· The dollar rose against a basket of currencies on Monday as U.S. President Donald Trump’s authorization of the use of an emergency crude stockpile in response to drone attacks on Saudi Arabian refining facilities cooled a surge in oil prices.
The Japanese yen and Swiss franc, both traditional safe-haven currencies, gave up much of their initial gains with a pullback in crude prices and anxiety about a disruption in global energy supply, analysts said. Still, investors remained nervous about another attack, which underpinned demand for currencies of oil exporters such as Norway and Canada.
An index that tracks the greenback against the euro, yen, sterling and three other currencies was up 0.4% at 98.64. It touched its lowest level since Aug. 27 on Friday.
The dollar was -0.05% lower at 108.045 yen, recovering from an earlier low of 107.44 during Asian trading. The greenback fell to 98.655 Swiss francs before reversing to trade at 99.29, up 0.29% on the day.
· U.S. Treasury yields fell on Monday after drone attacks on Saudi oil production facilities escalated tensions in the Middle East and pushed investors toward safer assets like government debt.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.862%, while the yield on the 30-year Treasury bond fell to 2.334%. The 10-year yield had posted its largest weekly rally since November 2016 as fears of an impending economic downturn eased.
Treasury yields rose after drone attacks on Saudi Arabian crude facilities over the weekend, which were estimated to have shut around 5% of the world’s supply.
· A foreign ministry statement said Riyadh would invite international experts, including from the United Nations, to participate in investigating Saturday’s assault, which cut almost half of Saudi Arabia’s oil production.
The United States, which has blamed Iran for the strikes, is studying all available options in addressing the assault, U.S. Defense Secretary Mark Esper told Saudi Crown Prince Mohammed bin Salman in a phone call on Monday, Saudi state media said.
“Initial investigations show that Iranian weapons were used in the attacks and work is going on to determine the source of those attacks,” the foreign ministry statement said.
“The kingdom is capable of defending its land and people and responding forcefully to those attacks,” it added.
· President Donald Trump said Monday he’s in no rush to respond to a coordinated attack that hit Saudi Arabia’s oil industry over the weekend.
“It’s certainly looking that way at this point,” Trump responded to a question on whether Iran was responsible for the attacks. “I don’t want war with anybody but we are prepared more than anybody ... We have a lot of options but we are not looking at options right now.”
The most recent comment from Trump contrasts his attitude expressed on Sunday when he said in a tweet the U.S. is “locked and loaded” after the attacks on Saudi’s oil supply.
Trump also said he was authorizing the release of oil from the Strategic Petroleum Reserve to keep the markets “well-supplied.”
· The weekend bombings of Saudi Arabia’s main oil refinery have already sparked U.S. President Donald Trump to pressure the Federal Reserve anew to lower rates.
The Fed should enact a “big interest rate drop, stimulus,” at its meeting this week, which ends Wednesday, Trump said on Twitter on Monday.
However historical precedent and the United States’ changing energy diet suggest the Fed is likely to stick with an expected quarter of a point interest rate cut and go no further.
The Fed has responded to past crisis events including the September 2001 terrorist attacks and the Black Friday market collapse in the 1980s. But it acted then to address trouble in financial markets that risked creating broader problems.
· Deputy-level U.S.-China trade talks are scheduled to start in Washington on Thursday, the U.S. Trade Representative’s office said on Monday, paving the way for high-level talks in October aimed at resolving a bitter trade war.
A USTR spokesman did not offer any further details about the deputy-level talks.
· U.S. President Donald Trump said on Monday that the United States has reached initial trade agreements with Japan on tariff barriers and digital trade that will not require congressional approval.
· U.S. President Donald Trump on Monday declined to comment on a newspaper report that North Korean leader Kim Jong Un had invited him to visit Pyongyang and said conditions were not ready yet for such a visit.
“The relationship is very good but I don’t want to comment on that,” Trump told reporters at the White House when asked whether Kim had invited him to North Korea.
Trump said he would “probably not” be inclined to visit North Korea in the short term, but did not rule out an eventual visit.
“I would do it ... at some time in a later future, and depending on what happens I’m sure he’ll love coming to the United States also. But, no, I don’t think it’s ready for that. I think we have a ways to go yet,” Trump said.
· Oil ended nearly 15% higher on Monday, with Brent logging its biggest jump in over 30 years amid record trading volumes, after an attack on Saudi Arabian crude facilities cut the kingdom’s production in half and fanned fears of retaliation in the Middle East.
Brent crude, the international benchmark, settled at $69.02 a barrel, rising $8.80, or 14.6%, its biggest one-day percentage gain since at least 1988. Brent futures saw more than 2 million contracts traded, an all-time daily volume record, Intercontinental Exchange spokeswoman Rebecca Mitchell said.
U.S. West Texas Intermediate (WTI) futures ended at $62.90 a barrel, soaring $8.05, or 14.7% - the biggest one-day percentage gain since December 2008.
· Oil prices initially spiked nearly 20% in trading Sunday evening but were up just about 14.5% in U.S. trading Monday, the biggest one-day move since February 2016. Brent was trading at $68.45 per barrel in late trading.
“What the market is pricing is geopolitical risk premium and tail risk. Something like this has never happened before. There have been attempts, but those were foiled,” said Amarpreet Singh, Barclays energy analyst. “Something like this to Saudi supply has absolutely never happened, even during the Gulf War.”
Houthi rebels, aligned with Iran, claimed responsibility for the attack, but Secretary of State Mike Pompeo said Iran was responsible.
· Analysts at Goldman Sachs said a lengthier outage could result in a sharp jump in crude prices. For instance, if the current level of production remained down for more than six weeks, there could be a quick rally in Brent to $75 per barrel, they said in a note. Brent is the international benchmark and traditionally has been more sensitive to events in the Middle East.
Singh said Brent could reach $75 if the outage is extended, and in about three weeks the Saudi oil supplies would begin to run low. “If it takes that long you’ll really start seeing another leg up,” he said.
But oil could go even higher, depending on whether there are further attacks or a military response from Saudi Arabia, the U.S. or others. “If this escalates into a hot war, you’re looking on a $100 oil,” said John Kilduff of Again Capital.
· The style of attack used against oil plants in Saudi Arabia that knocked out half of the country’s production on Saturday is unlikely to be a risk in the United States, energy and security experts say.
“The U.S. oil industry has a lot of redundancy,” said Amy Myers Jaffe, senior fellow for energy at the Council on Foreign Relations.
U.S. refineries go offline often after accidents or storms, with little impact to the market, Jaffe said. Even production in the country’s biggest oil field, the Permian Basin in Texas and New Mexico, is spread across thousands of wells in a 75,000- square-mile (194,250-square-kilometer) region. The kind of gas-oil separation facility hit in the attacks in Saudi Arabia is done in smaller plants located across U.S. oil fields.
The United States has more of a geographic buffer than Saudi Arabia and lacks hostile neighbors, said Ben West, security analyst with the intelligence firm Stratfor. The most vulnerable infrastructure, pipelines, can be repaired quickly, West said.
Reference: Reuters, CNBC
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