Oil Sees Weekly Gains Amid Red Sea Disruption Concerns and Angola's OPEC Exit

Commodity

Political

Summary:

Angola's exit from the oil producers' group is expected to minimally affect the crude market. As Africa's second-largest oil producer, the impact of Angola leaving the alliance is foreseen to be limited, with analysts suggesting only marginal repercussions on the broader crude market.

Oil Sees Weekly Gains Amid Red Sea Disruption Concerns and Angola's OPEC Exit_1

Oil prices went up on Friday and are set for a second week of gains. This is because people are worried that the supply in the Red Sea might be interrupted. Analysts think that Angola leaving OPEC won't have a big impact on the market.

Brent, a major measure for a lot of the world's oil, went up by 0.69% to $79.94 per barrel at 9:55 am UAE time. West Texas Intermediate (WTI), which keeps track of US crude, increased by 0.72% to $74.42 per barrel. On Thursday, Brent initially dropped by 2.4% before recovering some losses, settling 0.39% lower at $79.39 per barrel. WTI closed down 0.44% at $73.89 per barrel.

Africa's second-biggest oil producer, Angola, said on Thursday that it's leaving the oil producer’s group due to a disagreement over production quotas. Angola's Minister of Mineral Resources, Petroleum and Gas, Diamantino Azevedo, stated, “At the moment, Angola doesn't gain anything by staying in the organization, and in defense of its interests, it has decided to leave.”

Angola, part of OPEC since 2007, produces about 1.1 million barrels of oil per day, compared to OPEC's 28 million bpd. Angola's exit reduces OPEC's membership to 12 countries, with crude oil production dropping to around 27 million bpd, about 27% of the global oil market.

Analysts suggest that Angola's departure may lead to more flexibility among remaining OPEC members regarding their production levels. However, it could also raise speculation about the possibility of other countries leaving the group.

Edward Bell, head of market economics at Emirates NBD, says Angola's decision will likely have a "limited" impact on oil markets. He emphasizes that compliance among OPEC+ members is crucial for the effectiveness of production cuts.

Hapag-Lloyd and OOCL, major shipping companies, have joined others in avoiding the Red Sea due to attacks by Yemeni Houthi rebels. About 12% of seaborne oil trade and 8% of liquefied natural gas pass through Bab Al Mandeb, the strait at the southern edge of the Red Sea.

Oil futures trading around 1% higher on Friday. Investors continue to mull impacts of Red Sea disruption. Angola's move to quit OPEC caused rally to falter on Thursday.

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Thomas

Commodity

• Gas tariffs on European businesses and households are well above their 2015-2019 average and could remain above that level until at least 2031, according to Moody’s research.

• That’s despite storage being at record highs, meaning there are very little chances of shortages this winter.

• Consumers have not yet felt the full impact of the fall in wholesale prices, but geopolitical concerns are now adding to this landscape.

A feared European winter gas shortage has yet to materialize for the second year in a row — but consumers are set to stay stuck paying significantly higher rates than they used to.

A crisis situation was averted last winter, following a scramble to find new suppliers, reopen old storage facilities and roll out initiatives to reduce consumption in some energy-intensive areas, as flows from Russia dried up in the wake of its full-scale attack of Ukraine in February 2022.

According to research published by Moody’s this month, the EU had record high gas stocks of around 97.5% at the end November 2023, meaning both very low risk of energy shortages this winter and a strong position for the next cold season, analysts found.

“Europe’s improved energy reserves going into this winter are the result of the effectiveness of government actions on the supply and demand side, and consistent energy savings by both households and companies,” the Moody’s report stated, citing greater supplies of liquefied natural gas (LNG) in 2023, a higher availability of nuclear and hydropower plants and a mild winter as improving the situation.

Lower consumption has also been helped by economic stagnation in the continent, the report said.

Moody’s expects gas storage to be higher than previously anticipated at 55% at the end of March 2024.

Household and business bills

Yet, “European gas prices will remain high and volatile,” the report finds.

Energy has been one of the strongest forces pulling down inflation in recent months, after being a chief driver in hikes in consumer prices suffered in the immediate wake of Russia’s attack of Ukraine. Annual headline inflation was 2.4% in November in the euro zone, with energy showing disinflation of 11.5% year-on-year, even as the extent of price rises simply moderated in all other sectors.

In the U.K., gas price inflation has plunged by 31% in the year to November, figures from the Office for National Statistics showed.

But all that is a fall off the back of a very large spike.

Using Factset data, Moody’s found that European gas prices are well above their 2015-2019 average — and sees them remaining above this level until at least 2031. In 2020 and 2021, prices were below the average.

“The tariffs paid by households and industries are still historically very high,” James Waddell, head of European gas and global LNG at Energy Aspects, told CNBC by email.

“Movements in these prices generally follow movements in the wholesale gas market with a lag of several months, because of supplier hedging. So the fall in European wholesale gas prices from last year has not fully been passed through yet.”

Wholesale prices are overall around four times lower than they averaged over 2022, but still more than double what they were historically, Waddell said.

“This means that there are still price pressures on households and industries and in the case of the latter, increasingly we see interest in these firms relocating production outside of Europe.”

He also said that, despite healthy supply in the short term, concerns remain about the ability for European gas storage capacity to set itself up for the years ahead, since “stocks can be drawn down quickly in the event of cold weather.” That can also be the case if an increase in Asian demand pulls a lot of LNG away from Europe, he said.

Moody’s says gas prices will stay volatile primarily because of “increased geopolitical risks, which reflect their intrinsic vulnerability to supply disruptions.”

It cites various downside risks to its gas market outlook, including a further cut in Russian pipeline supply and episodes of supply disruption, as seen in the strikes at Australian LNG facilities earlier this year.

Additional volatility has arisen following the Israel-Hamas war, which has lifted risk premiums and driven spot gas prices higher despite Europe’s relative distance from the conflict, researchers say.

According to Moody’s, “Under the unlikely adverse scenario where the conflict could escalate to the broader region with the direct involvement of Iran, European gas prices could spike to similar levels seen following Russia’s attack of Ukraine. This scenario would hurt economic activity and add further challenges for energy-intensive sectors.”

Source: CNBC

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Warren Takunda

Central Bank

Economic

In a development that caught the attention of investors and economists alike, Japan's annual inflation rate slipped to a 16-month low of 2.8% in November 2023, marking a notable decline from the previous month's figure of 3.3%. This dip, the steepest since July 2022, has raised concerns and is expected to influence economic sentiment in the coming months.

Sectoral Impact

The subdued inflationary trend was predominantly led by a deceleration in the rise of food prices, which experienced the slowest increase in 10 months, registering at 7.3% compared to October's 8.6%. Contributing to the downturn were also moderations in costs across various sectors, including transport (2.8% vs 3.2%), housing (0.7% vs 0.8%), furniture & household utensils (6.1% vs 6.9%), clothes (2.8% vs 3.0%), culture & recreation (7.5% vs 6.4%), and miscellaneous (1.5% vs 1.6%).

Persistent Challenges in Energy:

A consistent challenge continues to be the decline in prices of fuel and light, marking the tenth consecutive month of contraction (-11.4% vs -10.0%). This was primarily driven by decreases in electricity (-18.1% vs -16.8%) and gas (-11.6% vs -10.2%). Such a prolonged contraction raises questions about the resilience of the energy sector and its potential impact on overall economic stability.

Core Inflation and Policy Dilemma:

In tandem with the overall inflation trend, the core inflation rate also witnessed a decline to 2.5%, marking the lowest in 16 months. This aligns with market expectations but poses a persistent challenge for the Bank of Japan (BOJ), as it extends beyond the central bank's 2% target for the 20th consecutive month. The central bank, however, maintained its accommodative monetary settings during the December policy meeting, offering no explicit signals of impending adjustments towards policy normalization in the coming year.

Market Response:

In response to the inflation data, Japanese shares experienced a mixed but cautiously optimistic response. The Nikkei 225 Index edged up by 0.09% to close at 33,169, while the broader Topix Index gained 0.45% to 2,336 on Friday. The market rebound followed a broader trend observed on Wall Street, as investors continued to speculate about the Federal Reserve's potential interest rate cuts in the coming year.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Economic

Britain's economy might now be in a recession according to data which showed output shrank in the July-to-September period, shortly after finance minister Jeremy Hunt suggested the Bank of England might cut interest rates to help boost growth.

Gross domestic product contracted by 0.1% in the third quarter, the Office for National Statistics said on Friday.

It had previously estimated that the economy showed no change compared with the previous three months and economists polled by Reuters had mostly expected another unchanged reading.

The ONS also said economic output in the second quarter was now estimated to have shown no growth, a downwards revision from a previous estimate of 0.2% growth.

However, separate data showed retail sales in November jumped by much more than expected, increasing by 1.3% from October, boosted by discount sales.

Sterling rose against the dollar and the euro after the data releases.

Finance minister Hunt, whose Conservative Party is lagging far behind the opposition Labour Party in opinion polls ahead of an expected election next year, said the outlook for the economy was not as bad as the updated official figures suggested.

"The medium-term outlook for the UK economy is far more optimistic than these numbers suggest," he said in a statement.

Separately, in an interview with the Financial Times published late on Thursday, Hunt took the rare step of commenting on the BoE's interest rate decisions.

"There's a reasonable chance that if we stick to the course we're on, we're able to bring down inflation, the Bank of England might decide they can start to reduce interest rates," Hunt told the newspaper.

The ONS said fresh tax data showed smaller businesses in particular had struggled in the second quarter, especially hospitality and information technology, and the broader picture for the economy was one of little change over the last year.

The boost to retail sales volumes reflected heavy discounting during the Black Friday sales promotions but sales fell over the three months to November and were still below their pre-pandemic levels, the statistics office said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

0:03

The map of warships operating in the Red Sea, Gulf of Oman, Gulf of Aden, Persian Gulf, and Arabian Sea was updated on December 21, 2023.

Latest News on the Israeli-Palestinian Conflict (December 22)_1

Italian Defense Minister Guido Crosetto said: Italy will work with the international community to jointly combat the destabilizing hijacking activities of the Houthi armed forces...It is necessary to increase military presence in the region to create conditions for stability and avoid ecological disasters, Prevent inflationary pressure from rising again.

Egyptian Foreign Minister Sameh Shoukry said: Red Sea countries have the responsibility to protect the Red Sea, and we continue to work with many partners to provide suitable conditions for freedom of navigation in the Red Sea.

Greek Defense Minister Nikos Dendias announced: Following the order of Prime Minister Kyriakos Mitsotakis, Greece will participate in Operation Prosperity Guardian and will dispatch a Greek Navy frigate.

The international community faces huge security challenges in the Red Sea and Gulf of Aden. Attacks by members of the Houthi armed group on commercial ships, drones and missiles pose a major threat to human life and international security and stability.

Greece is the country with the largest maritime fleet. Maintaining freedom of navigation and protecting the lives of crew members are Greece's primary interests. I also informed the Egyptian side on this issue during my visit to Cairo: this is self-evident for the frigates participating in this operation and equipped with the necessary self-protection equipment.