Introduction: Oil hits $95 per barrel amid supply worriesGood morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price is continuing its march towards $100 a barrel for the first time in almost a year, creating new inflationary headaches for central bankers.
Brent crude, the international benchmark, has pushed over $95 per barrel this morning, the highest since November 2022.
Oil is being driven up by concerns of a supply deficit, following recent output cuts by Saudi Arabia and Russia, which have been extended until the end of this year.
Kyle Rodda, senior financial market analyst at capital.com, says:
Despite looking technically overbought, the upside momentum looks strong, with a combination of supply and demand drivers supporting the rally. Of course, the big story here is the expected shortfall in supply flagged by OPEC+ last week.
The cartel says it sees a deficit of 3 million barrels per day in the final quarter of this year, which would be the largest since 2007. The increase in oil price is fuelling higher yields, especially at the long end, although equity markets have proven surprisingly resilient.
The Brent crude oil priceBrent crude began 2022 below $80 per barrel, before soaring to around $130/barrel after Russia invaded Ukraine last March – fuelling the surge in inflation last year.
Oil did then fall back, but has been climbing since the end of June, pushing up petrol and diesel prices in the UK, for example.
Higher oil prices risk making inflation more persistent, just at a time when central bankers are inching towards ending their cycle of rising interest rates. The US Federal Reserve may leave borrowing costs on hold tomorrow, though the Bank of England may vote to hike again on Thursday.
$100 per barrel is in sight now. And Bjarne Schieldrop, chief commodity analyst at SEB, predicts that oil demand will weaken should prices continue to rise, over $100/barrel.
Schieldrop says:
“The overall situation is that Saudi Arabia and Russia are in solid control of the oil market. The global market is either balanced or in deficit and both crude and product stocks are still low.
Thus we have a tight market both in terms of supplies and inventories, so there should be limited downside in oil prices. We are highly likely to see Dated Brent moving above USD 100/b. It is now less than USD 5/b away from that level and only noise is needed to bring it above.
The agenda 10am BST: OECD’s global economic outlook
10am BST: Eurozone inflation report for August
2.15pm BST: Business and Trade Secretary Kemi Badenoch appears before the Business & Trade Committee
Key events
In the City, B&Q owner Kingfisher has cut its full-year earnings outlook after being hit by wet weather and low consumer confidence.
Pre-tax profits at Kingfisher dropped by a third in the six months to 31 July, the company reported this morning, to £317m from £474m. Like-for-like sales were down 2.2%.
Thierry Garnier, chief executive officer, says:
“Our LFL sales in H1 were slightly ahead of expectations, against a backdrop of unseasonal weather and ongoing macroeconomic challenges in our markets.
Although sales in the UK & Ireland were up 1.7%, they fell 3.8% in France and by almost 11% in Poland.
Josh Warner, market analyst at City Index, says:
Kingfisher missed the mark in the first half and warned profits will fall further than previously anticipated over the full year. Analysts already had doubts over its annual goal but the cut today was much sharper than hoped thanks to tepid sales and because the inflationary environment is weighing on margins.
The options markets are now pricing a 45% probability of Brent staying above $90/bbl by January 2024, reports Stephen Innes, managing partner at SPI Asset Management.
There is also a tail risk that oil is repriced higher, Innes says, adding:
Still, many in the oil markets think OPEC+ is unlikely to pursue prices over $100/bbl, but they see near-term bullish risks to their forecasts from recent developments.
The recent surge in oil prices, which have reached a 10-month high of $95 per barrel (bbl), is causing ripples across the global economy and financial markets. One of the contributing factors to this surge is the extended unilateral output cuts implemented by major oil-producing nations like Saudi Arabia and Russia. These cuts have effectively tightened the global oil supply, pushing prices higher.
This rise in oil prices carries significant implications for inflation. Oil plays a crucial role in various industries, and as energy costs increase, it tends to lead to higher prices for goods and services. Consequently, there’s a growing concern about the potential inflationary pressures this could exert on the global economy, potentially leading to an unfavourable shift in the global growth/inflation balance.
The main story at the start of this week has been the “relentless rise” in the oil price, says Jim Reid, strategist at Deutsche Bank.
Reid told clients this morning:
The recent rises are already filtering through into retail gasoline prices, with the US daily average from the AAA at an 11-month high of $3.88/gallon on Sunday.
Given those fresh signs of inflationary pressures, investors moved to price in that interest rates would remain higher for longer into 2024.
For instance, the rate priced in for the Fed’s June 2024 meeting hit a new high for this cycle at 5.16%, suggesting that investors don’t expect much in the way of cuts anytime soon. It was the same story for other central banks, with the June 2024 rate for the ECB (+7.9bps) and the BoE (+2.2bps) also moving higher.
FT: UK regulator finds no evidence of politicians being ‘debanked’ over viewsA review by the chief UK financial regulator has reportedly found no evidence that politicians are being denied bank accounts because of their views.
People briefed on the findings has told the Financial Times that the Financial Conduct Authority’s probe into ‘debanking’ has not found any cases where political views were the “primary” reason for personal account closures.
The investigation was launched in August, called by chancellor Jeremy Hunt in the furore over the closure of Nigel Farage’s Coutts bank account.
Farage had claimed that Coutts decided to close his account because his views “did not align” with the lender, sparking a row over free speech in the UK, and claims of discrimination.
The FT reports:
The FCA is aware the data used in its review was compiled quickly and that not all banks have good systems for monitoring and recording why accounts are closed or refused, said two people briefed on its work.
They added that the regulator would carry out further work to ensure that banks and payment companies are not unfairly denying access to services.
A 40-page document compiled by Coutts showed that the bank decided to put Farage on a “glide path” to be exited as a customer once his mortgage expired, as that put him below the qualifying threshold to be a customer.
But the Coutts dossier also warned of an “increased reputational risk” of continuing to bank Farage. It said his opinions did not align with the bank’s own views, and that Farage was “considered by many to be a disingenuous grifter”.
Farage is not happy about the FCA’s findings, telling the Financial Times last night:
“This is farcical. There are plenty of examples of prominent Brexiteers being debanked. The FCA are part of the problem.”
Introduction: Oil hits $95 per barrel amid supply worriesGood morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The oil price is continuing its march towards $100 a barrel for the first time in almost a year, creating new inflationary headaches for central bankers.
Brent crude, the international benchmark, has pushed over $95 per barrel this morning, the highest since November 2022.
Oil is being driven up by concerns of a supply deficit, following recent output cuts by Saudi Arabia and Russia, which have been extended until the end of this year.
Kyle Rodda, senior financial market analyst at capital.com, says:
Despite looking technically overbought, the upside momentum looks strong, with a combination of supply and demand drivers supporting the rally. Of course, the big story here is the expected shortfall in supply flagged by OPEC+ last week.
The cartel says it sees a deficit of 3 million barrels per day in the final quarter of this year, which would be the largest since 2007. The increase in oil price is fuelling higher yields, especially at the long end, although equity markets have proven surprisingly resilient.
The Brent crude oil priceBrent crude began 2022 below $80 per barrel, before soaring to around $130/barrel after Russia invaded Ukraine last March – fuelling the surge in inflation last year.
Oil did then fall back, but has been climbing since the end of June, pushing up petrol and diesel prices in the UK, for example.
Higher oil prices risk making inflation more persistent, just at a time when central bankers are inching towards ending their cycle of rising interest rates. The US Federal Reserve may leave borrowing costs on hold tomorrow, though the Bank of England may vote to hike again on Thursday.
$100 per barrel is in sight now. And Bjarne Schieldrop, chief commodity analyst at SEB, predicts that oil demand will weaken should prices continue to rise, over $100/barrel.
Schieldrop says:
“The overall situation is that Saudi Arabia and Russia are in solid control of the oil market. The global market is either balanced or in deficit and both crude and product stocks are still low.
Thus we have a tight market both in terms of supplies and inventories, so there should be limited downside in oil prices. We are highly likely to see Dated Brent moving above USD 100/b. It is now less than USD 5/b away from that level and only noise is needed to bring it above.
The agenda 10am BST: OECD’s global economic outlook
10am BST: Eurozone inflation report for August
2.15pm BST: Business and Trade Secretary Kemi Badenoch appears before the Business & Trade Committee