September 25, 2022

By Aziz El Yaakoubi

RIYADH (Reuters) -Saudi Arabia has won a diplomatic victory by securing freedom for foreign fighters captured in Ukraine, signalling the value of the crown prince’s alliance with Russia to Western partners seeking to isolate Moscow over the war there, analysts say.

Crown Prince Mohammed bin Salman may also find that the initiative — intentionally or otherwise — helps take him a step nearer international rehabilitation after the 2018 murder of Jamal Khashoggi damaged his reputation, they say.

With Prince Mohammed’s mediation, Russia on Wednesday released 10 foreigners it had captured in Ukraine, including five Britons and two Americans.

The move, apparently made possible by Prince Mohammed’s carefully nurtured ties with Russian President Vladimir Putin, coincided with a prisoner exchange involving 215 Ukrainians and 55 Russians and pro-Moscow Ukrainians that Turkey helped broker.

Kristian Ulrichsen, a political scientist at Rice University’s Baker Institute in the United States, said the working relationship between Saudi Arabia and Russia appears to have been a crucial element in the choice of intermediary.

“By sanctioning this mediation and delivering results, Mohammed bin Salman is able to present himself as capable of playing the role of regional statesman in a way that counters the narrative of the crown prince as an impulsive and disruptive actor,” Ulrichsen said.

Prince Mohammed’s initial image as a bold reformer was battered by the 2018 murder of Khashoggi, a Washington Post columnist, at the hands of Saudi agents seen as close to MbS.

He denies ordering Khashoggi’s killing while saying he ultimately bore responsibility as it happened under his watch.

‘HUMANITARIAN GESTURE’

In remarks to the BBC, Saudi Foreign Minister Prince Faisal bin Farhan said the motivation behind Saudi Arabia’s involvement in the prisoner release was humanitarian. He denied the Crown Prince had become involved to rehabilitate his reputation.

“That didn’t factor into it. I think that’s a very cynical view,” he said. He added that on the conflict itself, the kingdom wanted to see a negotiated solution and Riyadh was committed to trying to help secure that outcome.

Prince Faisal said the crown prince had engaged with Putin to work out a prisoner deal since April, when he “understood” the issue of the five British citizens following a visit to the kingdom by then British Prime Minister Boris Johnson.

“His Royal Highness was able to convince President Putin that this is a humanitarian gesture that is worthwhile, and this is how we achieved this result,” Prince Faisal told Fox News.

The freed prisoners, who also included a Croatian, a Moroccan, and a Swedish national, were flown to Riyadh on a Saudi plane where officials lined up to greet them.

U.S. citizens Alexander Drueke, 39, and Andy Huynh, 27, both from Alabama, are expected to leave Saudi Arabia within days, officials said.

The importance of the kingdom, the world’s largest oil exporter, to both Washington and Moscow has grown at a time when Russia’s war in Ukraine is roiling global energy markets.

World leaders have beat a path to Riyadh to ask for more oil production. But Saudi Arabia has shown little readiness to join the effort to isolate Russia. It has stepped up its cooperation with Putin, including within the OPEC+ oil producers group.

‘USEFUL’ TIES TO RUSSIA

A visit in July by U.S. President Joe Biden failed to secure commitments from the Saudis for an immediate oil output rise or a harsher stance against Putin, highlighting the tensions weighing on the relationship between Washington and Riyadh.

Ali Shihabi, a pro-government commentator, said the Saudi mediation in the prisoners’ release “was a first”.

“I think the kingdom was messaging the West that its ties to Russia can also serve a useful purpose for them,” said Shihabi.

“You need some countries to maintain ties to both sides.”

A Western diplomat said the prisoners’ deal had been months in the making, but most of the diplomatic community in the Gulf heard about it only at the very last stage.

U.S. National Security Adviser Jake Sullivan, Secretary of State Antony Blinken and British Prime Minister Liz Truss thanked the Saudi crown prince for his role.

Kristin Diwan, senior resident scholar at the Arab Gulf States Institute in Washington, said it was unusual for Saudi Arabia to deploy the strategy of diplomatic brokerage — something well established for smaller Gulf states such as Qatar to leverage their ties.

“It’s like alchemy – he (Prince Mohammed) is turning his much-criticized ties with Russia into gold,” Diwan said.

Commodities Sep 25, 2022 05:30AM ET

© Reuters.

By Barani Krishnan

Investing.com – Oil bears have a ‘love-hate relationship’ with Abdulaziz bin Salman. They love to taunt the Saudi Energy Minister and he loves to hate them. 

Crude’s short-sellers, of course, find nothing personal in what they do; to them, it’s just business – like the Corleones. But it’s different with AbS. The half-brother to MbS – or Saudi Arabia’s king-in-waiting Mohammed bin Salman – internalizes his battles with the short side of the trade, and has vowed to crush those who come up against him and his beloved OPEC+ alliance. The just-ended week might have given the world a preview of another battle royale coming up between the two sides.

As U.S. crude settled Friday at below $80 per barrel for the first time since January for its worst weekly loss in seven, it became apparent that the notion of the four-month-long sell-off in ‘black gold’ ending soon might be just that: a notion.

When the rut began in June, New York-traded WTI, or West Texas Intermediate, was well above $100 a barrel. 

The first monthly settlement at double-digits came the next month, after back-to-back losses of 7% each in June and July. 

AbS and OPEC remained defiant then, projecting strong demand for their oil and barely seeing the need to take barrels off the market as they did at the height of the Covid pandemic two years ago, when they slashed almost 10 million barrels in daily exports. With the assent of their Big Brother of the past six years within OPEC+, Russia, the Saudis announced a haircut of 100,000 barrels per day reduction. 

The result was an even bigger 9% loss for WTI in August. 

September’s looming 11+% slide might be the proverbial last straw to test the back of the camel for the Saudi Energy Minister and his oil-producing brethren in the Middle East, as the long side of the market exhorts OPEC+ to do “something” when the alliance meets again Oct. 5.

That “something” is, of course, no mystery to anyone who has followed the workings of the original Organization of the Petroleum Exporting Countries over the past six decades. And that is to slash production forcefully, pandemic-style, to hopefully restore the sort of price wins seen in the 19 months prior to the market’s turn, when WTI settled up 16 times. 

Without it getting any worse, oil is already down almost 40% since the February invasion of Ukraine by Russia, which sent WTI to a peak of around $130 and global crude benchmark Brent to almost $140.  

“OPEC+ still believes that supply and demand fundamentals continue to support rising prices, but crude prices continue to fall,” Nigeria’s Oil Minister Timipre Marlin Sylva said Thursday, speaking on behalf of the alliance, which groups OPEC’s original 13 with another 10 producers led by Russia since 2016. 

“We don’t know exactly what we can do to fix this, but the only tool we have is to cut production if prices fall too low,” Sylva added.

Oil bears, of course, heard that. Minutes after the Nigerian oil minister spoke, WTI and Brent rose momentarily, before giving back even that momentum. 

As mentioned earlier, shorting oil is strictly business now for the bears; they are convinced that it’s the right thing to do. 

Fueling their conviction were global equities at a two-year low on Friday versus the dollar at 20-year highs, after weak European purchasing managers indexes and growth concerns from rate hikes by the to the .

“The market is clearly thinking economic slowdown,” Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, said as recession fears were omnipotent across markets. “Whether or not physical [oil] grades are strong or weak matters not currently.”

Long-leaning analysts, however, warned that the risk of war escalation in Ukraine by Russia and China’s opening up from COVID lockdowns could mean plenty of upside for oil in the coming weeks.

They also point to something else that in their view the bears are completely blind to: The daily release of one million barrels of crude from the U.S. Strategic Petroleum Reserve by the Biden administration. The total 180-million-barrel release that will end in October has practically flooded the U.S. market for crude and alleviated some of the deficit as well on the global market for oil from shortfalls in sanctioned Russian supply. When the SPR outflows run out in six weeks, oil will explode higher, many bulls are convinced.

Not so, say analysts at Ritterbusch and Associates, the Chicago-based oil consultancy formed by veteran oil trader Jim Ritterbusch, which believes that a continued surge in U.S. interest rates and the dollar will limit oil’s gains.

Here’s where the bulls and bears lock horns and paws, and AbS might be tempted to be the sweeping hawk flying down to be arbiter. 

As said earlier, the Saudi energy minister’s hatred toward short-sellers in oil is well established.

In a famous speech from September 2020,  AbS declared: “I’m going to make sure whoever gambles on this market will be ‘ouching’ like hell’.” He promised to make crude prices as “jumpy” as possible for those shorting them. For good measure, he called on the shorts in oil to “make my day”- a taunt used by Dirty Harry, a maverick cop, on the bad guys in the movies of the same name from the ’70s and ’80s.

Clearly, no other Saudi energy minister had engaged with traders at such an animated and intense level, with the game presumably made all the more enjoyable for AbS as oil bears indeed “ouch-ed” from prices that went from zero (WTI in April 2020) to almost $130 six months ago.

While everything was in AbS’ advantage once to slash production, things could be more complicated this time around. And that complication has largely to do with the biggest force within OPEC+ that the Saudis have relied on for the past six years: Russia.

Just like OPEC+’s only known response to a price crash is to cut production, Russia’s only known way to ease the pain of its self-inflicted crisis of sanctions is to deeply discount the price of its oil to customers willing to buy from it.   

Adding to this Russian crisis is the steady advance made by the Group of Seven nations to have in place by early December a working mechanism to cap the price of oil sold by Russia, in order to limit the Kremlin’s ability to fund its war against Ukraine. 

While Moscow has vowed retaliation against countries that implement the decision, it is also likely to undercut other OPEC+ producers in selling its oil wherever possible to make up for lost revenue. Russia’s aggressive discounting on oil on the physical market will ultimately matter on the futures market, aside from weighing on the pricing of competing OPEC+ oils, including Saudi crude.

Another open secret within OPEC+ is how cuts are divvied up and who does the giant’s share – typically – in supporting the market. History has repeatedly shown over the past six years that it’s almost always the Saudis who cut the most, followed by the United Arab Emirates. 

“Here’s where things are going to get really complicated,” said John Kilduff, founding partner of New York-based energy hedge fund Again Capital. “Preserving Russia within OPEC+ is paramount to the Saudis as the alliance itself will collapse without the Russians. But how do you effectively support an ally through difficult times when the ally is increasingly becoming a liability?”

“Vladimir Putin’s actions might become more difficult for MbS to support, particularly when Russian Urals are landing at $20 a barrel lower than Arab light. Would you, as Saudi Arabia and the UAE, cut output, knowing that the Russians won’t as they need every penny from every barrel they can sell to fund the Ukraine war? Whatever the Saudis and Emiratis cut will end up as market share lost to Russia, U.S. and other producers who will be racing to sell anywhere there’s a vacuum in supply.”

We’ll know by Oct. 5 what AbS plans to do – maybe earlier, if oil’s “Dirty Harry” decides to pull the trigger quicker than wait.

Oil: Market Settlements and Activity 

New York-traded , which serves as the U.S. crude benchmark, did a final trade of $79.43 on Friday, after settling the official session at $78.74 per barrel, down $4.75, or 5.7%, on the day. WTI earlier hit a session low of $78.14.

For the week, the U.S. crude benchmark was down 7.5% for its worst week since the end of July.

, the London-traded global benchmark for oil, did a final trade of $86.65 and settled at $86.15, down $4.31, or 4.8% on the day, after an intraday drop to $85.51. 

For the week, Brent was down 5.7% for its biggest weekly decline since the end of August.

Oil: Price Outlook

Renewed selling is very likely in the week ahead in WTI as bears attempt to break the $78 low with the next bearish target of the 200-month Simple Moving Average of $72.35, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“Four months of bearish oil trends dig its heels deeper as the monthly middle Bollinger Band of $82.20 is broken and WTI drops to $78.14, which is a close shave with the 100-week SMA of $77.50,” he said.

WTI’s Relative Strength Indicator and stochastics readings across the daily, weekly and monthly charts were all in negative formation, Dixit added.

MACD, or Moving Average Convergence Divergence, on the monthly chart has also started negative formation, pointing to further downside in WTI, he said. 

On the flip side, the 100-week SMA of $77.50 may act as support, causing a short-term rebound towards the broken-support-turned-resistance levels of $82.20 and $86.20, Dixit said.

“If prices make a sustained break above this zone, we expect recovery towards $90.50 – $91.50.”

Gold: Market Settlements and Activity 

There’s no escaping the wrath of the dollar, as gold traders are finding out.

One of the yellow metal’s most sacred support lines that held through its worst selling storms of the past two years – $1,650 an ounce – broke Friday as the continued with its onslaught of one 20-year high after another.

Bond yields, tracking the , scaled 12-½ year highs after the latest session peak above 3.8%. The yields reflect so-called real interest rates, or where the market thinks key lending rates set by the Federal Reserve would go.

The Fed on Wednesday raised rates by 75 basis points for a third straight month in a row, bringing key lending rates to a peak of 3.0% — or 0.8% below the bond yield level. To be sure, Fed Chairman Jerome Powell indicated there would be no let up for now in the central bank’s hiking cycle as it battles to bring raging at above 8% a year to its long-standing target of 2% per annum.

Gold’s break below $1,680 “was a big deal but it hasn’t really been the catalyst for anything since,” said Craig Erlam, analyst at online trading platform OANDA.

That makes a break of the $1,650 support “a secondary confirmation of the initial breakout” and a “very bearish signal”, he added.

Gold’s benchmark futures contract on New York’s Comex, , did a final trade of $1,651.70, after settling the official session down $25.50, or 1.6%, at $1,655.60 per ounce. The session low was $1,648.60.

The , which is more closely followed than futures by some traders, settled down $27.76, or 1.7%, at $1,643.57. Spot gold’s bottom for the day was $1,639.96.

Gold: Price Outlook 

Going into the week ahead, traders’ reaction to $1,640 would be critical for spot gold, says Dixit of SKCharting.

“With spot gold cracking $1,640, it could go towards $1,620 next, or even $1,600,” he warned.

“However, if the Dollar Index starts to decline from 113 and heads towards 104, the $1,620-$1,600 zone in gold can attract value buyers. But $1,560, which sits at a 50% Fibonacci retracement of gold’s previous rally, is a more convincing rallying point that could bring bulls back to recent highs.”

As long as gold sustains above $1,640, a small recovery towards $1,655-$1,665, with an extension towards $1,678-$1,688 looks likely, said Dixit.

Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about.

© Reuters.

By Neil Jerome Morales

MANILA (Reuters) -Philippines President Ferdinand Marcos declared suspension of government work and classes for Monday as a category 3 tropical storm barrelled through the main island Luzon after making landfall northeast of the capital Manila.

Nearly 8,400 people were pre-emptively evacuated from the path of Typhoon Noru, which slightly weakened with sustained winds of 185 kph (115 mph) and gusts of up to 240 kph (149 mph) after making landfall.

Flights were cancelled, ferries halted and bus routes shut as heavy rains and strong winds toppled trees and power lines.

Marcos suspended classes and work in Luzon, which accounts for more than two-thirds of the economy and roughly half of the country’s 110 million population.

“The wind is calmer now but it’s dark because we have no power supply,” Eliseo Ruzol, mayor of coastal General Nakar town adjacent to Noru’s landfall location, told DZRH radio station.

The mayor of Dingalan town, also on Luzon, told DZMM radio station communication lines were severed and the power was out in some communities.

Waves whipped up by the category 3 typhoon were battering ports, photos and videos on social media showed, and low-lying areas were flooded.

The Philippines, an archipelago of more than 7,600 islands, sees an annual average of 20 tropical storms that cause floods and landslides. In 2013, Typhoon Haiyan, one of the most powerful tropical cyclones ever recorded, killed 6,300 people.

Noru, which is moving westward over rice-producing provinces in Luzon, is likely to emerge over the South China Sea by late Sunday or early Monday.

© Reuters

By Noreen Burke

Investing.com — After a week that saw financial markets rocked as central banks and governments ramped up their fight against inflation, investors will be bracing themselves for fresh volatility in the week ahead. Several Federal Reserve officials are due to speak, fresh off delivering their third straight 75 basis point rate hike with no let-up in sight. The highlight of the U.S. economic calendar will be Friday’s data on personal income and spending, which includes the Fed’s favored inflation gauge. In the Eurozone, Friday’s inflation data is likely to pile pressure onto the European Central Bank. Ahead of that, ECB President Christine Lagarde is due to testify before lawmakers in Brussels on Monday, while the results of Italy’s elections on Sunday will also be closely watched. The yen will remain in focus after the Bank of Japan intervened in foreign exchange markets. Meanwhile, Chinese PMI data on Friday will give an insight into the health of the world’s number two economy. Here’s what you need to know to start your week.

1. Fedspeak, U.S. data

St. Louis Fed President James , Cleveland Fed President Loretta , Chicago Fed head Charles Evans, Atlanta Fed President Raphael Bostic and Fed Vice Chair Lael are all due to speak during the week, with investors on the alert for indications of whether a fourth straight 75 bps is on the cards in November.

The economic calendar features reports on , , along with data on and .

The highlight of the economic calendar will be August data on and on Friday which includes the personal consumption expenditures price index, the Fed’s preferred inflation measure.

Economists are expecting the annualized increase in the to moderate because of recent declines in fuel costs, but the that excludes food and energy is expected to increase.

2. Stock selloff

Wall Street’s main indexes suffered heavy losses last week with the dropping 5.03% – its second straight week falling by more than 5% – while the ended down 4.77% and the shed 4%.

The Dow only narrowly avoided joining the S&P 500 and the Nasdaq in a bear market.

A rout in bond markets added pressure on stocks as investors recalibrated their portfolios to a world of persistent inflation and rising interest rates. Investors were caught off guard after the it expects high U.S. rates to last through 2023.

While recent data has indicated that the U.S. economy remains comparatively strong, investors worry the Fed’s tightening will tip the economy into a recession.

“We’re having everyone reassess exactly how far the Fed will go, and that’s troubling for the economy,” Ed Moya, senior market analyst at OANDA, told Reuters on Friday.

“It’s becoming the base case scenario that this economy is going to have a hard landing, and that is a terrible environment for U.S. stocks.”

As well as tightening financial conditions around the world, market sentiment has been hard hit by a range of other issues including the Ukraine conflict, the energy crisis in Europe and China’s COVID-19 flare-ups.

3. Eurozone CPI

The Eurozone is to release September data on on Friday with economists expecting the headline rate of inflation to accelerate to a fresh record high of 9.6%, keeping up pressure on the ECB as it grapples with how much to increase interest rates in the face of a looming recession.

Ahead of that, ECB President Christine Lagarde is due to testify before the Committee on Economic and Monetary Affairs in Brussels on Monday, where she will likely face questions on how the central bank plans to navigate the battle against inflation as the bloc faces the prospect of a recession.

Investors will also be watching the results of on Sunday which is expected to result in the country’s most right-wing government since World War II.

European Union leaders, keen to preserve unity after Russia’s invasion of Ukraine, are concerned that Italy will be a more unpredictable partner, while financial markets will be concerned about the new government’s ability to manage a debt load that amounts to around 150% of GDP.

4. Yen intervention

Japan’s authorities finally had enough of weakness in the yen on Thursday when they for the first time since 1998.

The posted its first weekly gain of 0.3% in over a month against the dollar following the move.

But the dollar is up more than 20% on the yen this year with the Bank of Japan sticking to its commitment to ultra-low interest rates, while the Fed looks set to continue with aggressive rate hikes until inflation is in check.

So the case for a strong dollar remains. Japan, alongside neighbors China and Korea also pushing back on the dollar, may find itself fighting fundamentals, the market and the Fed.

is to make a speech on Monday where he is expected to give further insights into Japan’s decision to intervene.

5. China PMIs

China is to release data on Friday which will be closely watched for indications on whether the nascent economic recovery continued in September.

Recent economic data pointed to resilience in August, with faster-than-expected growth in factory output and retail sales shoring up a fragile recovery, but a deepening property slump weighed on the outlook.

With few signs China will significantly ease its zero-COVID policy soon, some analysts expect the world’s second largest economy to grow just 3% this year, which would be the slowest since 1976, excluding the 2.2% expansion during the initial COVID hit in 2020.

China has announced a broad range of economic support measures since late May but rapid declines in the against the U.S. dollar have complicated the case for looser monetary support.

–Reuters contributed to this report

By Crispian Balmer and Angelo Amante

ROME (Reuters) – A right-wing alliance led by Giorgia Meloni’s Brothers of Italy party was on course for a clear majority in the next parliament, giving the country its most right-wing government since World War Two.

Meloni, as leader of the largest coalition party, was also likely to become Italy’s first woman prime minister.

Meloni, 45, plays down her party’s post-fascist roots and portrays it as a mainstream conservative group. She has pledged to support Western policy on Ukraine and not take undue risks with the third largest economy in the euro zone.

However, the outcome is likely to ring alarm bells in European capitals and on financial markets, given the desire to preserve unity in confronting Russia and concerns over Italy’s daunting debt mountain.

An exit poll for state broadcaster RAI said the bloc of conservative parties, that also includes Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia party, won between 41% and 45%, enough to guarantee control of both houses of parliament.

“Centre-right clearly ahead both in the lower house and the Senate! It’ll be a long night but even now I want to say thanks,” Salvini said on Twitter (NYSE:).

Italy’s electoral law favours groups that manage to create pre-ballot pacts, giving them an outsized number of seats by comparison with their vote tally.

RAI said the right-wing alliance would win between 227 and 257 of the 400 seats in the lower house of parliament, and 111-131 of the 200 Senate seats.

Full results are expected by early Monday.

RECORD LOW TURNOUT

The result caps a remarkable rise for Meloni, whose party won only 4% of the vote in the last national election in 2018, but this time around was forecast to emerge as Italy’s largest group on around 22-26%.

But it was not a ringing endorsement, with provisional data pointing to turnout of just 64.1% against 74% four years ago — a record low number in a country that has historically enjoyed a high level of voter participation.

Although heavy storms in the south appeared to have deterred many from voting there, participation fell across a swathe of northern and central cities, where the weather was calmer.

Italy has a history of political instability and the next prime minister will lead the country’s 68th government since 1946 and face a host of problems, notably soaring energy costs and growing economic headwinds.

Initial market reaction is likely to be muted given that opinion polls had forecast the result accurately.

“I don’t expect a big impact although it’s not necessarily the case that Italian assets will do particularly well tomorrow (Monday) given how the market is starting to treat Europe and countries with worrisome public finances and exposure to the crisis and Ukraine,” said Giuseppe Sersale, fund manager and strategist at Anthilia in Milan.

Italy’s first autumn national election in over a century was triggered by party infighting that brought down Prime Minister Mario Draghi’s broad national unity government in July.

The new, slimmed-down parliament will not meet until Oct. 13, at which point the head of state will summon party leaders and decide on the shape of the new government.