Oil Futures Rise 8% in 3rd Gain in a Row

1 Sep 2015 | Author: | No comments yet »

Asian Morning Briefing: U.S. Stocks End With Losses.

U.S. stocks declined, logging their worst monthly losses in years in August, driven by concerns over China and the timing of a U.S. interest rate rise.

OPEC signaled that it might cut production in the future and the U.S. lowered output estimates, propelling oil back into a bull market less than a week after hitting a six-year low. The Energy Information Administration changed the way it calculates how much oil comes out of the ground, using a survey of producers in key states instead of relying on data from state agencies and computer models. The Organization of Petroleum Exporting Countries, producer of about 40 percent of the world’s oil, renewed its commitment to talk to other crude exporters to achieve “fair and reasonable prices,” according to the group’s monthly magazine. Investors will get an update on the state of China’s manufacturing Tuesday with the release of August’s manufacturing purchasing manager index, which likely fell to 49.8 as the world’s second largest economy shows more signs of weakness, according to a median forecast of 10 economists polled by The Wall Street Journal.

Phil Verleger, president of the economic consulting company PKVerleger LLC, said the global market could be rebalanced as soon as early next year after the U.S. revisions. The bullish headlines, combined with money managers holding bearish bets that are nearly triple the average over the past 10 years, led to what could be a short-lived rally, warned Ed Morse, the head of global commodity research at Citigroup Inc.

The preliminary Caixin China manufacturing PMI, a competing index with official one, plunged to a 77-month low in August of 47.1, compared with a final reading of 47.8 in July. It’s too early to fully trust the EIA’s new data, he said in a research note, and there’s no reason to believe any non-OPEC countries will work with the group to cut production. Concerns about a supply glut may have been eased a bit on Monday (August 31) with a new government report that downgraded its estimate for U.S. oil output so far this year.

China’s unexpected devaluation of its currency earlier in August amplified worries about a slowdown in the world’s second-largest economy, which pummeled global stocks, commodities and emerging-market currencies. Russian production has remained high because the weak ruble has lowered costs there, while Mexico is trying to increase output amid a historic energy reform. Federal Reserve pushing ahead with raising rates from rock-bottom levels, which have provided support for financial markets across the globe in recent years.

The Saudis led the way in maintaining production levels in order to preserve market share, even as prices sank by more than half since the middle of last year. “Until Saudi Arabia says something this is all meaningless,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. “Why would the Saudis change their logic and waste all they have already done.” That can happen when a turbulent commodity mixes with outsized bets by large investors like hedge funds. “It’s really being driven by the speculators. With low interest rates around the globe and continued improvement in the U.S. economy, many investors say they still expect U.S. stocks to advance over the longer run. That’s why we’re seeing such wild swings,” said Anthony Starkey, energy analysis manager for Bentek Energy, an analytics and forecasting unit of Platts. Fed-funds futures, which are used to bet on the central bank’s interest-rate policy, now show diminished odds for a rate increase in September than a month ago.

Comments from Fed officials at the annual Jackson Hole conference in Wyoming over the weekend suggested that the Fed was sticking to its plans to raise interest rates later this year for the first time in almost a decade. In corporate news, Amicus Therapeutics Inc. agreed to buy Scioderm Inc., a privately held maker of treatments for rare diseases, for about $229 million in cash and stock. Matt Sallee, a portfolio manager at Tortoise Capital, pointed to a bullish report showing crude stockpiled declined sharply last week, the stronger-than-expected U.S. economic growth for the second quarter and more geopolitical tension between Saudi Arabia and Yemen. Bristol-Myers Squibb Co. said it has been granted the exclusive right to buy privately held Promedior Inc. and its experimental fibrosis treatment for up to $1.25 billion. I’m pretty confident it’s just a bear market correction, though it could last for a few months,” said Walter Zimmerman, chief technical analyst at United-ICAP.

The dollar retreated against the euro and the yen in August as rising concerns over global growth and inflation moved investors to push back expectations for higher U.S. interest rates and exit from some of their large consensus trades. The dollar late last week pared some of its August losses, as Fed officials signaled the central bank still could raise its benchmark short-term interest rate at its September meeting. U.S. government bonds ended a volatile month with a whimper as priced pulled back on the prospect of upbeat economic data and tighter Federal Reserve policy.

That was until China’s central banks devalued its currency on Aug. 11, calling attention to its decelerating economy and how that might hurt global growth. Oil prices soared, marking their strongest three-day rally since Iraq’s 1990 invasion of Kuwait, on doubts that the global glut of crude would be as long-lasting as many investors and traders had earlier believed. So they don’t know what to do.” U.S. prices have surged 27% in three sessions, the biggest three-day percentage gain since August 1990, when Iraq invaded Kuwait.

Chinese authorities announced legal actions against high-profile targets in the government, brokerages and media for what they alleged were ‘securities violations.’ Japan’s largest brokerage wrongfully dismissed an American managing director during a dispute over compensation for a product he invented, the Tokyo District Court ruled. Russian President Vladimir Putin will discuss “possible mutual steps” to stabilize the global oil prices at a meeting with Venezuelan President Nicolás Maduro in China on Thursday, a Kremlin aide said, as both countries grapple with lower prices for their main export. The Internet company said its health-care research unit plans to work with European pharmaceutical major Sanofi on new ways to monitor and treat the condition.

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