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McGeever: Why $100 oil won't ruin the American consumer
Oil is expensive, especially in the U.S. where spending and driving are so prevalent. The average American consumer is better prepared than ever to cope with oil priced at $100 per barrel, despite the 'fears'. The U.S. household is the wealthiest it has ever been in nominal terms. In'relative terms, they have never been richer. The unemployment rate is at a historic low. And, most importantly, the share of energy and gas consumption has been historically low. It may be that U.S. equities outperformed those of their global peers after the joint U.S. and Israeli strikes on Iran in February sparked war in the Middle East. The closure of the Strait of Hormuz was also one of the most severe energy supply shocks for decades. Since then, the S&P 500 has lost 5% and Nasdaq has lost 5%. This is a big hit. More than $3 trillion has been wiped off the value U.S. stock. The pain is likely to be much worse for households and businesses in Europe, Asia, and emerging markets where benchmark indexes are down by 8-10%. 2% OF SPENDINGS ON GAS AND ENERGY The U.S. household appears to be able to withstand oil prices at the current level. According to Bureau of Economic Analysis, gasoline and energy products represented just 2% of all consumer spending during the fourth quarter of last year. This is the lowest percentage in 80 years. In 2008, oil reached a record high of just under $150. For comparison, in?2022, the U.S. crude price peaked at $130. The peak was around 6% between 1980 and 1981. It is true that the current level of 2% may rise in the future if oil prices remain high for an extended period. Even then, the majority of Americans should be able handle it. Federal Reserve data from last week revealed that household balance sheets had never been stronger. The fourth quarter of last year saw the net worth of households rise to 794%, which is the highest since early 2022. Since the 1950s, the U.S. net worth of households has been higher only three times, and all during the pandemic-distorted period 2021-22. Inequality of Energy The energy price increase is not a factor that only affects the Americans. According to the American Automobile Association, the national average gas price is now almost $4 per gallon. This represents a 35% increase in one month. Energy Information Administration estimates the average price at $3.72. This is up 27% from the start of the war - and the highest since two and a quarter years. Remember, however, that the price of gas was above $4 for six consecutive months following Russia's invasion of Ukraine in February 2022 and reached $5 that June. It's still important to remember the "energy inequality" that America faces. The lower-income households spend a greater percentage of their income on gasoline and energy. Fed study from last year revealed that 1 in 5 U.S. homes are "energy burdened" - meaning their average ratio of energy expenditure to disposable income is 25 percent, compared to only 7 percent for households not experiencing this burden. These households tend to be in the lower two quintiles. It would be political suicide for the Trump administration to attempt to portray rising energy prices in any other way than as bad news. This is especially true of a president who's approval rating is so low that the Democrats could win both houses of Congress in the November midterm elections. There may also be more pain ahead. The cost of oil could increase across the entire economy. This includes transportation, manufacturing and other industries. Trump has been scrambling for a drop in oil prices. He said earlier on Monday that military strikes against Iranian energy infrastructure and power plants would be put on hold. It is true that the situation is fluid, and Americans could quickly lose their resilience, particularly if oil prices continue to rise. For now, however, it seems that fears of $100 oil breaking the backs of U.S. consumers are overblown. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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Austrian OMV CEO: Energy impact of Iran conflict could exceed Ukraine conflict
According to Austrian OMV's chief executive, the U.S. and Israeli 'war' on Iran could reduce global energy supply more than Russia's invasion in Ukraine in 2022. OMV CEO Alfred Stern said that the conflict in Ukraine has led to a major rerouting of energy supplies, while the war in Iran has reduced energy supplies on the global market. He said that the economic effects of this crisis can already be seen in low-income countries. The Iran War, now in its 4th week, and Tehran’s attacks against Gulf neighbors has damaged major?energy?facilities and brought shipping along the Strait of Hormuz, which is responsible for 20% of global oil?flows and liquefied gas?flows, to a near halt. Stern said that the Middle East crisis is now a physical disruption of the supply chain. Stern spoke at the CERAWeek conference on energy in Houston. "This is a more serious issue, but the main variable is how long it will take. It will have less of an impact if the time frame is limited. OMV expects to have completed by the end March a mega merger with Abu?Dhabi?Dhabi?Dhabi 'National Oil Company, creating a global chemical giant Borouge Group. The deal will combine Abu Dhabi's Borouge with Europe's Borealis and?the purchase of Nova Chemicals by Abu Dhabi wealth fund Mubadala to create BGI. Stern explained that OMV and ADNOC had agreed earlier this month to delay the listing of BGI due to unfavourable market conditions for chemicals in Asia, as well as overcapacity. Stern stated that the Middle East crisis wasn't the reason for the delay. Stern stated that OMV and ADNOC delayed the listing until 2027 depending on?market conditions. Stern said OMV is interested in new opportunities in 'Libya which plans to increase natural gas production over the next five year. Libya's National Oil Corporation, which is run by the state, announced a new oil find in Sirte Basin in 2025 through OMV. (Reporting and editing by Chris Reese, Cynthia Osterman and Stephanie Kelly)
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Ireland will temporarily reduce fuel duty as part of a 235 million Euro energy package
Ireland's government will sign off on a reduction in fuel excise duties until the end of May, as part of a package worth 235 million euros ($273million) to help cushion the?economic?impact of the Middle East conflict. Enterprise Minister Peter Burke stated that the proposals to be presented to cabinet on Tuesday include improvements to a rebate for hauliers as well as home heating payments made to recipients of social welfare. Prices at some service station have risen above 2 euros a litre for unleaded fuel. This level triggered a reduction in fuel duty at the beginning of the Ukraine conflict, which began in 2022. Local media reported that a cut of 15 cents per litre for petrol and 20 cents per litre for diesel would be proposed during the weekly cabinet meeting, which will take effect at midnight on Wednesday. "We must be honest." The government can only do so much if the crisis worsens. Burke said on Virgin Media television that you can cushion the blow but not eliminate it completely. Simon Harris, Finance Minister, said that the government will limit the initial package in order to allow for "further assistance" if the energy crisis persists. The European Commission suggested that member states reduce their national fuel taxes to 'control rising energy prices. Italy has also temporarily reduced excise duties, while Spain proposed on Friday a wider package of measures, worth 5 billion Euros, which included reductions in electricity and fuel prices.
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NNPC Group CEO: Nigerian production can increase by 100,000 bpd in the next few months
Bashir Bayo, CEO of Nigerian National Petroleum Company, stated that Nigeria can increase oil production to a level of?100,000. barrels per day?over the next few months. Bayo Ojulari said that Nigeria averaged 1.6 to 1.7 millions barrels of crude oil per day last year. It hopes to achieve 1.8 million barrels this year. Bayo Ojulari was asked on the sidelines CERAWeek by S&P Global?conference, in Houston, if Nigeria could help?make-up for the crude shortage resulting from U.S. and Israeli war against Iran. He said "We are building this capacity," though he added that "we aren't like Saudi (Arabia), " referring to OPEC's top member. "But we can help." Bayo 'Ojulari, in an 'onstage interview during the conference said that NNPC 'completed a portfolio review of its businesses last year - and is now beginning to implement changes this year. He said that a major focus was to ensure projects are delivered on time and on budget after delays in the past. Sheila Dang reported from Houston and Nathan Crooks edited the story.
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Sources: Rockets fired from Mosul, Iraq towards US base in Syria
Two Iraqi security sources reported that at least seven rockets had been?launched? from the Iraqi city of Rabi'a aimed towards a U.S.?base? in?northeastern Syria 'on Monday. This was the first such attack since the U.S. and Israeli military campaign against Iran began. In the Rabi'a District, west of Mosul, a rocket launcher platform mounted on top of a burned truck was confiscated. The sources claim that the launcher may have been used to fire seven rockets at the Rmeilan Base in Syria. They added that it was the first cross border attack on U.S. troops in Syria since the start of the Iran War. The Syrian army, however, said that one of its bases in Hasaka, a city located in northeastern Syria, was attacked by rockets, but did not mention if the base was American or if it housed U.S. soldiers. In a press release, it said that the Iraqi Army had started a search and sweep operation to find the perpetrators of the attack. Israel has launched new attacks on Lebanon following the firing of Hezbollah, an Iran-aligned militia, across the border. Reporting by Alex Richardson; Editing by Rod Nickel and Alex Richardson
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Chevron wants more changes made to Venezuela's hydrocarbons laws
Mike Wirth, CEO of Chevron, said that the company is making progress in Venezuela, as its oil production -in the OPEC nation - is increasing, but that more work is needed to secure investment conditions and change important?energy _legislation. Wirth made the remarks in Houston at the CERAWeek conference by S&P Global. Venezuela's oil sector is a subject of renewed interest since the U.S. removed President Nicolas Maduro earlier this year and called for billions in new investment to rebuild it after decades of stagnation. American officials have been visiting the South American nation to kickstart these efforts, including Energy Sec. Chris Wright. Wirth said that access to international arbitrage would be crucial and that the?fiscal conditions recently approved by Venezuela’s National Assembly as part of a January reform oil law were relatively broad. This required specific incentives. Wirth stated that "at one end, we have investments that are attractive and at the other, you will find investments that would not be. So there is still some discretion, ambiguity, or uncertainty in the law, which I believe you can tighten." The reform gave foreign companies the autonomy to operate oilfields in Venezuela, sell the crude, and collect the profits. South America also allowed oil projects to be outsourced and reduced royalties on certain projects, at the discretion of the oil ministry. Venezuelan lawmakers announced that separate legislation regulating oil taxation for each project type would soon be discussed and drafted. But the government-controlled congress has since then prioritized other reforms, including a mining law, delaying any additional oil legislation. According to sources involved in talks, many joint-venture partners with the state?company PDVSA are pressing Washington and Caracas to make additional changes. These include granting access to international arbitration for contract dispute resolution, as well as specific taxation that reduces royalties and income taxes on greenfield projects. Some companies, particularly the largest partners of PDVSA, are calling for the law to be modeled after the licenses issued by U.S. Treasury Department to Venezuela's oil & gas sector, which require contracts to adhere to U.S. laws, and to include dispute resolution in international courts. According to sources, so far the administration of President Delcy Rodriguez has been reluctant to discuss another reform of the hydrocarbons laws, which are the foundation of?the oil sector of Venezuela. Chevron, PDVSA's largest oil partner, produces 250,000 barrels of crude oil per day from four joint ventures. This is a quarter the total country's output. (Reporting and editing by Nathan Crooks, Nia Williams and Marianna Paraga in Houston)
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Prices of oil plunge by 11% after US-Iran talks on resolving hostilities in Middle East
Oil prices fell by about 11% Monday, after U.S. president Donald Trump announced he would delay?any military attacks against Iranian power stations for five days. He also cited constructive discussions to resolve hostilities throughout the Middle East. This was just hours before a deadline which threatened to escalate a four-week old?war. Brent futures dropped $12.25 or 10.9% to $99.94 per barrel. U.S. West Texas Intermediate fell $10.10 or 10.3% to $88.13 per barrel. Brent crude oil closed Friday at its highest price since July 2022. The volatility of both benchmarks for the 30-day futures contract has increased to the highest level since April 2022. U.S. futures for gasoline and diesel also fell by about 10% on Monday, after reaching their highest level since 2022 last Friday. Trump said that the United States had held talks with Iran in the last day, and both sides reached "major agreements." He added that a settlement could be made soon to end the war. Crude futures fell by almost 15% in the first session but recovered some of their losses when Iran denied having engaged in any negotiations with the U.S. and said that it had launched new attacks against Israel and other Middle Eastern sites. Iran's Revolutionary Guards have said that they will attack Israel's nuclear power plants as well as those supplying U.S. base across the Gulf if Trump's threats to "obliterate Iran's energy network" are followed through by the United States. The war in the Gulf has damaged major energy infrastructure and stopped shipping through the Strait of Hormuz. This waterway handles around 20% of the global oil and LNG flows. On Monday, two?tankers bound to India passed through the Strait of Hormuz carrying liquefied gas that was loaded in Kuwait and the United Arab Emirates. However, overall traffic through the critical waterway remains blocked. Analysts estimate a loss of 7 to 10 million barrels of oil per day in the Middle East. Fatih Birol said that the crisis in the Middle East was worse than both oil shocks from the 1970s combined. A temporary lifting of U.S. restrictions on Russian and Iranian crude oil at sea has been made possible by the supply crisis. Indian refiners are planning to resume purchasing Iranian oil, while refiners in other parts of Asia are also considering the move. U.S. Energy Sec. Chris Wright said on CNBC that it is "highly likely" that the United States will release more oil from their Strategic Petroleum Reserve in order to 'calm the energy markets during war with Iran. Around the world, in Russia, the Baltic Sea Port of Ust-Luga has resumed oil-loading after an alert for drone attacks was lifted. Primorsk, which is located nearby, remained closed after air strikes and added to global shortages. Federal Reserve Governor Stephen Miran stated on Monday in the U.S. that it was too early to predict the impact of the Iran war's energy price shock on inflation. He still believes rate cuts are warranted for the sake of the job market. Interest rates are used by central banks, such as the Fed, to control inflation. Reduced interest rates can increase economic growth and oil demand. Bank of Japan is, however, preparing for changes to its policy in April. This will keep the possibility of an increase in interest rates near term alive, as the weak yen and Middle East war are putting inflationary pressures onto the economy. Market sources reported on Monday that the Japanese government was considering intervening in crude oil futures, as Middle East conflict is driving energy prices higher. A European Commission survey revealed on Monday that consumer confidence in the Eurozone fell to its lowest point since late 2023. This is an early indication of the impact that the war with Iran, and rising energy prices, may have on a broader economy. The global air travel industry is still severely affected by the Iran War, which has forced the closures of major Middle Eastern hubs such as Dubai, Doha, and Abu Dhabi. This has left tens thousands of passengers stranded. Reporting by Scott DiSavino, Seher Dareen, Mohi Nairayan, and Florence Tan, in New York; Additional reporting, Dmitry Zhdannikov, and editing by David Goodman.
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Investors weigh US-Iran War as they lower Chicago soy and grains.
Chicago soybean futures fluctuated between 'positive and negative territory' on Monday, and ended the day a tad higher after U.S. president Donald Trump announced a possible delay to possible strikes against Iranian power plants. Trump's remark, which also referred productive talks with Iran sent oil prices tumbling, as investors saw a de-escalation of the U.S./Israeli war against Iran, which has disrupted energy supplies worldwide. The fall in crude oil prices was halted by the Iranian denial of any talks with Washington. Meanwhile, grain prices recovered. Randy Place, an analyst at Hightower Report, said: "I don't believe the?market feels like it's over yet." The lower crude oil price put pressure on corn and soybean futures prices. The Chicago Board of Trade's most active?soybean contracts settled 2-1/4 cents higher to $11.63-1/4 per bushel. Because of biofuels, such as corn and soybean oil, and because investors used these crops to hedge against inflation during the Iran Crisis, grains are sensitive to crude oil. Corn's losses have been limited by a strong export market and high margins for ethanol. Wheat prices also fell after Trump?s comments on a strike delay, which helped ease fears of a wheat shortage in Middle Eastern and North African nations. Place explained that the market was weakened by this, as it shifted its focus to 'global fundamentals', which were not bullish. Wheat futures are under pressure due to global oversupply, and poor exports. CBOT wheat settled 7-1/2 cents below at $5.87-3/4 a bushel.?Corn settled 6 cents below at $4.59-1/4 a bushel. The traders are also pondering how the rising prices of fuel and fertilisers may affect U.S. farmers’ acreage allocations for corn and soybeans this spring. (Reporting from Heather Schlitz, Chicago; Additional reporting provided by Gus Trompiz, Paris, and Daphne Zhang, Lewis Jackson, Beijing; Editing done by Rashmi, Aich, Simao and Jan Harvey. Rod Nickel).
Oil prices fall, but stocks rise on Trump's Iran pardon
The global stock market rebounded on Monday from its four-month low after the?U.S. Donald Trump said he would order the military not to strike Iranian energy plants or power stations, which will ease fears of an even greater oil shock. Trump said that the U.S. and Iran were in talks about ending the U.S. - Israel war against Iran. However, parliamentary speaker Mohammad Baqer Qalibaf - who was tipped to represent Iran in contact with the U.S. – posted on social media stating that no talks have been held.
The dollar dropped against major currencies, and the cost of borrowing by government decreased.
The comments buy time. They may need more time to prepare for whatever they are planning to do. David Bianco is Americas chief Investment Officer at DWS. He said, "I don't think this conflict will be resolved overnight."
IRANIAN MEDIA 'CONTRADICT TRUMP’S COMMENTS U.S. Crude was last down 8.78% at $89.61 a barrel and Brent fell to $100.42 per barrel, down 9.64% for the day. The Dow Jones Industrial Average rose by 655.41 or 1.44% to 46,232.88. The S&P 500 gained 77.50 or 1.19% to 6,583.98. And the Nasdaq Composite jumped 273.61 or 1.26% to 21,921.22. The MSCI index of global stocks rose 4.77 points or 0.49% to 986.08. The pan-European STOXX 600 rose by 0.61%.
INVESTORS EXPECT AN IMPROVEMENT IN TRIM RATE
The 2-year yield in Britain, which has been the hardest hit by the bond sell-off since the beginning of the conflict, fell 17 basis points to 4.409% on Monday. The 10-year yield fell from its peak in 2008.
Investors have lowered their expectations of Bank of England rate increases, pricing in only two hikes for this year compared to a Monday's estimate of?more? than three. They also reduced their expectations of the European Central Bank.
The yield on the U.S. 10-year Treasury bond was 4.36%, while the yield on the two-year Treasury bond was 2 to 3 basis point lower.
The dollar was generally soft. It had traded higher against most currencies before the headline. The euro last rose 0.23% to $1.1597. The market is not saying the worst 'is over', but the odds of the worst manifesting itself in the next couple of days has decreased, said Steven Englander of Standard Chartered, New York.
(source: Reuters)