Oil rises 3.0pct on signs of more Europe and China demand, less US output
NEW YORK: Oil prices climbed about three per cent on Tuesday on signs of higher demand in Europe and China, lower production in the US, tensions in the Middle East and as buyers emerged the day after prices fell to a four-year low.
Brent futures rose US$1.92, or 3.2 per cent, to settle at US$62.15 a barrel, while US West Texas Intermediate (WTI) crude gained US$1.96, or 3.4 per cent, to close at US$59.09.
Both benchmarks rose out of technically oversold territory, the day after posting their lowest settlements since February 2021 on a decision by OPEC+ to boost output.
"The market may be seeing some bottom fishing with a significant amount of profit taking out of short holdings, a major contributor to today's price rebound," analysts at energy advisory firm Ritterbusch and Associates said.
OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, decided over the weekend to speed up oil production hikes for a second consecutive month.
"After evaluating the latest OPEC+ move to accelerate the easing of supply cuts, market players are focusing on developments in trade and the possibility ... that trade deals will be reached," said Tamas Varga, an analyst at PVM, a brokerage and consulting firm that is part of TP ICAP.
Varga also pointed to the rise in geopolitical risk premium in the Middle East as Israel struck Iran-backed Houthi targets in Yemen as a retaliation for an assault on Ben Gurion airport.
US President Donald Trump, however, said the US will stop bombing the Houthis in Yemen, saying that the group had agreed to stop interrupting important shipping lanes in the Middle East.
Prices also drew support after consumers in China increased spending during the May Day celebration and as market participants returned after the five-day holiday.
The US dollar fell to a one-week low against a basket of currencies as investors grew impatient about trade deals. A weaker US currency makes dollar-priced oil less expensive for buyers using other currencies.
In addition, lower oil prices in recent weeks have prompted some US energy firms like Diamondback Energy and Coterra Energy to announce that they would cut some rigs, which analysts said should over time increase prices by reducing output.
Ahead of weekly US oil inventory data, analysts forecast crude stockpiles fell about 800,000 barrels last week.
If correct, that would be the first time stockpiles fell for two consecutive weeks since January. That compares with a decrease of 1.4 million barrels during the same week last year and an average decrease of 100,000 barrels over the past five years (2020–2024).
GROWTH IN EUROPE?
In Europe, companies are expected to report growth of 0.4 per cent in first-quarter earnings, LSEG I/B/E/S data showed, an improvement over the 1.7 per cent drop analysts had expected a week ago.
The European Union trade chief said the 27-nation bloc is under no pressure to accept an unfair tariff deal with the US.
The European Commission, meanwhile, proposed adding more individuals and over 100 vessels linked to Russia's shadow fleet to its 17th package of sanctions against Moscow in response to Russia's 2022 invasion of Ukraine.
Trump said late on Monday he would announce pharma tariffs over the next two weeks, his latest action on levies that have roiled global financial markets over the past months.
US Treasury Secretary Scott Bessent said the Trump administration could announce trade agreements with some of the United States' largest trade partners as early as this week, but gave no details on which countries were involved.
The US trade deficit widened to a record high in March as businesses boosted imports of goods ahead of tariffs, which dragged gross domestic product (GDP) into negative terrain in the first quarter for the first time in three years.
The Federal Reserve is widely expected to leave interest rates unchanged on Wednesday as tariffs roil the economic outlook.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
4 hours ago
- The Star
Stocks drop, gold rises in risk-off start to week
NEW YORK: Asian shares dropped along with US stock-index futures as trade tensions dialed up, prompting investors to hold back on taking risky bets. Gold rose in demand for safe haven assets. Indexes in Japan and Australia opened lower. US equity-index futures slipped 0.3 per cent after President Donald Trump ratcheted up trade tensions saying he would double tariffs on steel and aluminum imports and accusing China of violating an agreement with the US to ease tariffs. Treasuries dropped, with the yield on the ten-year rising one basis point. Gold advanced 0.7 per cent after retreating last week. A gauge of the dollar edged lower after China urged the US to safeguard the consensus reached in the talks with the US in Geneva. The yen strengthened. Crude oil climbed even after OPEC+ agreed to lift output by less than some investors had expected. Tariff headlines are once again dominating markets after a legal back-and-forth last week on the status of Trump's century-high levies, which investors say will push the US into an economic recession. Amid all the uncertainty about the US trade policy and negotiations with countries including China, market participants are also monitoring with a sweeping tax bill that threatens to burgeon US deficit. "The end of May is a precursor to the larger risks for June and the end of the second quarter,' Bob Savage, head of markets macro strategy at BNY, wrote in a note. "The shift in mood this month highlights how markets have gone from unpredictable to merely uncertain, as concerns about trade, fiscal spending and monetary policy continue to drive prices.' Trump said China "violated a big part of the agreement we made' in Geneva. The dust-up threatened to again upend trade relations between the world's two largest economies, which have been held together by a fragile, weeks-old tariff truce. China responded in a statement urging the US to promote stable trade relations. China will take resolute and forceful measures to safeguard its legitimate rights if the US continues to undermine China's interests, it said. Asian steel and aluminum shares mostly declined after Trump said he would hike tariffs on steel and aluminum to 50 per cent from 25 per cent. Traders in Asia will soon shift focus to Hong Kong shares after Chinese factory activity data contracted at a slower pace in May than the month prior. Mainland markets are closed for a holiday. US Treasuries delivered their first monthly loss this year in May, buffeted by renewed tariff uncertainty and growing anxiety over mounting levels of government debt. The 30-year yield rose for a third consecutive month, its longest losing streak since 2023, as Trump wrestles with Congress over a bill that promises to cut taxes. Treasury Secretary Scott Bessent at the weekend said the US "is never going to default' as the deadline for increasing the federal debt ceiling gets closer. "Shares are at high risk of renewed falls given the ongoing tariff uncertainties, concerns about US debt, likely weaker growth and profits and the risk of a US/Israeli strike on Iran's nuclear capability if diplomacy doesn't work,' Shane Oliver, head of investment strategy and chief economist at AMP Ltd., wrote in a note. - Bloomberg
The Star
6 hours ago
- The Star
Oil output increase a potential bane
PETALING JAYA: Corporate Malaysia's fiscal position may come under pressure if the Organisation of the Petroleum Exporting Countries and its allies (Opec+) decide to further open the taps to boost oil output. Although Opec+ has agreed for now to keep its output policy unchanged, analysts opined that another production increase of 411,000 barrels per day in July is likely, matching the additional output in May and June. If the increase in oil output further gains momentum this year, it could put a strain on Malaysia's oil and gas (O&G) export earnings as the country is a net exporter of O&G, which could in turn impact its fiscal position and fiscal consolidation initiatives. The lower oil prices coupled with US tariffs and global recessionary risks are seen as hurdles in Malaysia's fiscal consolidation landscape. The government's oil price assumption for Budget 2025, announced last October, was set at US$75 to US$80 per barrel. As at press time, the international benchmark Brent crude was down by 0.35% to US$61.88 per barrel. Fiscal consolidation refers to government policies aimed at reducing deficits and debt accumulation. It involves measures to balance government revenue with expenditure, minimising deficits, controlling public debt, and promoting sustainable economic growth. Economist Anthony Dass told StarBiz that an increase in oil supply by Opec+ can add downward pressure on global crude oil prices. He said Malaysia, as a net exporter, would experience a direct impact from a loss of revenue. 'While the exact scale of the Opec+ increase is still under discussion, potentially around 411,000 barrels per day in July, with more unwinding of cuts by November, any significant addition to supply, especially if it outstrips demand growth, will negatively impact Malaysia's O&G export earnings. 'Looking at the petroleum-related revenue, for every US$10 per barrel drop in oil prices, it is estimated to reduce federal revenue by RM2bil to RM3bil. 'Should global recession drag Brent crude down to US$65 to US$70 per barrel versus (the) US$80 to US$85 baseline, there would be a drop in petroleum-related revenue,' said Dass, who is the senior economic adviser at KSI Strategic Institute for Asia Pacific and a member of the SME Association of Malaysia's National Council. The government aims to reduce its fiscal deficit from 5% of gross domestic product (GDP) in 2023 to 4.3% in 2024 and 3.8% in 2025. Dass is projecting Brent crude to hover at US$60 to US$65 per barrel this year. HSBC Asean economist Yun Liu said the current oil price is lower than the government's oil price assumption of US$75 to US$80 per barrel as announced in Budget 2025 last October. She said this may raise questions on energy-related revenue. 'But there are still a lot of moving parts of the fiscal consolidation plan. For example, we are still waiting for clarity on the sales and service tax (SST) expansion plan. 'It has reportedly been delayed for a month, so eyes are on any concrete plans to implement it. The other elephant in the room is the RON95 subsidy rationalisation. 'When and how it will be implemented will impact this year's fiscal plan,' Liu said. HSBC chief economist for Australia, New Zealand and global commodities Paul Bloxham said he expects the oil price to be on a downward trajectory, with a forecast average of US$68.50 a barrel in 2025 and US$65 a barrel in 2026. That said, he said he sees the upcoming Opec+ meetings as a downside risk to these forecasts, with a high chance that another accelerated supply hike will be announced for July. 'A key driving force for these decisions is expected to be lack of compliance with current quotas by some of the smaller Opec+ producing countries. 'The Opec+ members have also been encouraged by recent announced cuts to capital expenditure by US shale producers, and are expected to continue to aim to gain market share by putting downward pressure on prices. 'There are limited upside risks to the demand for oil, with the key challenge being the global economic slowdown that is underway due to the trade policy shock. 'The upside risks are mostly related to possible supply shocks. These include potential disruption to supply from Venezuela and Libya, and risks of a rebound in supply from Iran, given the risk that an Iran-US nuclear deal does not arrive,' Bloxham noted. Juwai IQI global chief economist Shan Saeed said with Opec+ increasing output, global oil prices might face downward pressure in the short run and recover sooner than expected. He said Malaysia relies significantly on O&G earnings for its fiscal plans and can move smartly to generate revenues from other sources. Increasing the GDP size is a proven strategy to enhance the revenue base and consolidate the fiscal position to bolster the balance sheet of the government, he said. 'We expect Brent crude oil prices to move into two phases in the short and long run. In the short run, we expect the price to be around US$64 to US$67 per barrel. 'However, in the long run it is expected to trade at US$77 to US$83 a barrel based on a few factors. 'They include geopolitical risks, US dollar debasement, supply disruption from shale gas myth, and Opec+ production cuts,' Shan noted. US dollar debasement means the depreciation of the dollar due to the Federal Reserve (Fed) cutting interest rates. Shan anticipates the Fed will start cutting rates from July of this year onwards. He said the greenback has already depreciated 8% year-to-date, and foresees it to further depreciate upon the Fed cutting rates. Malaysia, according to Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, has been recording trade deficits in crude oil for the past three years. Last year, he said the trade deficits stood at RM37.1bil on the back of total exports and imports of RM26.1bil and RM63.2bil respectively. 'On that note, the contribution from O&G-related revenue to the government is going to be increasingly challenging. Not to mention that Petroliam Nasional Bhd may also need to allocate more capital expenditure for developing the renewable energy space and its overseas investments. 'In a nutshell, the government's revenue stream is expected to be more challenging, leading to more discussion to have other revenue streams to ensure the sustainability of the government finances,' he said, adding that he is projecting on the average for Brent crude to be at US$67 to US$68 per barrel for 2025. Mohd Afzanizam said on the whole the government has done well in managing its fiscal position. The first quarter of financial year 2025 (1Q25) fiscal deficits have been narrowed to 4.5% of GDP from 5.7% in the same period last year, he said. The upward revision in the service tax from 6% to 8% on March 1, 2024, has led to a 30.3% growth in SST collection in 1Q25 and the diesel subsidies rationalisation on June 10, 2024, has resulted in the decline of subsidies and social assistance expenditure from RM16bil in 1Q24 to RM12.9bil in 1Q25, he said. 'I suppose the fiscal consolidation momentum needs to be maintained and the communication will always need to be improved in general in order to get the total buy-in from the masses. 'It's also about the mechanism where it should be easily implemented where the general public can see the positive outcome almost immediately,' he said. OCBC Asean economist Jonathan Ng said the bank has revised its 2025 oil price forecasts downward, with West Texas Intermediate and Brent crude projected to average US$63 per barrel and US$67 per barrel respectively – about US$13 per barrel lower than the average oil prices in 2024. He said the reasons for the downward revision are predicated on slowing global economic growth amid uncertainties in global trade policies and higher-than-expected oil supplies from Opec+ countries. As to the positive growth drivers for the oil market this year in the current environment, Ng said an escalation in geopolitical tensions in Eastern Europe (for example, the Russia-Ukraine war) and the Middle East could lead to the implementation of further sanctions on the Russian and Iranian energy sectors. As a result, he said the supply disruptions are likely to support higher oil prices in the short-term, given the reconfiguration of trade flows. To strengthen the government's fiscal position in the short term Dass said, among others, there is a need to accelerate targeted cash aid for vulnerable groups and micro, small, and medium enterprises, fast-track high-multiplier development projects (especially in digital, green, and transport), and improve targeting of fuel subsidies to reduce fiscal leakage. Over the medium term, he said the government needs to continue fiscal base broadening: e-invoicing and subsidy rationalisation, maintain fiscal discipline to avoid rating downgrades (currently A–/A3 with stable outlook), and reaffirm fiscal consolidation roadmap and medium-term fiscal framework. To boost Malaysia's revenue and have a better grip on its fiscal consolidation, HSBC's Liu said the country should consider raising the tax coffers. 'Its tax receipts amounted to around 12% of GDP, lower than those of peers, so there's still the potential to raise the tax coffers. 'In the absence of a reintroduction of the goods and services tax, the tax tweaks and measures are necessary to boost fiscal coffers,' she said.
The Star
6 hours ago
- The Star
Oil rebounds after Opec+ sticks to same output hike in July vs June
SINGAPORE: Oil prices rebounded more than $1 a barrel in early Asian trade on Monday after OPEC+ decided to increase output in July by the same amount as it did in each of the prior two months, in line with market expectation. Brent crude futures climbed $1.06, or 1.69%, to $63.84 a barrel by 2244 GMT while U.S. West Texas Intermediate crude was at $61.95 a barrel, up $1.16, or 1.91%. The Organization of the Petroleum Exporting Countries and their allies decided on Saturday to raise output by 411,000 barrels per day in July, the third straight month of increase by the same amount, as the group known as OPEC+ looks to wrestle back market share and punish over-producers. The group had been expected to discuss a bigger production hike. "Had they gone through with a surprise larger amount, then Monday's price open would have been pretty ugly indeed," analyst Harry Tchilinguirian of Onyx Capital Group wrote on LinkedIn. Oil traders said the decision for a 411,000-bpd output hike has already been priced into Brent and WTI futures which slipped more than 1% last week. - Reuters
