OPEC Compliance With Oil Cuts At Lowest In 6 Months

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OPEC’s compliance with production cuts fell in June to its lowest levels in six months as several members pumped much more oil than allowed by their supply deal, thus delaying market rebalancing, the International Energy Agency said on Thursday.

Global oil supply rose in June as compliance with an OPEC-led deal to freeze production showed signs that it was stalling.

OPEC’s compliance with cuts dropped to 78% last month from 95% in May as higher-than-allowed output from Algeria, Ecuador, Gabon, Iraq, the UAE and Venezuela balanced out strong compliance from Saudi Arabia, Kuwait, Qatar and Angola.

“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two problems: a strong recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” the Paris-based IEA said.

The supply of oil increased by 720,000 barrels a day in June across the world and by 340,000 barrels a day in OPEC countries. This was caused by higher production even in those countries subject to an OPEC-led deal to cut production. Saudi Arabia has increased its flows, the IEA said, as well as Libya and Nigeria who are not part of the production freeze.

“Higher output from members bound by the production pact knocked compliance to 78 percent in June, the lowest rate during the first six months of the agreement,” the IEA said in the report.

The agency also said that “compliance with agreed non-OPEC output curbs improved to 82 percent in June, overtaking compliance from OPEC for the first time since the cut took effect in January.”

The Organization of the Petroleum Exporting Countries and several non-OPEC producers, including Russia, have agreed to cut production by around 1.8 million barrels per day until March 2018 to ease a global crude glut spurred by booming U.S. output. But there are doubts mounting over the sustainability of the deal. Kazakhstan, for example, has said it wants a gradual exit from the output cap deal.

OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The two countries have managed to increase their combined production by more than 700,000 bpd in recent months, the IEA said.

“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards,” the IEA said.

The cuts have stabilized oil at around $45-50 per barrel, but prices have come under renewed pressure in recent weeks due to growing U.S. output and little evidence of global stocks falling from record highs above 3 billion barrels.

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Gold Down Amid Geopolitical Concerns; Ahead of Fed Minutes

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Gold prices are currently down on Wednesday, moving down beyond its lowest level in almost two months amid heightened geopolitical risk after North Korea said it had successfully test fired an intercontinental ballistic missile and ahead of the Wednesday release of Fed minutes from the June meeting which is expected to provide greater understanding into the chances for another hike this year.

Gold futures were at $1,217.86, by 10:04 AM GMT, down 1.62 cents, or around 0.1%. Trade volumes were thin on Tuesday, as U.S. markets remained closed for the Independence Day holiday.

The yellow metal dropped on Monday around 2% to touch its lowest since May 11 at $1,218.00 as a stronger dollar and gains in U.S. equities weighed. Then, gold prices bounced back after a sharp fall on Tuesday amid heightened geopolitical risk after North Korea said it had successfully test fired an intercontinental ballistic missile.

Meanwhile, looking ahead, the Federal Reserve will release the minutes of its most recent policy meeting at 2:00PM ET (1800GMT), as investors look for more clues on how committed the central bank is to hiking rates again this year. They are also looking for any detail on plans to reverse the Fed’s massive balance sheet.

North Korea Missile Test

South Korea’s military and Japan’s government confirmed that North Korea had fired an “unidentified ballistic missile” which landed in the Sea of Japan. Tokyo strongly protested what it called a clear violation of UN resolutions. Analysts said the missile  could put all of the U.S. state of Alaska in range for the first time.

U.S. Secretary of State Rex Tillerson said that the long-range missile launch indicated a “new escalation of the threat” of President Kim Jong-un’s regime and called for global action.

The timing of the launch is important, come just days before leaders from the Group of 20 nations are due to discuss steps to restrain North Korea’s weapons programs.

Other Comex Futures Also Down

Silver futures ticked down further 0.2 cents, or 1.1%, to $15.87 a troy ounce, after falling to $16.02 in overnight trade, a level not seen since early January.

Among other precious metals, platinum futures were down 0.14% to $904.85, while palladium rose 0.8% to $849.17 an ounce.

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Commodity Currencies Inch Higher As Oil Slumps

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Currencies linked to commodity or oil-linked currencies such as the Canadian dollar, New Zealand dollar, Russian ruble and the Norwegian krone inched higher as oil prices slumped.

The Canadian dollar was last trading up 0.20% at C$1.3460 per U.S. dollar, down from a five-week high of C$1.3388 touched on Thursday. New Zealand dollar surged back 0.30% to $0.7045 after slipping 0.34% earlier. The Russian ruble and the Norwegian krone rose 0.51% and 0.17% to $0.01766 and $0.1193 respectively.

Oil Prices Slumped

Battered oil prices slumped on Friday after tumbling 5% in the previous session.

On Thursday in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to extend a deal to cut around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018, disappointing investors who are betting on longer or larger edges.

Brent crude futures were down from their last close 1.01% to $50.94 per barrel at 8:06 AM EDT as they were still set to end Friday with a weekly loss of more than 3 percent. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures were below $50, at $48.43, slipped 47 cents and 0.96% from their last close.

Matt Simpson, a senior market analyst, wrote in a Friday note, “Oil was practically begging to be knocked off its perch after rallying into the OPEC meeting with wide expectations (for) extended cuts. As the extensions were estimated to be around nine to twelve months, OPEC needed to far exceed this time horizon for oil to sustain its rally.”

Moreover, the dollar index lost 0.12% to 97.08, some risk-off sentiment driving the yen higher, who rose to a 3-day high against the greenback 0.76% to 111.03 yen, while the euro also edged higher 0.13% to $1.1225.

Meanwhile, Sterling fell over half a percent to as low as $1.2870, a two-week low on Friday, pulling further away from a May 18 peak of $1.3048, its strongest level since September last year, after a poll showed a narrowing lead for British Prime Minister Theresa May over her opposition prior to elections next month.

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Nikkei slips after weak U.S. data, financial stocks underperform

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Japanese stocks slipped on Wednesday morning after the dollar eased against the yen on weak U.S. economic data, while financials stocks underperformed hit by lower US yields. The Nikkei shares average dropped  0.5 percent to 19,814.88 as of 2:15 AM EDT. The dollar slipped as well 0.5 percent to one-week lows against its perceived safe-haven Japanese counterpart and currently standing at 112.49 yen. Meanwhile, U.S. housing starts plummeted 2.6 percent to a seasonally adjusted annual rate of 1.17 million units, the lowest since November.

The market’s mood was further lessened by flagging confidence over the US president Donald Trump’s ability to push through tax reforms and stimulus programs that investors had been hopeful for since his election in November.

Recently, Trump asked his now-dismissed FBI Director James Comey to finish off the agency’s investigation into ties between former White House national security adviser Michael Flynn and Russia, according to a source who had seen a memo written by Comey.

“We still can’t say clearly that this Trump’s case is a serious risk to the stock market yet. But people are watching if it leads to more serious problems such as a difficulty for him to push through his tax reforms and fiscal policy,” said Takuya Takahashi, a strategist in Japan.

Overnight, financial stocks such as insurers and banks – that earn profits from investing in higher-yielding products stumbled after U.S. Treasury yields dropped down as low as 2.31 percent.

Moreover, Dai-ichi Life Holdings fell 4.0 percent, Sompo Holdings dropped 1.8 per cent, while Mizuho Financial Group flagged 2.4 per cent.

Domestic-demand-sensitive stocks, such as utility and food shares, gained as investors stayed defensive. Tokyo Gas moved up 2.3 percent, and Ajinomoto and Japan Tobacco both went up 1.3 per cent.

The broader Topix shed 0.5 percent to 1,575.82 and the JPX-Nikkei Index 400 declined 0.6 percent to 14,063.86.

While in commodities trading, Crude oil for June delivery was down 0.64% or 0.31 to $48.35 a barrel. Brent oil for delivery in July dipped as well 0.39% or 0.20 to hit $51.45 a barrel, while the June Gold Futures contract kept on increasing 0.50% or 6.20 to exchange at $1242.60 a troy ounce.

USD/JPY was down 0.56% to 112.49, while EUR/JPY rose 0.48% to 124.77.

The US Dollar Index Futures was down 0.13% at 98.06.

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Dollar Stable, Global Stock Markets Mixed Following Trump’s Tax Plan

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Following US President Donald Trump disclosure of his tax reform plan, the dollar remained stable versus other major currencies while global stock markets encountered a drawback on Thursday.

USD Against a Basket of Currencies

Investors are also looking forward to the European Central Bank’s (ECB) announcement regarding monetary policy later in the day.

EUR/USD was down 0.02 percent from1.0905 to 1.0881and was under a five-month peak of 1.0951 hit on Wednesday.

The dollar found support subsequent to President Trump’s confirmation that his plan would reduce the tax rate for public firms and a good number of small companies to 15 percent cutting more than half of the present 35 percent corporate rate. It would also make significant changes to the individual-tax system.

However, the plan labeled as the biggest cut in history by the administration provided no specific details on how it will be paid for without raising the debit which many analysts think is easier said than done.

British Pound US Dollar (GBP/USD) rose 0.3 percent to 1.2887 on Thursday after meeting a six-month peak of 1.2915 overnight.

US Dollar Japanese Yen (USD/JPY) was also up 0.3 percent to 111.46 while the US Dollar Swiss Franc (USD/CHF) rose 0.1 percent to 0.9949.

Japan’s central bank retained its monetary policy unchanged and projected steady growth for the country’s economy.

The Australian Dollar US Dollar (AUD/USD) lost 0.1 percent from 0.7476 to 0.7460 whereas the New Zealand Dollar US Dollar (NZD/USD) fell 0.03 percent from 0.6884 to 0.6862.

As a result of President Trump’s announcement to the leaders of Canada and Mexico that he will not yet end the North American Free Trade Agreement (NAFTA) but will renegotiate it with them instead, the US Dollar Canadian Dollar (USD/CAD)dropped 0.1 percent to 1.3596 after raising to fresh a 14-month increase of 1.3648 overnight while the US Dollar Mexican Peso (USD/MXN) slipped 0.5 percent to 19.0779.

The US dollar index was up 0.1 percent to 99.01.

Global Stocks

Meanwhile, global stocks were mixed on Thursday as limited details regarding Trump’s tax reform plan discourage investors and anxiety growing for ECB’s monetary policy decision.

Keeping score, European shares fell in early trading. France’s CAC 40 (FCHI) slipped 0.2 percent to 5,274 while Germany’s DAX (GDAXI) dropped 0.07 percent to 12,464 and Britain’s FTSE 100 (FTSE) was down 0.5 percent to 7,250.

Euro Stoxx 50 (STOXX50E) also lost 0.3 percent to 3,567. Euro index was pulled back by 0.1 percent to 88.06.

US shares were mixed with Dow Jones Industrial Average (DJI) raising 0.08 percent to 20,991 while S&P 500 Futures was up 0.1 percent to 2,385.

Asian equities dropped from a near two-year raise on Thursday with Japan’s Nikkei 225 (N225) down by 0.1 percent to 19,251 at the end of its session.

China’s Shanghai Composite (SSEC) boosted 0.3 percent to 3,152 on its last session while Hong Kong’s Hang Seng (HSI) closed with a 0.4 percent high to 24,698.

Australia’s S&P/ASX 200 (AXJO) was up 0.1 percent to 5,921.

Following Samsung Electronics’ good news, South Korea’s KOSPI (KS11) got a 0.07 percent boost to 2,209 on Thursday.

MSCI’s AC Asia Pacific Index outside Japan increased 0.3 percent to 149.33.

Commodities

Commodities were mostly down on Thursday excluding gold with a 0.1 percent gain to 1,266 while silver futures slipped0.1 percent to 17.407 and copper losing 0.1 percent to 2.598.

Benchmark US Crude oil edged down 2 percent to 48.57 a barrel while Brent also lost 2 percent to 51.32.

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Extension to OPEC Output Deal Leads to Oil Price Hike

Oil prices rose on Wednesday for its seventh session over the growing anticipation of an extension to OPEC’s agreement of output cuts.

Global benchmark Brent oil futures edged up by 0.6 percent to $56.58 a barrel at 10:59 GMT while US crude oil (WTI) rose 0.5 percent to $53.68.

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The increase in oil prices was due to the reports on the subject of Saudi Arabia telling other producers from the Organization of the Petroleum Exporting Countries (OPEC) to extend the production cut that will expire in June for another six months when they meet in Vienna on May 23, 2017. This is done for the purpose of speeding up the rebalance in the market.

During the first half of 2017 OPEC and other producers, includingRussia, have agreed to cut production by around 1.8 million barrels per day (bpd) so as to control over supply. Saudi Arabia decided to reduce more than it authorized which has helped to make up for a less strict agreement by other participants in the deal.

Turns out Saudi Arabia’s cut appeared to be one step ahead of the estimate and gave oil a boost. The country is also protecting its most important clients in Asia from the cuts, continuing to supply them with all contractual amounts.

Moreover, OPEC has raised its forecast for oil demand to 1.27 million barrels per day a major change of 10,000 barrels per day. OPEC’s monthly oil report on Wednesday come as OPEC countries cut oil production in March more than expected. In accordance with  the deal, it averaged 104 percent based on OPEC’s output figures.

The cut in production came due to irregular oil prices. The OPEC Reference Basket (OBR) went down 5.7 percent in March to 50.32 bpd. Although the OBR gained a rapid increase in prices for both the quarter and the year, indicating that the OPEC production cuts which began in 2016 was a success.

Also, growth within OECD developed nations is expected at 1.9 percent within the US and the euro area seeing no changes on previous forecasts. China’s forecast growth in demand was revised from 6.2 percent to 6.3 percent

OPEC stated that policy issues and monetary policy decision will be the main aspects in ensuring this growth, but, as will maintaining stability in commodity prices.

Meanwhile, the US production and inventories are increasing. According to the government’s Energy Information Administration (EIA) on Tuesday, the country’s crude output will rise from 9.2 million bpd this year to 9.9 million bpd in 2018 with demand expectedto increase by 340,000 bpd next year which will leave rising quantities of US oil for export or storage.

Crude oil is expected to get nearly $59 per barrel and if the oil deals are extended, then almost $67 per barrel.

Official US production and inventory data will be released later on Wednesday by EIA.

It is said that the next two years could mark the largest increase in oil and gas projects production in history along with a new shale oil rise that could alone grow 1 million bpd year-on-year could create an excessive supply in 2018 and 2019.

In other energy products, natural gas (NGK7) futures for May rose 0.1 percent to $3.15 while RBOB gas futures for the same month fell 0.06 percent to 1.76 on Wednesday, 12:38 GMT.

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Gold rises due to Geopolitical tension

Rising tension surrounding the US, Russia and North Korea drove investors to turn to gold for their safe haven. Gold rose to a 5-month high on Wednesday, stretching its nearly 2 percent increases from the prior session as it benefits from safe haven flows.

The bullion is reaching its highest level since the week in November when President Donald Trump won the US election.

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Gold futures rose 0.1 percent to $1,276.75 an ounce on Wednesday. Other precious metals such as silver went up 0.4 percent to $18.33 while copper futures fell 1.2 percent to $2.577. Platinum fell back by 0.1 percent to $967.70 while palladium went down 1.4 percent to $791.52.

The US strike on Syria last Friday and Trump’s promise to solve the North Korean issue with or without China have raised anxiety about political stability, and there are also indications that Russia and US are in conflict over Afghanistan.

In the case of Afghanistan, US Defense Secretary James Mattis has expressed his concerns at Russia’s actions in the country along with claims that it has been building connections with the Taliban which has conducted a campaign against Afghan and NATO forces. The Kremlin denied the allegation of supporting the group.

North Korea alerted the media on Tuesday of a nuclear attack in case they saw any sign of attack from the US as the US Navy strike group or armada as President Trump described it steamed on the way to the western Pacific. Japan’s navy is also planning to join forces with the US navy.

Based on the current situation, it is said that the $1,307 target level for gold will be exceeded if the circumstances get worse. Serious escalation could put the bullion to the $1,380 to $1,400 area tout suite but it has to be really critical.

Secretary of State Rex Tillerson visited Italy on Tuesday with a message coming from joint world powers disapproving Russian support for Syria. The US-Russia relationship will be strictly watched as Sec. Tillerson visits Moscow on Wednesday.

Meanwhile, yen also received a boost being that is also a favored refuge in times of trouble since Japan is recognized as the world’s largest creditor nation and since it gets its gain from safe haven demand.

The dollar rose 0.1 percent to 109.72 yen while the euro climbed 0.1 percent to 116.42 yen on Wednesday.

Whereas the Dow Jones Industrial (DJI) average dropped 0.09 percent to $20,631 while S&P 500 futures lose 0.2 percent to $2,346 and the Nasdaq futures sank 0.1 percent to $5,394. US dollar index fell 0.04 percent to $100.59 as of Wednesday 13:43 GMT.

Analysts expect companies’ profits for all S&P 500 to have grown 10 percent in the first quarter from a year ago.

Oil also received a boost on Wednesday after its draw back from five-week highs hit earlier in the day. Brent oil futures edged up 0.3 percent to $56.38 per barrel breaking its winning streak of six-session while crude got its five-week high of 0.3 percent to $53.59 a barrel.

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