.

Hong Kong’s Hang Seng index fell 0.91% and the Hang Seng Tech index dropped 1.11%. The Shanghai Composite and Shenzhen Component in mainland China were little changed.

In Australia, the S&P/ASX 200 bucked the overall trend and was 0.27% higher. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 1.41%.

“Equities continue to sell off as the impact of tighter monetary policy spooks investors,” ANZ Research analysts wrote in a note Tuesday.

https://www.cnbc.com/2022/10/11/asia-markets-interest-rates-economy-stocks-currencies.html

Happy Thanksgiving

France’s Emmanuel Macron criticizes Biden’s ‘Armageddon’ warning: We must ‘speak with prudence’

French President Emmanuel Macron criticized President Biden’s comments warning of “Armageddon” as Russia invokes the potential for using nuclear weapons.

Biden made the comments during a speech to the Democratic Senatorial Campaign Committee on Thursday night, stating that Russian President Vladimir Putin isn’t joking when it comes to using weapons of mass destruction.

“[Putin was] not joking when he talks about the use of tactical nuclear weapons or biological or chemical weapons,” Biden said. “We have not faced the prospect of Armageddon since Kennedy and the Cuban Missile Crisis.”

Gold drops as U.S. jobs data fans hefty Fed rate-hike bets (cnbc.com)

Gold drops as U.S. jobs data fans hefty Fed rate-hike bets

Gold prices fell Friday after a better-than-expected U.S. jobs report cemented expectations the Federal Reserve would implement steep interest rate hikes and lifted the dollar and bond yields.

Spot gold was down 0.9% at $1,695.40 per ounce. Prices have risen about 2% so far this week.

U.S. gold futures slipped 1% to $1,703.40.

“The market is looking at the stronger-than-expected payrolls report as further impetus for the Fed to raise yet another 75 bps at the early November meeting,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

“If bullion doesn’t hold support at $1,690, it could retest $1,660 level. Market will be now be focused on key inflation data next week, as well as the Fed minutes.”

Data showed U.S. employers hired more workers than expected in September, while the unemployment rate dropped to 3.5%.

Fed fund futures are now pricing in a 92% chance of a 75-basis-point (bps) rate hike by the U.S. central bank at its policy meeting next month after a strong labor market report.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Following the data, the dollar jumped 0.3% against its rivals, making gold more expensive for other currency holders. Benchmark U.S. Treasury yields also climbed.

Silver eased 2.7% to $20.10 per ounce, but was on track for its biggest weekly rise since late-July, up about 6.5% so far.

Platinum lost 1.1% to $912.07 per ounce and was headed for its best week since February 2021. Palladium dipped 3.1% to $2,190.78.

Oil jumps to 5-week high lifted by OPEC+ output cut

Oil rose about 3% to a five-week high on Friday, carried higher again by an OPEC+ decision this week to make its largest supply cut since 2020 despite concern about a possible recession and rising interest rates.

The cut from the Organization of Petroleum Exporting Countries and allies including Russia, known as OPEC+, comes ahead of a European Union embargo on Russian oil and will squeeze supply in an already tight market.

Brent crude was up $3.48, or 3.7%, to $97.90 a barrel. U.S. West Texas Intermediate, or WTI, crude gained $4.18, or 4.7%, to $92.63.

Oil kept rallying even as the dollar moved higher after data showing the U.S. economy was creating jobs at a strong pace gave the Federal Reserve a reason to continue hefty interest rate hikes. A strong dollar can pressure oil demand, making crude more expensive for other currency holders.

Both benchmarks were on track for their highest closes since Aug. 30, their fifth straight daily rise and second straight weekly gain, in technically overbought territory.

For the week, Brent was up about 10% and WTI up about 15%. Both would be the biggest weekly percentage gains since March.

U.S. heating oil futures jumped 18% this week, putting the heating oil crack spread – a measure of refining profit margins – on track for its highest close on record, according to Refinitiv data going back to December 2009.

The Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, agreed this week to lower their output target by 2 million barrels per day.

“Among the key ramifications of OPEC’s latest cut is a likely return of $100 oil,” said Stephen Brennock of oil broker PVM.

UBS Global Wealth Management also projected Brent would “move above the $100 bbl mark over the coming quarters.”

The OPEC+ cut from the comes ahead of a European Union embargo on Russian oil and will squeeze supply in an already tight market.

OPEC Secretary General Haitham al-Ghais said the output target cuts will leave OPEC+ with more supply to tap in the event of any crises.

On Thursday, U.S. President Joe Biden expressed disappointment over the OPEC+ plans. He and U.S. officials said Washington was looking at all possible alternatives to keep prices from rising.

“With Brent now firmly back in the $90-100 range, the group will likely be pleased with the outcome although substantial uncertainty remains over the economic outlook,” said Craig Erlam of brokerage OANDA, referring to OPEC+.

In Europe, divisions between European Union leaders over capping gas prices and national rescue packages resurfaced, with Poland accusing Germany of “selfishness” in its response to a winter energy crunch caused by Russia’s war in Ukraine.

Petrol stations in the Paris region and throughout France were having problems getting enough fuel supplies as strikes at four TotalEnergies SE refineries continue for a tenth day.

US job growth slows again in September with just 263,000 positions added

U.S. job growth slowed for a second consecutive month in September, but hiring remained solid despite growing headwinds from higher interest rates, scorching-hot inflation and mounting recession fears.

Employers added 263,000 jobs in September, the Labor Department said in its monthly payroll report released Friday, slightly topping the 250,000 jobs forecast by Refinitiv economists. It maatch

The unemployment rate, meanwhile, unexpectedly dropped to 3.5%, the lowest since the COVID-19 pandemic began two years ago.

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This is a developing story. Please check back for updates.

Samsung profit plunges in first drop since 2019 as chipmakers feel bite

• Samsung forecast on Friday its operating profit likely plunged 32% in the third quarter of the year as weaker memory pricing and demand hit the technology giant.
• The forecast profit fall adds further concerns about the chip sector which is facing softer demand amid a weaker global macroeconomic environment.
• However, one analyst said that memory cycle is “bottoming” and prices could rise again next year which will help Samsung.

Samsung said Friday its operating profit likely plunged 32% in the third quarter of the year as weaker memory pricing and demand hit the technology giant.

The South Korean firm said it expects operating profit to be between 10.7 trillion ($7.57 billion) and 10.9 trillion South Korean won. It is the first decline in operating profit since 2019.

Samsung reported a revenue rise of between 75 trillion and 77 trillion Korean won, a 1.3% to 4% year-on-year rise.

Samsung’s chip business, which includes selling chips for laptops, servers and storage, as well as manufacturing semiconductors, accounts for 70% of its profits.

Samsung profit plunges in Q3 as chipmakers feel bite (cnbc.com)

Paying with a credit card will soon cost more as some businesses add transaction fees

An estimated one in five small businesses is planning to pass on credit-card transaction fees to their customers after new surcharge rules come into effect this week, according to a new survey from the Canadian Federation of Independent Business.

Starting Thursday, businesses will be allowed by credit-card companies to add surcharges to their bills for customers who are paying by credit card. The fees are not set, but would be around 1.4 per cent or more of the bill. Financial institutions use transaction fees in large part to fund loyalty programs.

The new rules are the result of a settlement in a long-running class-action legal battle between small merchants, Visa, MasterCard and financial institutions. Credit-card companies had long resisted allowing businesses to pass on these costs as it could lead consumers to switch payment methods to avoid paying the fees. Instead the cost is borne by merchants, many of whom feel they have to pay the fees to accommodate the many customers who want to pay by credit card.

CFIB president Dan Kelly said he is glad business owners now have the choice of making these fees transparent to their customers.

“Merchants have always had to pass on these fees to remain profitable; they’ve just buried them in the costs of goods,” he said.

According to the CFIB’s online survey of 3,914 members, conducted from Sept. 1 to 8, 19 per cent of respondents were planning to add the surcharges as soon as they could. Another 26 per cent said they would do so if their competitors did, 40 per cent said they were not sure yet and 15 per cent said they would not.

Those in consumer-facing businesses were the least likely to say they would pass on the costs. Only 12 per cent of retail, 17 per cent of personal services and 19 per cent of hospitality businesses said they were sure to add the surcharge.

On the other side, businesses that often sold to other businesses were more likely to want to pass on the transaction costs. Those sectors include: transportation (37 per cent); finance, insurance and real estate (32 per cent); and construction (31 per cent).

For those who did not want to pass on the fees, 79 per cent said it was because they thought it would alienate their customers.

Karl Littler, senior vice-president of public affairs at the Retail Council of Canada, said his group recently held an information session for members large and small, and while there was interest about the issue, he said he believes retailers will remain reluctant to begin surcharging.

“I think it will land with a dull thud in the retail space,” he said.

Still, credit-card fees have led to disputes between card companies and retailers. In 2016, Wal-Mart Canada stopped accepting Visa cards at stores in Thunder Bay and Manitoba for several months. The two sides reached an agreement on fees in early 2017 and Wal-Mart resumed accepting Visa.

The federal government promised in its 2021 budget to put pressure on the card companies and financial institutions to lower the fee from its present average of 1.4 per cent, but has yet to take action on that pledge.

Credit-card transaction fees have become a growing concern for businesses because customers are increasingly using cards instead of cash. According to Payments Canada, there were six billion transactions made with personal credit cards in 2021, compared with 4.5 billion in 2016. The total value of those transactions rose to $509-billion from $408-billion.

Although this legal settlement was driven by small enterprises, larger enterprises have also complained about credit-card transaction fees.

Telus Corp. wrote to its industry regulator, the Canadian Radio-television and Telecommunications Commission, in August asking permission to charge customers a 1.5-per-cent transaction fee if they pay their bill with a credit card. Telus told The Canadian Press it expected the charge to amount to an average of $2 a month.

Mr. Kelly said that large companies like Telus getting involved showed how much power credit-card companies have over all businesses. “It shows just how big the market imbalance is,” he said.