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Crude Oil Climbed on Hopes that OPEC/Non-OPEC Cuts Would Extend Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Mon Sep 11 17 23:22 ET

Crude oil prices gained modestly as investors were gauging the impacts of the recent hurricanes on US oil production. Meanwhile, they were hopeful that the OPEC/non-OPEC output cut deal might extend beyond March 2018. The front-month WTI contract added +1.24% while the Brent contract climbed +0.11% higher. Precious metals slipped on profit-taking and eased geopolitical tensions. The benchmark Comex gold contract dropped -1.11% while the silver contract was down -1.22%. Wall Street jumped with both the DJIA and S&P 500 indices adding +1.1%. Treasury prices fell, sending yields higher. US 2-year and 10-year yields gained +6 points to 1.322% and 2.138% respectively.

It was reported that Saudi Arabia and Russia are considering extending output cuts beyond March 2018. The OPEC members would likely have more detailed discussion about it at the upcoming meeting on September 22. Nigeria and Libya, currently exempted from the output cut, might be urged to join the deal as their productions have been rising rapidly. However, the two producers are not expected to join as their oil activities had been severely disrupted over the past several years due to militant attack and civil war. Currently, Nigeria's crude oil production has reached about 1.7M bpd. Libya's output rose to a four-year high of 1.01M bpd in July. Production should increase further as its biggest oil fields resume operation, after a two-week shutdown due to disruption by a militia organization called the Rayayina Patrols Brigade.

North Korean tensions have eased temporarily but risks for more intimidations remain elevated. The UNSC has unanimously passed tougher sanctions on Monday, in response to North Korea's 6th nuclear test on September 3. The resolution imposes a ban on the pariah regime's textile exports, such as fabrics and apparel products, and a ban its import of natural gas liquids. Textile is North Korea's second-biggest export after coal and other minerals in 2016, totaling $752 million. On imports, the UNSC decided that all member states would "prohibit the direct or indirect supply, sale or transfer" to North Korea "of all refined petroleum products beyond 500K barrels during an initial period of three months (Oct 1 2107 to Dec 31, 2017) and exceeding 2M bpd per year during a period of 12 months beginning on Jan 1 2018 and annually thereafter. Meanwhile, the members would "not supply, sell or transfer crude oil" to North Korea "in excess of the amount supplied, sold or transferred by that State in the 12-month period prior to the adoption of today's resolution". The US initially proposed to include an oil embargo, but this was objected by Russia and China, the two permanent UNSC members possessing veto power to reject the entire resolution.

On the dataflow, the UK would release its inflation data for August. Headline CPI probably accelerated to +2.8% y/y last month, from +2.6% in July. Core CPI probably improved to +2.5% from +2.4% in July. Rising inflation together with weak growth have created a dilemma for the BOE. It is reported that the central bank would warn that the market has underestimated the chance of a rate hike. However, we believe policymakers would eventually leave the policy rate unchanged this month. In the US, the JOLTS data would show that the number of job openings fell to 5 950 in July from 6 163 in the prior month.


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