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World

Wall St stocks fall, oil rises as China drops quarantine rule

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NEW YORK/LONDON, Dec 27 (Reuters) – Wall Street’s benchmark S&P 500 and the Nasdaq fell on Tuesday after the release of U.S. economic data, while oil prices rose after China said it would scrap its COVID-19 quarantine rule for inbound travellers, which was seen as a major step in reopening its borders.

U.S. Treasury yields rose after economic data that showed the advance goods trade deficit for November narrowed to $83.35 billion from the prior month’s $98.8 billion, while a separate report pointed to continued struggles for the housing market as home prices fell under rising mortgage rates.

Oil pared gains as some U.S. energy facilities shut by winter storms began to restart after the commodity earlier hit a three-week high as China’s latest easing of COVID-19 restrictions spurred hopes of a recovery in demand.

On the first day of the holiday-shortened trading week, the rise in U.S. rates put pressure on shares in the heavy-weight rate sensitive technology sector, according to Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut.

“It’s a lack of anybody with the conviction to step in and buy right now,” said O’Rourke, who said further pressure came from a sharp decline in shares of electric car maker Tesla Inc (TSLA.O).

The Dow Jones Industrial Average (.DJI) rose 113.48 points, or 0.34%, to 33,317.41, the S&P 500 (.SPX) lost 5.67 points, or 0.15%, to 3,839.15 and the Nasdaq Composite (.IXIC) dropped 90.23 points, or 0.86%, to 10,407.64.

Markets in some regions including London, Dublin, Hong Kong and Australia remained shut after the Christmas holiday.

The pan-European STOXX 600 index (.STOXX) rose 0.19% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.03%.

Emerging market stocks (.MSCIEF) rose 0.27%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.53% higher, while Japan’s Nikkei (.N225) rose 0.16%.

Benchmark 10-year notes were up 7.5 basis points at 3.822%, from 3.747% on Friday. The 30-year bond was last up 9 basis points to yield 3.9116%, from 3.822%. The 2-year note was last up 6.4 basis points to yield 4.387%, from 4.323%.

The dollar pared losses on Tuesday after China said it would scrap its COVID-19 quarantine rule for inbound travellers, which also boosted risk-related currencies such as the Australian dollar.

The dollar index , which measures the greenback against a basket of major currencies, was down 0.01%, with the euro up 0.14% at $1.065.

The Japanese yen weakened 0.37% versus the greenback at 133.36 per dollar, while Sterling was last trading at $1.2019, down 0.34% on the day.

Commodity currencies such as the New Zealand and Australian dollars also moved higher. read more

In energy futures, U.S. crude recently rose 0.98% to $80.34 per barrel and Brent was at $84.81, up 1.06% on the day.

Gold prices rose as optimism surrounding decisions by top consumer China to ease COVID-19 restrictions weighed on the dollar, while resilient U.S. yields cast a shadow over non-yielding bullion’s advance.

Spot gold added 1.5% to $1,824.29 an ounce. U.S. gold futures gained 1.09% to $1,815.50 an ounce.

Reporting by Sinéad Carew in New York, Nell Mackenzie in London
Additional reporting by Xie Yu and Ankur Banerjee
Editing by Simon Cameron-Moore and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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Business

Storm cuts U.S. oil, gas, power output, sending prices higher

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Dec 23 (Reuters) – Frigid cold and blowing winds on Friday knocked out power and cut energy production across the United States, driving up heating and electricity prices as people prepared for holiday celebrations.

Winter Storm Elliott brought sub-freezing temperatures and extreme weather alerts to about two-thirds of the United States, with cold and snow in some areas to linger through the Christmas holiday.

More than 1.5 million homes and businesses lost power, oil refineries in Texas cut gasoline and diesel production on equipment failures, and heating and power prices surged on the losses. Oil and gas output from North Dakota to Texas suffered freeze-ins, cutting supplies.

Some 1.5 million barrels of daily refining capacity along the U.S. Gulf Coast was shut due to the bitterly cold temperatures. The production losses are not expected to last, but they have lifted fuel prices.

Knocked out were TotalEnergies (TTEF.PA), Motiva Enterprises (MOTIV.UL) and Marathon Petroleum (MPC.N) facilities outside Houston. Cold weather also disrupted Exxon Mobil (XOM.N), LyondellBasell (LYB.N) and Valero Energy (VLO.N) plants in Texas that produce gasoline, diesel and jet fuel.

Sempra Infrastructure’s Cameron LNG plant in Louisiana said weather disrupted its production of liquefied natural gas without providing details. Crews at the 12 million tonne-per-year facility were trying to restore output, it said.

Freeze-ins – in which ice crystals halt oil and gas production – this week trimmed production in North Dakota’s oilfields by 300,000 to 350,000 barrels per day, or a third of normal. In Texas’s Permian oilfield, the freeze led to more gas being withdrawn than was injected, said El Paso Natural Gas operator Kinder Morgan Inc. (KMI.N).

U.S. benchmark oil prices on Friday jumped 2.4% to $79.56, and next-day gas in west Texas jumped 22% to around $9 per million British thermal units , the highest since the state’s 2021 deep freeze.

Power prices on Texas’s grid also spiked to $3,700 per megawatt hour, prompting generators to add more power to the grid before prices fell back as thermal and solar supplies came online.

New England’s bulk power supplier said it expected to have enough to supply demand, but elsewhere strong winds led to outages largely in the Southeast and Midwest; North Carolina counted more than 187,000 without power.

“Crews are restoring power but high winds are making repairs challenging at most of the 4,600 outage locations,” Duke Energy spokesman Jeff Brooks wrote on Twitter.

Heating oil and natural gas futures rose sharply in response to the cold. U.S. heating oil futures gained 4.3% while natural gas futures rose 2.5%.

In New England, gas for Friday at the Algonquin hub soared 361% to a near 11-month high of $30 mmBtu.

About half of the power generated in New England comes from gas-fired plants, but on the coldest days, power generators shift to burn more oil. According to grid operator New England ISO, power companies’ generation mix was at 17% from oil-fired plants as of midday Friday.

Gas output dropped about 6.5 billion cubic feet per day (bcfd) over the past four days to a preliminary nine-month low of 92.4 bcfd on Friday as wells froze in Texas, Oklahoma, North Dakota, Pennsylvania and elsewhere.

That is the biggest drop in output since the February 2021 freeze knocked out power for millions in Texas.

One billion cubic feet is enough gas to supply about 5 million U.S. homes for a day.

Reporting by Erwin Seba and Scott DiSavino; additional reporting by Arathy Somasekhar and Laila Kearney; editing by Jonathan Oatis, Kirsten Donovan, Aurora Ellis and Leslie Adler

Our Standards: The Thomson Reuters Trust Principles.

Scott Disavino

Thomson Reuters

Covers the North American power and natural gas markets.

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Business

Oil rises on hopes for China’s economy

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  • Reopening of Chinese economy buoys demand expectations
  • Rising interest rates and recession fears weigh
  • U.S. to begin purchases for strategic reserve

LONDON, Dec 19 (Reuters) – Oil rose on Monday after falling by more than $2 a barrel in the previous session as optimism over the Chinese economy outweighed concern over a global recession.

China, the world’s top crude oil importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.

“There is no doubt that demand is being adversely influenced,” said Naeem Aslam, analyst at brokerage Avatrade.

“However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth.”

Brent crude gained 65 cents, or 0.8%, to $79.69 a barrel by 1248 GMT while U.S. West Texas Intermediate crude rose 85 cents, or 1.1%, to $75.14.

Oil surged towards its record high of $147 a barrel earlier in the year after Russia invaded Ukraine in February. It has since unwound most of this year’s gains as supply concerns were edged out by recession fears, which remain a drag on prices.

The U.S. Federal Reserve and European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, could shift its ultra-dovish stance when it meets on Monday and Tuesday.

“The prospect of further rate rises will hit economic growth in the new year and in doing so curb demand for oil,” said Stephen Brennock of oil broker PVM.

Oil was supported by the U.S. Energy Department saying on Friday that it will begin repurchasing crude for the Strategic Petroleum Reserve – the first purchases since releasing a record 180 million barrels from the reserve this year.

Reporting by Alex Lawler
Editing by David Goodman and Barbara Lewis

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World

Children dying in Somalia as food catastrophe worsens

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  • Famine averted for now but crisis worsening – IPC
  • ‘Children are dying now’ – UNICEF
  • U.N. funding appeal facing $1 bln shortfall

MOGADISHU, Dec 13 (Reuters) – More than 200,000 Somalis are suffering catastrophic food shortages and many are dying of hunger, with that number set to rise to over 700,000 next year, according to an analysis by an alliance of U.N. agencies and aid groups.

The Integrated Food Security Phase Classification (IPC), which sets the global standard for determining the severity of food crises, said its most acute level, “IPC Phase 5 Famine”, had been temporarily averted but things were getting worse.

“They have kept famine outside of the door but nobody knows for how much longer,” said Jens Laerke, spokesperson of the U.N. humanitarian office (OCHA).

“That people are dying from hunger, there’s no doubt about it, but I cannot put a number on it,” he told a news briefing in Geneva after the latest IPC analysis on Somalia came out.

A two-year drought has decimated crops and livestock across Horn of Africa nations, while the price of food imports has soared because of the war in Ukraine.

In Somalia, where 3 million people have been driven from their homes by conflict or drought, the crisis is compounded by a long-running Islamist insurgency that has hampered humanitarian access to some areas.

The IPC had previously warned that areas of Somalia were at risk of reaching famine levels, but the response by humanitarian organisations and local communities had staved that off.

“The underlying crisis however has not improved and even more appalling outcomes are only temporarily averted. Prolonged extreme conditions have resulted in massive population displacement and excess cumulative deaths,” it said.

Somalia’s last famine, in 2011, killed a quarter of a million people, half of them before famine was officially declared.

Fearful of a similar or even worse outcome this time, humanitarian chiefs were quick to say the situation was already catastrophic for many Somalis.

‘STOP WAITING’

“I have sat with women and children who have shown me mounds next to their tent in a displaced camp where they buried their two- and three-year-olds,” said James Elder, spokesperson of the U.N. children’s charity UNICEF, at the Geneva briefing.

“Whilst a famine declaration remains important because the world should be past this, we also do know that children are dying now.”

The IPC Acute Food Insecurity scale has a complex set of technical criteria by which the severity of crises are measured. Its Phase 5 has two levels, Catastrophe and Famine.

The Somalia analysis found that 214,000 people were classified in Catastrophe and that number was expected to rise to 727,000 from April, 2023 as humanitarian funding dropped off.

Catastrophe is summarised on the IPC website as a situation where starvation, death, destitution and extremely critical acute malnutrition levels are evident.

It said famine was projected from April onwards among agropastoral populations in the districts of Baidoa and Burhakaba, in central Somalia, and among displaced populations in Baidoa town and the capital Mogadishu.

The IPC data showed 5.6 million Somalis were classified in Crisis or worse (Phase 3 or above) and that number would rise from April to 8.3 million — about half the country’s population.

The OCHA is appealing for $2.3 billion to respond to the crisis in Somalia, of which it has so far received $1.3 billion, or 55.2%.

David Miliband, head of aid group the International Rescue Committee, said the underfunding of the appeal showed the world was not treating this as an urgent moment.

“The time for action is now in Somalia,” he told Reuters in an interview, adding that what happened in 2011 should serve as a warning. “Stop waiting for the famine declaration,” he said.

Reporting by Abdi Sheikh in Mogadishu, Bhargav Acharya and Alexander Winning in Johannesburg and Sofia Christensen in Dakar and Emma Farge in Geneva; Writing by Estelle Shirbon; Editing by James Macharia Chege and Ed Osmond

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Business

Oil resumes slide as weak economy outweighs supply risks

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  • Brent, WTI reverse gains, resume slide
  • Oil has been falling for four out of five last weeks
  • Keystone pipeline shut, Russia threatens to cut output

SINGAPORE/LONDON, Dec 12 (Reuters) – Oil prices fell on Monday, deepening a multi-week decline, as a weakening global economy offset supply woes stemming from the closure of a key pipeline supplying the United States and Russian threats of a production cut.

Brent crude futures were down 38 cents, or 0.4%, at $75.72 a barrel by 0900 GMT. U.S. West Texas Intermediate crude was at $70.76 a barrel, down 26 cents, or 0.3%.

Last week, Brent and WTI fell to their lowest since December 2021 amid concerns that a possible global recession will impact oil demand.

China, the world’s biggest crude oil importer, continued to loosen its strict zero-COVID policy, though streets in the capital Beijing remained quiet and many businesses stayed shut over the weekend.

On Monday, queues formed outside fever clinics in the cities of Beijing and Wuhan, where COVID first emerged three years ago.

“Oil markets will likely stay volatile in the near term amid uncertainty over the impact on Russian output from the EU’s ban, headlines on China’s COVID policy, and central bank movements in the U.S. and Europe,” UBS analysts said in a note.

UBS said it believed Brent should recover to above $100 per barrel in the coming months amid supply constraints and rising demand while OPEC+ would keep supply tight.

On Sunday, Canada’s TC Energy (TRP.TO) said it had not yet determined the cause of the Keystone oil pipeline leak last week in the United States. It gave no timeline as to when the pipeline would resume operation.

The 622,000 barrel-per-day Keystone line is a critical artery shipping heavy Canadian crude to U.S. refiners.

Russian President Vladimir Putin said on Friday that Russia could cut production and would refuse to sell oil to any country that imposes a “stupid” price cap on Russian exports.

Saudi Arabia’s energy minister also said on Sunday that price cap measures had had no clear results yet.

“The emergent EU embargo on Russian crude… may add moderate upside energy price risks in the next few months. But supply uncertainty should ease by spring 2023, after the embargo on oil products (on Feb.5) plays out,” Deutsche Bank said in a note.

Reporting by Florence Tan and Emily Chow in Singapore; Editing by Christian Schmollinger, Bradley Perrett and Simon Cameron-Moore

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World

Twenty oil tankers halted near Istanbul in insurance dispute

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  • Backlog unsettling oil and tanker markets
  • Turkey says out of question to take insurance risk
  • Yellen says oil from Kazakhstan should not be targeted
  • Ankara says most of waiting ships are EU vessels

ISTANBUL, Dec 9 (Reuters) – The number of oil tankers waiting in the Black Sea to pass through Istanbul’s Bosphorus Strait on the way to the Mediterranean rose to 20 on Friday, Tribeca shipping agency said, as Turkey held talks to resolve an insurance dispute behind the build-up.

Dismissing pressure from abroad over the lengthening queue, Turkey’s maritime authority said on Thursday it would continue to block oil tankers that lacked the appropriate insurance letters, and it needed time for checks.

The ship backlog is creating growing unease in oil and tanker markets and comes as the G7 and European Union introduce a price cap on Russian oil. Millions of barrels of oil per day move south from Russian ports through Turkey’s Bosphorus and Dardanelles straits into the Mediterranean.

The maritime authority said that in the event of an accident involving a vessel in breach of sanctions it was possible the damage would not be covered by an international oil-spill fund.

“(It) is out of the question for us to take the risk that the insurance company will not meet its indemnification responsibility,” it said, adding that Turkey was continuing talks with other countries and insurance companies.

It said the vast majority of vessels waiting near the straits were EU vessels, with a large part of the oil destined for EU ports – a factor frustrating Ankara’s Western allies.

The G7 group of nations, the EU and Australia have agreed to bar providers of shipping services, such as insurers, from helping to export Russian oil unless it is sold at an enforced low price, or cap, aimed at depriving Moscow of wartime revenue.

However, Turkey has had a separate measure in force since the start of the month requiring vessels to provide proof of insurance covering the duration of their transit through the Bosphorus strait, or when calling at Turkish ports.

KAZAKH OIL

Eight tankers were also waiting for passage through the Dardanelles strait into the Mediterranean, down from nine a day earlier, Tribeca said, making a total of 28 tankers waiting for southbound passage.

Most of the tankers waiting at the Bosphorus are carrying Kazakh oil and Treasury Secretary Janet Yellen said on Thursday the U.S. administration saw no reason that such shipments should be subjected to new procedures.

Washington had no reason to believe Russia was involved in Turkey’s decision to block ship transits, she added.

Turkey has had to balance its good relations with both Russia and Ukraine since Moscow invaded its neighbour in February. It played a key role in a United Nations-backed deal reached in July to free up grain exports from Ukrainian Black Sea ports.

Turkey’s maritime authority said that it was unacceptable to pressure Turkey over what it said were “routine” insurance checks and that it could remove tankers without proper documentation from its waters or require them to furnish new P&I ship insurance letters covering their journeys.

Reporting by Daren Butler, Can Sezer, and Jonathan Saul in London
Editing by Himani Sarkar, Clarence Fernandez, Jonathan Spicer and Frances Kerry

Our Standards: The Thomson Reuters Trust Principles.

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World

China’s Xi on ‘epoch-making’ visit to Saudi as Riyadh chafes at U.S. censure

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RIYADH, Dec 7 (Reuters) – Chinese President Xi Jinping began a visit to Saudi Arabia on Wednesday that Beijing said marked its biggest diplomatic initiative in the Arab world, as Riyadh expands global alliances beyond a long-standing partnership with the West.

The meeting between the global economic powerhouse and Gulf energy giant comes as Saudi ties with Washington are strained by U.S. criticism of Riyadh’s human rights record and Saudi support for oil output curbs before the November midterm elections.

The White House said Xi’s visit was an example of Chinese attempts to exert influence, and that this would not change U.S. policy towards the Middle East.

“We are mindful of the influence that China is trying to grow around the world,” White House National Security Council spokesperson John Kirby told reporters.

China, the world’s biggest energy consumer, is a major trade partner of Gulf oil and gas producers. Bilateral ties have expanded under the region’s economic diversification push, raising U.S. concerns about growing Chinese involvement in sensitive infrastructure in the Gulf.

Energy Minister Prince Abdulaziz bin Salman on Wednesday said that Riyadh would remain a “trusted and reliable” energy partner for Beijing and that the two countries would boost cooperation in energy supply chains by establishing a regional centre in the kingdom for Chinese factories.

Saudi Arabia is China’s top oil supplier and Xi’s visit takes place while uncertainty hangs over energy markets after Western powers imposed a price cap on sales of oil from Russia, which has been increasing volumes to China with discounted oil.

On Wednesday Chinese and Saudi firms signed 34 deals for investment in green energy, information technology, cloud services, transport, construction and other sectors, Saudi state news agency SPA reported. It gave no value for the deals, but had earlier said the two countries would seal agreements worth $30 billion.

‘EPOCH-MAKING VISIT’

Xi was met on arrival by the governor of Riyadh, the kingdom’s foreign minister and the governor of sovereign wealth fund PIF.

Crown Prince Mohammed bin Salman is expected to offer him a lavish welcome, in contrast with the low-key reception for U.S. President Joe Biden whose censure of Saudi Arabia’s de facto ruler formed the backdrop for a strained meeting in July.

Xi will hold bilateral talks with Saudi Arabia and Riyadh will later host a wider meeting with Gulf Arab states and a summit with Arab leaders which will be “an epoch-making milestone in the history of the development of China-Arab relations”, foreign ministry spokesperson Mao Ning said.

The Chinese president said he would work with the Gulf Cooperation Council and other Arab leaders “to advance Chinese-Arab relations and Chinese-GCC relations to a new level”, SPA reported.

For Riyadh, frustrated by what it sees as Washington’s gradual disengagement from the Middle East and a slow erosion of its security guarantees, China offers an opportunity for economic gains without the tensions which have come to cloud the U.S. relationship.

“Beijing does not burden its partners with demands or political expectations and refrains from interfering in their internal affairs,” Saudi columnist Abdulrahman Al-Rashed wrote in the Saudi-owned Asharq Al-Awsat newspaper.

Unlike Washington, Beijing retains good ties with Riyadh’s regional rival Iran, another supplier of oil to China, and has shown little interest in addressing Saudi political or security concerns in the region.

Saudi Arabia, birthplace of Islam, had supported China’s policies in Xinjiang, where the U.N. says human rights abuses have been committed against Uyghurs and other Muslims.

Saudi officials have said that regional security would be on the agenda during Xi’s visit. The United States has for decades been Saudi Arabia’s main security guarantor and remains its main defence supplier, but Riyadh has chafed at restrictions on U.S. arms sales to the kingdom.

Riyadh has said it would continue to expand partnerships to serve economic and security interests, despite U.S. reservations about Gulf ties with both Russia and China.

Reporting by Eduardo Baptista in Beijing and Aziz El Yaakoubi in Riyadh; Additional reporting by Ghaida Ghantous and Maha El Dahan in Dubai and Steve Holland and Doina Chiacu in Washington; Writing by Dominic Evans and Ghaida Ghantous; Editing by Nick Macfie, Toby Chopra and Alistair Bell

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Business

Stocks slide, dollar steady as market gauges Fed’s rate policy

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NEW YORK/LONDON, Dec 6 (Reuters) – Global stocks headed for a third straight day of losses on Tuesday and the dollar held steady as the market assesses how long the Federal Reserve keeps interest rates higher and the likelihood that policy provokes a recession.

U.S. stocks followed European shares lower, with all sectors in the red, with the exception of the defensive utilities sector (.SPLRCU), which seesawed between gains and losses.

MSCI’s U.S.-centric all-country world index (.MIWD00000PUS) fell 1.06%, on track for a third session in a row of declines after hitting a three-month high last week.

Treasury yields fell, but more at the long end of maturities than the short end, which deepened the inverted yield curve, a market indicator of a looming recession. The gap between yields on two- and 10-year notes was -82.6 basis points.

The market needs to recognize that a recession most likely is a reality, not just a hypothetical, and that valuations need to go lower, said Jason Pride, chief investment officer of private wealth at Glenmede in Philadelphia.

“During recessions, markets on average price at a discount to fair value, which they have not yet done,” Pride said. “There is not a single instance in which a market has bottomed before the recession started.”

Data released on Monday showing U.S. services industry activity unexpectedly picked up in November and last week’s robust U.S. payrolls report have raised doubts about how soon the Fed would ease monetary policy from being restrictive.

Futures show the market expects the Fed’s peak terminal rate to rise to 4.9951% next May, but by December 2023 to have declined to 4.565% on speculation the Fed will cut rates to help the economy rebound from an expected slowdown in growth.

Wall Street was dragged lower by banking shares and Meta Platforms Inc (META.O), after European Union regulators ruled its Facebook and Instagram units should not require users to agree to personalized ads based on their digital activity.

The Dow Jones Industrial Average (.DJI) fell 0.79%, the S&P 500 (.SPX) slid 1.19% and the Nasdaq Composite (.IXIC) dropped 1.57%. In Europe, the STOXX 600 index (.STOXX) lost 0.56%.

The dollar was mostly unchanged against the euro and yen after strong gains on Monday, with investors awaiting next week’s expected 50 basis points rate hike by the Fed.

The euro rose 0.24% to $1.0516, while the yen strengthened 0.22% at 136.44 per dollar.

Euro zone government bond yields fell after two European Central Bank officials signaled inflation and rates may be close to peaking in the run-up to a raft of major central bank decisions.

The ECB, the Bank of England and the Fed all meet next week to discuss monetary policy. The Reserve Bank of Australia offered a glimpse of decisions to come after raising interest rates to decade highs and sticking with a prediction of more hikes ahead.

All eyes will be on the release next Tuesday of November’s U.S. consumer price index data, which will provide insight into the pace of inflation.

The yield on U.S. 10-year notes fell 4.2 basis points to 3.557%.

Oil prices fell in a volatile market as the dollar stayed strong and economic uncertainty offset the bullish impact of a price cap placed on Russian oil and the prospects of a demand boost in China.

On Monday, crude futures recorded their biggest daily drop in two weeks.

U.S. crude fell 2.24% to $75.21 a barrel and Brent was at $80.70, down 2.39% on the day.

Spot gold added 0.3% to $1,774.09 an ounce.

Reuters Graphics

Reporting by Herbert Lash, additional reporting by Anshuman Daga in Singapore and Alun John in London; Editing by Simon Cameron-Moore, Angus MacSwan and Jonathan Oatis

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World

Oil prices fall on economic fears, dollar strength

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LONDON, Dec 6 (Reuters) – Oil prices fell in a volatile market on Tuesday as the U.S. dollar stayed strong and economic uncertainty offset the bullish impact of a price cap placed on Russian oil and the prospects of a demand boost in China.

Brent crude futures were down 61 cents, or 0.74%, to $82.07 a barrel at 1447 GMT. West Texas Intermediate crude (WTI) fell 51 cents, or 0.66%, to $76.42.

Earlier in the session, both contracts fell by more than $1, while Brent rose by more than $1 in Asian trading.

Crude futures on Monday recorded their biggest daily drop in two weeks after U.S. services industry data indicated a strong U.S. economy and drove expectations of higher interest rates than recently forecast.

The U.S. dollar index edged lower on Tuesday but was still buoyed by bets of higher interest rates, following the biggest rally in two weeks on Monday.

A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand for the commodity.

“Inflationary headwinds could still cause global economic turbulence in coming months,” said Tamas Varga of oil broker PVM, but added that “China’s gradual COVID opening is a tentatively positive development”.

In China, more cities are easing COVID-19-related curbs, prompting expectations of increased demand in the world’s top oil importer.

The country is set to announce a further relaxation of some of the world’s toughest COVID curbs as early as Wednesday, sources said.

The market was weighing the production impact of a price cap of $60 per barrel on Russian crude imposed by the Group of Seven (G7), the European Union and Australia, contributing to market volatility.

The price cap adds to the disruption caused by the EU’s embargo on imports of Russian crude by sea and similar pledges by the United States, Canada, Japan and Britain.

The embargo is likely to tighten market supply as the EU has to source crude from elsewhere, Commerzbank analyst Carsten Fritsch said in a note.

Russia has declared its intention not to sell oil to anyone who signs up to the price cap.

The threat of losing insurance will limit Russia’s access to the tanker market and could reduce crude exports by 500,000 barrels per day from February levels, said analysts from Rystad Energy in a note.

Russia’s January-November oil and gas condensate production rose 2.2% from a year earlier to 488 million tonnes, according to Deputy Prime Minister Alexander Novak, who expects a slight output decline following the latest sanctions.

Reporting by Rowena Edwards in London, additional reporting by Muyu Xu in Singapore; editing by Jason Neely and Barbara Lewis

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Business

FX swap debt a $80 trillion ‘blind spot’ global regulator says

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LONDON, Dec 5 (Reuters) – Pension funds and other ‘non-bank’ financial firms have more than $80 trillion of hidden, off-balance sheet dollar debt in FX swaps, the Bank for International Settlements (BIS) said.

The BIS, dubbed the central bank to the world’s central banks, also said in its latest quarterly report that 2022’s market upheaval had largely been navigated without major issues.

Having repeatedly urged central banks to act forcefully to dampen inflation, it struck a more measured tone and picked over crypto market troubles and September’s UK bond market turmoil.

Its main warning concerned what it described as the FX swap debt “blind spot” that risked leaving policymakers in a “fog”.

FX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen before later repaying them, have a history of problems.

They saw funding squeezes during both the global financial crisis and again in March 2020 when the COVID-19 pandemic wrought havoc that required central banks such as the U.S. Federal Reserve to intervene with dollar swap lines.

The $80 trillion-plus “hidden” debt estimate exceeds the stocks of dollar Treasury bills, repo and commercial paper combined, the BIS said. It has grown from just over $55 trillion a decade ago, while the churn of FX swap deals was almost $5 trillion a day in April, two thirds of daily global FX turnover.

For both non-U.S. banks and non-U.S. ‘non-banks’ such as pension funds, dollar obligations from FX swaps are now double their on-balance sheet dollar debt, it estimated.

“The missing dollar debt from FX swaps/forwards and currency swaps is huge,” the Switzerland-based institution said, adding the lack of direct information about the scale and location of the problems was the key issue.

Off and on-balance sheet dollar debt

CLOSER

The report also assessed broader recent market developments.

BIS officials have been loudly calling for forceful interest rate hikes from central banks as inflation has taken hold, but this time it struck a more measured tone.

Asked whether the end of the tightening cycle may be looming next year, the head of the BIS’ Monetary and Economic Department Claudio Borio said it would depend on how circumstances evolve, noting also the complexities of high debt levels and uncertainty about how sensitive borrowers now are to rising rates.

The crisis that erupted in UK gilt markets in September also underscored that central banks could be forced to step in and intervene – in the UK’s case by buying bonds even at a time when it was raising interest rates to curb inflation.

“The simple answer is one is closer than one was at the beginning, but we don’t know how far central banks will have to go,” Borio said about interest rates.

“The enemy is an old enemy and is known,” he added, referring to inflation. “But it’s a long time since we have been fighting this battle”.

Market volatility

DINO-MITE

The report also focused on findings from the recent BIS global FX market survey, which estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability.

The amount at risk represents about one third of total deliverable FX turnover and is up from $1.9 trillion from three years earlier when the last FX survey was carried out.

FX trading also continues to shift away from multilateral trading platforms towards “less visible” venues hindering policymakers “from appropriately monitoring FX markets,” it said.

The bank’s Head of Research and Economic Adviser Hyun Song Shin, meanwhile, described recent crypto market problems such as the collapse of the FTX exchange and stable coins TerraUSD and Luna as having similar characteristics to banking crashes.

He described many of the crypto coins sold as “DINO – decentralised in name only” and that most of their related activities took place through traditional intermediaries.

“This is people taking in deposits essentially in unregulated banks,” Shin said, adding it was largely about the unravelling of large leverage and maturity mismatches, just like during the financial crash more than a decade ago.

Reporting by Marc Jones; Editing by Toby Chopra and Alexander Smith

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