· Oil prices slipped on Friday and were on track for weekly losses as concerns about a slowed global economic growth outweighed hints of progress in the U.S.-China trade dispute.
Brent crude futures traded 0.2% lower at $60.25 per barrel. U.S. West Texas Intermediate (WTI) crude futures settled 0.4% lower at $54.85.
Brent fell 1.8% for the week, its first decrease in five weeks. WTI had a 2.7% loss for the week, its first decrease in three weeks.
The world’s two largest economies are preparing for new talks and have been making conciliatory gestures ahead of the discussions.
· Oil prices surged more than 15% to their highest level in nearly four months at the open on Sunday after an attack on Saudi Arabia’s oil facilities on Saturday that knocked out more than 5% of global oil supply.
Brent crude futures jumped more than 19% to a session high of $71.95 a barrel at the opening, while U.S. crude futures surged more than 15% to a session high of $63.34 a barrel. Both benchmarks rose to the highest since May.
Prices were up about 12% by 6:50 p.m. (2250 GMT), as gains were capped after U.S. President Donald Trump said he authorized the release of oil from the U.S. Strategic Petroleum Reserve (SPR) if needed in a quantity to be determined because of the attack on Saudi’s facilities.
State oil giant Saudi Aramco said the attack cut output by 5.7 million barrels per day, at a time when Aramco is trying to ready itself for what is expected to be the world’s largest share sale.
Aramco gave no timeline for output resumption. A source close to the matter told Reuters the return to full oil capacity could take “weeks, not days.”
· Yemen’s Iran-aligned Houthi group said it attacked two plants at the heart of Saudi Arabia’s oil industry on Saturday, knocking out more than half the Kingdom’s output, in a move expected to send oil prices soaring and increase tensions in the Middle East.
The attacks will cut the kingdom’s output by 5.7 million barrels per day (bpd), according to a statement from state-run oil company Saudi Aramco, or more than 5% of global oil supply.
While the Houthis claimed responsibility for the attack, U.S. Secretary of State Mike Pompeo put the blame squarely on Iran, writing on Twitter that there was “no evidence the attacks came from Yemen.”
· Iran is refuting U.S. allegations that it was behind drone attacks on two massive Saudi oil plants Saturday, with its foreign minister accusing his American counterpart of “deceit” while suggesting talks to get out of the conflict.
“Having failed at ‘max pressure’, @SecPompeo’s turning to ‘max deceit’,” Iranian Foreign Minister Javad Zarif wrote on Twitter Sunday afternoon, referring to the President Donald Trump administration’s “maximum pressure” policy of sanctions on Iran to end what it calls its malign regional behavior.
· Saudi Aramco is aiming to restore by Monday about a third of its crude output that was disrupted after drone attacks on two key oil facilities, The Wall Street Journal reported Sunday, citing Saudi officials familiar with the matter.
Experts said that the strikes could cause oil prices to rise up to $10 per barrel, which could cause as much as a 25 cent per gallon rise in gasoline prices. But the impact could be smaller depending on how quickly officials are able to restart oil production, said Roberto Friedlander, Seaport Global’s head of energy trading.
“If it is a few days, the Saudis are working to restore production and will provide more information in the next 48 hours, the impact is more likely to be $3-5 to Crude,” said Friedlander.
This weekend’s strikes are the biggest attack on Saudi oil infrastructure since 1990, when the Iraqi military fired scud missiles into the kingdom. The attack sent the Saudi stock market down 2.3 percent at the open on Sunday.
· President Donald Trump said the United States is “locked and loaded” after an attack on Saudi Arabia’s oil supply, but his administration is waiting on Riyadh to determine who launched the strikes before proceeding on a course of action.
“There is reason to believe that we know the culprit, are locked and loaded depending on verification,” Trump said in a post on Twitter.
· The euro rocketed to a 17-day high against the dollar on Friday as German government bond yields surged on the back of investors thinking the European Central Bank was done stimulating the ailing euro zone economy after cutting rates on Thursday.
The central bank cut its deposit interest rate by 10 basis points to a record low of minus 0.5% and said it would restart bond purchases at a rate of 20 billion euros a month from Nov. 1 for an indefinite time.
The revived bond purchases exceeded many expectations because they are set to run until “shortly before” the ECB raises interest rates. Given that markets do not expect rates to rise for nearly a decade, such a formulation suggests that purchases could go on for years, possibly through most of Christine Lagarde’s term leading the bank.
The euro was up 0.3% at $1.1096 after jumping earlier to $1.11095, its highest since Aug. 27. The 10-year German Bund yield surged to a six-week high of negative 0.48%.
The day before, the common currency briefly went below $1.10. Deutsche Bank had projected the euro would fall below $1.10 and now that it had, the German bank said it was now neutral on the common currency.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 98.050 after seeing highs above 98.8 last week.
The Chinese yuan also strengthened in the offshore market to a four-week high of 7.0330 versus the dollar on the back of Sino-U.S. trade optimism. Dollar/yuan was last down 0.3% at 7.0752.
· China plans to exclude American farm goods, including soybeans, from tariffs in the latest move to ease trade tensions before the two countries restart trade talks next month.
The Chinese Ministry of Commerce said Friday that China welcomed President Donald Trump’s decision to delay tariffs by two weeks and said it will exempt U.S. agricultural products such as soybeans and pork from additional tariffs.
· U.S. President Donald Trump will meet next week with the leaders of India and Australia at events in Texas and Ohio to promote trade and investment.
The White House said Trump will travel to Houston, Texas, on Sept. 22 to participate in an event with Prime Minister Narendra Modi of India and to “discuss ways to deepen their energy and trade relationship.”
Trump will then travel to Wapakoneta, Ohio, where he will be joined by Australian Prime Minister Scott Morrison for a tour of a new, Australian-owned manufacturing facility. Trump is hosting Morrison for a state dinner at the White House this week, Trump’s second such formal gathering since taking office.
· Trade tensions are weighing on growth across the world, but the International Monetary Fund is “far” from forecasting a global recession, an IMF official told Reuters on Friday, as the fund prepares to release a new economic outlook next month.
The IMF on Thursday said tariffs imposed or threatened by the United States and China could shave 0.8% off global economic output in 2020 and trigger losses in future years.
“The trade tensions are weighing on growth. But we really don’t see recession in the current baseline. I think we’re far from that,” said the IMF official, who is familiar with the preparation of the outlook.
· When the Fed meets this week, the discussion will be about just how badly that outlook has eroded, and whether officials should still describe themselves as simply tinkering with policies that are about right, or embarked on a more aggressive fight to keep the U.S. recovery on track.
A headline decision to cut interest rates by a quarter of a percentage point is widely expected. More importantly, the Fed’s language and new economic projections will show how deeply a summer of trouble has been felt - from an intensifying U.S.-China trade war and the relaunch of crisis-style stimulus by the European Central Bank to a stream of weak manufacturing data that may hint at larger problems for the United States.
“At the end of 2018 it looked like the economy was moving forward in a continued solid manner,” said David Wilcox, director for the Fed’s division of statistics and research until the end of last year and now a fellow at the Peterson Institute for International Economics.
· S&P Global Ratings said on Friday that the Mexican government’s 2020 economic growth forecast of 1.5% to 2.5% likely is too optimistic.
The government’s growth forecast is part of its 2020 budget blueprint unveiled last weekend, which also slightly loosened a primary surplus target as the government aimed to balance big welfare promises with the reality of a stagnant economy.
· European Union finance ministers backed on Saturday a simplification of the EU’s fiscal rules to make them more transparent and predictable, but more work is needed before any changes are agreed, a senior European Commission official said.
Reference: CNBC, Reuters
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