Stocks Gain Ground As Inflation Meets Analyst Expectations

Inflation Rate Stays Below 7%

U.S. has just released Inflation Rate and Core Inflation Rate reports for November. The reports indicated that Inflation Rate increased by 0.8% month-over-month. On a year-over-year basis, Inflation Rate grew by 6.8%. Core Inflation Rate increased by 4.9%. The reports were in line with the analyst consensus, which is a major relief for those who worried that inflation would exceed 7%.

S&P 500 futures gained upside momentum after the release of inflation reports which is not surprising as the market feared that Fed could be forced to raise rates in the first half of 2022.

Today, traders will also have a chance to take a look at Consumer Sentiment report for December. Analysts expect that Consumer Sentiment decreased from 67.4 to 67.1.

U.S. Dollar Loses Ground After Inflation Reports

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has moved from 96.40 to 96.10 after the release of inflation reports.

Meanwhile, Treasury yields have also found themselves under some pressure as inflation met analyst estimates.

It remains to be seen whether the U.S. dollar will be able to develop significant downside momentum as Inflation Rate of 6.8% is high, and the Fed will have to cut its asset purchase program fast to deal with rising prices.

Gold Gets Back Above $1775

Weaker dollar and falling Treasury yields provided suport to gold and silver . Gold managed to get back above the $1775 level and is trying to settle above $1800.

Gold has been trading near the $1775 level since the beginning of this month, and recent inflation reports may provide it with an opportunity to gain additional upside momentum.

Silver received support near $21.90 and moved back above the $22 level, which may provide some support to silver mining stocks at the start of today’s trading session.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Retreat Despite Encouraging Initial Jobless Claims Report

Fitch Downgrades Evergrande To “Restricted Default”

S&P 500 futures are losing ground in premarket trading as traders take some profits off the table after the recent rally.

Fitch Rating has recently downgraded China Evergrande Group to “restricted default”, a move which may put some pressure on global markets. Worries about Evergrande’s financial health and the potential domino effect among China’s developers have put some pressure on markets before, but traders were able to shrug off fears of financial contagion.

It remains to be seen whether global markets will pay close attention to Evergrande’s misfortunes as traders are mostly focused on Omicron and the outlook for Fed’s policy.

Initial Jobless Claims Decline To 184,000

U.S. has just released Initial Jobless Claims and Continuing Jobless Claims reports. Initial Jobless Claims report indicated that 184,000 Americans filed for unemployment benefits in a week. Analysts expected that Initial Jobless Claims would total 215,000. Continuing Jobless Claims increased from 1.96 million to 1.99 million compared to analyst consensus of 1.9 million.

The better-than-expected Initial Jobless Claims report may fail to provide additional support to stocks. The job market is strong, so the Fed will have an opportunity to reduce its asset purchase program at a fast pace.

Traders should keep in mind that an ultra-important Inflation Rate report will be published tomorrow, so trading may be choppy as market participants prepare for this event.

WTI Oil Pulls Back After Rally

WTI oil failed to settle above the 20 EMA at $73.20 and moved below the $72 level amid worries about the impact of new virus-related restrictions in various countries. Worries about the potential negative impact of Evergrande’s default have also served as a bearish catalyst for oil markets.

It should be noted that WTI oil managed to get from $62.50 to $73 in just five trading sessions, so some traders are ready to use any negative developments as an excuse to take some profits off the table. Not surprisingly, oil-related stocks are losing ground in premarket trading.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Mixed As Traders Take Profits After Two-Day Rally

Traders Wait For New Catalysts

S&P 500 futures are swinging between gains and losses in premarket trading as traders take a pause after the strong rally.

S&P 500 managed to get close to all-time high levels after two successful trading sessions. Tech stocks were leading the way on Tuesday. Shares of Apple, Microsoft, Alphabet, Amazon were up by 2.5% – 3.5%.

While S&P 500 will likely face some resistance in the 4700 – 4750 area as some traders will decide to take profits off the table, there is enough potential for more upside in case the right catalysts emerge. The broader Russell 2000 index is down by about 8% from highs that were reached back at the beginning of November. In case Russell 2000 moves towards recent highs, S&P 500 will get above the 4750 level.

WTI Oil Moves Higher As Crude Inventories Decline

The recent API Crude Oil Stock Change report indicated that crude inventories declined by 3.1 million barrels while analysts expected that they would increase by 2.1 million barrels. The surprising decline in crude inventories provided additional support to oil markets and pushed WTI oil above the $72 level.

Today, traders will focus on EIA Weekly Petroleum Status Report. Currently, analysts expect that EIA report will show that crude inventories decreased by 1.7 million barrels. In case EIA report indicates a bigger inventory draw, oil may get additional support which will be bullish for oil-related stocks.

U.S. Dollar Is Losing Ground Despite Higher Treasury Yields

The U.S. Dollar Index faced significant resistance near 96.50 and pulled back below the support level at 96.50 while Treasury yields continued to move higher. The yield of 2-year Treasuries has recently managed to get above 0.70% and continued its upside move as bond traders were worried about inflation.

Dollar’s weakness was not bullish for gold and silver as traders focused on rising yields. Gold and silver pay no interest, so higher yields serve as a bearish catalyst for them.

For a look at all of today’s economic events, check out our economic calendar.

OPEC+ Ignore Calls To Pump More Oil

In the face of high crude prices and U.S. pressure to help cool the market, OPEC and its oil-producing allies have decided to maintain their current production plan.

OPEC+ will continue its program, announced in August, to increase oil production by 400,000 barrels per day each month.

During a news conference on Thursday, Russia’s Energy Minister Alexander Novak said: “The decision was made earlier to increase production by 400,000 barrels a month, and I emphasize every month, through 2022. The decision was again made to maintain the parameters which were established earlier on Thursday

Novak responded that OPEC and its allies were maintaining market balance and being wary of potential changes in demand while not boosting production despite complaints from oil consumers like the U.S., India, and Japan.

OPEC+ may imperil the global economy by refusing to speed up oil production increases, according to the White House, which has warned the US is ready to use “all tools” to lower fuel prices.

OPEC, led by Saudi Arabia, and its allies, including Russia, refused to help tame rising oil prices, insisting they would only gradually increase production even as demand surges back from the depths of the global pandemic.

Despite being the heir to King Salman and the day-to-day ruler of the country, Biden is refusing to speak with Crown Prince Mohammed bin Salman. US intelligence reported in March that Crown Prince Mohammed bin Salman had authorised the killing of Washington Post journalist Jamal Khashoggi.

Abdullaziz is the half brother of the Crown Prince and is frustrated by western countries’ efforts to cut their dependence on fossil fuels whilst also pressing the kingdom to increase oil production.

The price of oil has recently reached its highest level since 2014, and countries who import crude are feeling the pain.

Joe Biden pointed to OPEC+’s unwillingness to pump more oil for the sharp rise in energy prices in the U.S. and worldwide.

In Rome, Biden said, “the idea that Russia and Saudi Arabia won’t pump more oil so that people can get gasoline to get to and from work is wrong.”

Russian gas pipeline stuck in reverse in Europe

By Nora Buli and Susanna Twidale

(Reuters) -A major Russian pipeline that supplies natural gas to Europe remains stuck in reverse after requests to transport gas westwards through it into Germany were abruptly withdrawn, data on the website of its German operator showed.

Russian gas has not flowed to Germany via the pipeline since Saturday. Instead, supplies are being sent from Germany to Poland in a reversal that has sent benchmark European gas futures up almost 18% this week.

The switch comes against a backdrop of soaring gas prices in Europe and accusations from some politicians in the region that the Kremlin is not increasing supplies and calming spot prices in order to pressure Germany and the European Union to approve the Nordstream 2 pipeline, which will bring gas from Russia directly to Germany, bypassing Eastern Europe.

Moscow has denied this and has said it is meeting its contractual obligations, something confirmed by European companies contacted by Reuters.

The level of Yamal flows between Poland and Germany and their direction are managed by Gaz-System in Poland and Gascade in Germany, based on customers’ requests.

Entry renominations, or requests to transport gas into Germany on the Yamal-Europe pipeline reverted to zero after earlier hitting 13,521,200 KWh/h for Thursday, data on the website of Gascade showed on Wednesday.

News the flows would not be restarted afterall left the front-month TTF gas contract almost 11% higher on the day at 78.95 euros per megawatt hour, after it dipped to as low as 75 euros per MWh when the requests were published.

Gas traders initially speculated that the brief reversal in the direction of flow renominations was a technical glitch.

A Gascade spokesman said the portal was working properly. “Renominations or gas bookings can change short-term, overriding previous nominations,” the spokesperson said via email.

Gaz-System declined to comment on specifics and Gazprom did not respond to a request for a comment.

Traders said gas prices were unlikely to fall significantly unless there was evidence of a consistent return of flows from Russia through the pipeline.

Gazprom-controlled gas storage sites in Europe have less gas than usual for this time of year, with Russia saying it is concentrating on replenishing domestic stocks before releasing any more gas to Europe. It expects its own replenishment process to finish by Nov. 8.

(Reporting by Nora Buli in Oslo and Susanna Twidale in London, additional reporting by Vera Eckert in Frankfurt and Katya Golubkova in Moscow; Writing by Kirsten Donovan; Editing by Jan Harvey, Carmel Crimmins and Barbara Lewis)

European shares end at record high on strong earnings

By Anisha Sircar and Ambar Warrick

(Reuters) – European shares finished at a record high on Wednesday following a strong batch of quarterly earnings, while heavyweight mining stocks recovered from recent losses as commodity prices rose.

The pan-European STOXX 600 rose 0.4% to a record-high close of 481.22 points, with basic resources stocks leading gains. The sector added 0.9%, recovering from a near one-month low.

In earnings news, German software firm TeamViewer jumped 11.0% after it confirmed its preliminary third-quarter results and annual outlook.

Lufthansa jumped 7.0% after the airline posted a return to profit for the first time since the coronavirus crisis, boosted by the easing of travel restrictions.

Raiffeisen Bank International rose 10.9% after its quarterly net profit blew past estimates on strong revenues and lower provisions.

Still, anticipation of an announcement on stimulus tapering by the U.S. Federal Reserve kept most stock gains in check.

“Hopes of a reacceleration in growth, a pullback in real bond yields, and a supportive earnings season in Europe, which has come in above the historical average, are contributing to the renewed market rally,” said Milla Savova, European equity strategist at Bank of America.

Savova, however, warned the recovery will prove short lived as major central banks consider scaling back on pandemic-era stimulus.

The STOXX 600 kicked off November with consecutive record highs as investors looked past concerns about rising inflation caused by supply-chain bottlenecks and labour shortages, with earnings season proving to be much stronger than expected.

Profits for Europe Inc are expected to jump 57.2% in the third quarter to 102.3 billion euros ($118.5 billion) from the same quarter last year, new Refinitiv IBES data showed, an improvement from last week’s 52% growth forecast.

Oil stocks were major decliners on the STOXX 600, falling 3.0%, as crude prices fell after data pointed to a surge in U.S. inventories and pressure mounted on OPEC to increase supply. [O/R]

Gains in technology stocks powered France’s CAC 40 index to a record high of 6,955.100 points.

Vestas, the world’s largest maker of wind turbines, slumped 18.2% after posting a lower-than-expected third-quarter operating profit and trimming its full-year profit forecast.

BMW inched up 1.5% after the German automaker reported higher quarterly profit, but reiterated its warning on the global chip crunch.

French diagnostics specialist Biomerieux edged 0.1% higher after Bloomberg reported that it was exploring a potential merger with Germany’s Qiagen.

 

(Reporting by Anisha Sircar in Bengaluru; Editing by Sherry Jacob-Phillips, Shinjini Ganguli, William Maclean)

Crude Eyeing OPEC+ Meeting – Where is Oil Headed?

Crude oil prices have started their corrective wave, as we are approaching the monthly OPEC+ group meeting on Thursday, with some market participants now considering the eventuality of a larger-than-expected rise in production.

U.S. API Weekly Crude Oil Stock:

Graphical user interface, text, application, WordDescription automatically generated with medium confidence

ChartDescription automatically generated
Inventory levels of US crude oil, gasoline and distillates stocks, American Petroleum Institute (API) via Investing.com

Regarding the API figures published Tuesday, the increase in crude inventories (with 3.594 million barrels versus 1.567 million barrels expected) implies weaker demand and is normally bearish for crude prices.

Meanwhile, in the United States, the average price of fuel stabilized on Tuesday after several weeks of increase, according to data from the American Automobile Association (AAA), however, that’s 60% higher than a year ago.

ChartDescription automatically generated
Chart – WTI Crude Oil (CLZ21) Futures (December contract, 4H chart)

In summary, we are now getting some context on how the oil market might develop in the forthcoming days, with some crucial events to monitor as they could have a strong impact on the energy markets, and particularly on the supply side.

My entry levels for Natural Gas were triggered on Monday (Nov.1), and I’m updating my WTI Crude Oil projections.

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Thank you.

Sebastien Bischeri
Oil & Gas Trading Strategist

* * * * *

The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data’s accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Supply chain disruption: is the worst over?

By Stefano Rebaudo

(Reuters) – As companies, investors and policymakers fret over port logjams, freight costs and chip shortages, some indicators are starting to signal that global supply chain stress may be on the wane.

Supply chain glitches dominated the latest company earnings season, with mentions of the issues by chief executives jumping 412% from last year, according to a BofA tally.

The coming months will show if the snarl-ups portend a toxic scenario of stagflation for the world economy or are just a bump in the road to recovery. They will also determine how inflation expectations, monetary policy and corporate earnings pan out.

Here are some indicators that may show the problems easing:

1/SHIPS AND PORTS

Cargo shipping costs tracked by the Baltic Exchange Dry index are down a third in the past month after hitting their highest since 2008 in October.

Further out, data from shipbroker Alibra Shipping shows six-month contracts for Atlantic and Pacific Ocean routes cost $54,000 and $52,500 a day respectively for capesizes, the largest dry cargo vessels. For contracts in 12 months, Pacific routes slip to $36,000 and then $26,000 two years out.

“This could mean the market doesn’t anticipate that the port congestion situation will be as big a problem next year,” Alibra’s head of research Rebecca Galanopoulos said.

Port congestion has eased at most Chinese ports but the giant Los Angeles/Long Beach container port still has a backlog of 222,0000 TEUs (twenty-foot equivalent unit), RBC analyst Michael Tran said.

RBC’s Time of Turnaround metric for the key U.S. port is at 7.5 days compared with 3.5 days before the coronavirus pandemic and Tran doesn’t expect normality to be restored until May 2022.

(GRAPHIC: Baltic Dry index – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdlavl/Pasted%20image%201635937608713.png)

2/INVENTORIES

Purchasing managers say delivery times for manufacturers worldwide are deteriorating, with the global delivery time index down to 34.8 last month. Any number below 50 shows deliveries are taking longer and October’s reading was the worst on record.

Jefferies analysts expect shortages to intensify at the end of 2021 before demand shifts towards services. They said that should ensure supply chain bottlenecks begin to clear by the first quarter of 2022 as seasonal demand drops sharply and inventories are rebuilt.

The purchasing mangers orders-to-inventories ratio in the euro zone has been declining and some manufacturers are already bracing for shortages to turn into gluts.

“Today’s level of durable goods demand is unsustainably high,” said Paul Donovan, chief economist at UBS Global Wealth Management, who expects consumers to switch away from buying goods to buying more services.

(GRAPHIC: global PMI – https://fingfx.thomsonreuters.com/gfx/mkt/byvrjrznqve/global%20PMI.JPG)

3/CHIPS

The outlook for semiconductors is murkier.

Chip shortages will cut global light vehicle production by 5 million this year, IHS Markit estimates, while some carmakers warn that constraints could last through much of 2022.

Toyota executive Kazunari Kumakura, however, said the worst was over.

Asset manager Capital Group says carmakers who cancelled orders when the pandemic hit were then caught out as spiralling chip demand from the gaming and cloud computing sectors gobbled up available semiconductors.

“Since it takes about four months to manufacture auto chips, the situation is likely to correct itself by the end of this year,” the asset manager wrote in August.

While Malaysian chip suppliers predict it will take two to three years for the market to normalise more broadly, the industry is also boosting production with Q3 sales rising to $145 billion, the Semiconductor Industry Association says.

(GRAPHIC: semiconductorsales – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdkavl/semiconductorsales.JPG)

4/WOOD, PAPER, METAL

China’s growth slowdown may play against further commodity price rises, with the Fitch agency noting that weaker property markets are “resulting in a plunge in the price of iron ore”.

Beijing has also moved to tame energy prices after power shortages shuttered swathes of factories and mines. Those steps knocked coal futures off record highs and also hit metal prices.

Similarly, China’s record paper pulp market rally early this year sent prices sky-rocketing globally, causing shortages of packaging materials. But since May, Shanghai-traded wood pulp futures are down 30%.

U.S. futures for lumber, a key housebuilding component, are also 60% below springtime highs.

(GRAPHIC: supplyshock – https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkwkqpd/supplyshock.JPG)

5/COVID

Vaccination rates against COVID-19 are creeping higher in key manufacturing nations, especially chip suppliers such as Malaysia and Taiwan, making production disruptions less likely.

UBS estimates vaccination rates in Vietnam, Taiwan and Malaysia should reach 80% by January 2022.

Jack Janasiewicz, portfolio strategist at Natixis, is optimistic about supply chains, as long as COVID-19 is tamed.

“If we can’t keep COVID under control, we’re going to end up having the same issues again and again. They’re going to keep coming in waves,” he said.

(GRAPHIC: lumber – https://fingfx.thomsonreuters.com/gfx/mkt/znvnekdjopl/lumbercorrected.JPG)

(GRAPHIC: shippingindex – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexgxmvw/shippingindex.JPG)

 

(Reporting by Stefano Rebaudo; Additional reporting by Saikat Chatterjee; Editing by Sujata Rao and David Clarke)

Oil Prices Rise on Slow OPEC Output Increase

Brent crude futures gained 28 cents, or 0.3%, to $84.99 a barrel by 07:44 GMT, while U.S. West Texas Intermediate (WTI) crude futures climbed 6 cents, or 0.1%, to $84.11 a barrel.

“Crude prices still seemed poised to head higher, with some traders waiting for confirmation after both the EIA crude oil inventory shows demand for most products are headed in the right direction, while U.S. production is stable and with OPEC+ sticking to their gradual 400,000 bpd increase plan,” said Edward Moya, senior analyst at OANDA.

Oil rallied to multi-year highs last week, helped by a post-pandemic demand rebound and the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+, sticking to gradual, monthly production increases of 400,000 barrels per day (bpd), despite calls for more oil from major consumers.

The increase in OPEC’s oil output in October fell short of the rise planned under a deal with allies, a Reuters survey found on Monday, as involuntary outages in some smaller producers offset higher supplies from Saudi Arabia and Iraq.

OPEC pumped 27.50 million barrels per day (bpd) in October, the survey found, a rise of 190,000 bpd from the previous month but below the 254,000 increase permitted under the supply deal.

Meanwhile, national oil firms in China have ramped up refinery run rates, increasing its appetite for crude oil, to avert a diesel shortage in the world’s second-largest oil user.

U.S. crude oil stocks were expected to have risen last week, while gasoline and distillate inventories were seen falling, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of reports from the American Petroleum Institute, an industry group, due on Tuesday, and the EIA, statistical arm of the U.S. Department of Energy, due on Wednesday.

(Reporting by Jessica Jaganathan; Editing by Richard Pullin)

Oil Rises On Demand Outlook Despite China Fuel Reserves Release

Brent crude futures settled up 99 cents, or 1.1 %, to $84.71 a barrel after hitting a session low of $83.03.

U.S. West Texas Intermediate (WTI) crude futures gained 84 cents, or 0.6%, to $84.05, having fallen to $82.74 earlier.

A Reuters poll showed that oil prices are expected to hold near $80 as the year ends, as tight supplies and higher gas bills encourage a switch to crude for use as a power generation fuel.

Oil rallied to multi-year highs last week, helped by a post-pandemic demand rebound and the Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+, sticking to gradual, monthly production increases of 400,000 barrels per day (bpd), despite calls for more oil from major consumers.

The increase in OPEC’s oil output in October fell short of the rise planned under a deal with allies, a Reuters survey found on Monday, as involuntary outages in some smaller producers offset higher supplies from Saudi Arabia and Iraq.

OPEC+ is expected by analysts to stick to the 400,000 figure at its Nov. 4 meeting, with members Kuwait and Iraq in recent days voicing their support for it, saying those volumes were adequate.

“We feel that their position will be one where the status quo will be maintained while a ‘wink and a nod’ will be provided in accepting violation of quotas should Brent values gravitate back up into new 7-year high territory,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

U.S. President Joe Biden on Saturday urged major G20 energy producing countries with spare capacity to boost production to ensure a stronger global economic recovery, part of a broad effort to pressure OPEC+ to raise supplies.

Prices rose despite China saying in a rare official statement that it had released gasoline and diesel reserves to increase market supply and support price stability in some regions.

Exxon and Chevron are looking to add drilling rigs in the Permian shale basin after sharply cutting crews and output in the region last year, the companies said on Friday.

(Additional reporting by Ahmad Ghaddar, Yuka Obayashi in Tokyo; Editing by Muralikumar Anantharaman, Mark Potter and Alison Williams)

Japan Power Prices Hit Near 10-Month High

While coal and LNG prices have pulled back from records in Asia, they remain high just as Japanese buyers are tempted back into the spot market to keep stocks high for the coming winter season and the resultant higher demand.

On Monday, prices for delivery of electricity early on Tuesday morning reached 55 yen ($0.48) per kilowatt hour (kWh) the highest since late-January.

Traders said higher LNG prices were starting to filter through to the local power market.

Japanese buyers of liquefied natural gas (LNG) are scouting for cargoes to ensure they have adequate supplies of the super-chilled fuel to meet peak heating demand this winter, industry sources told Reuters late last week.

Elevated electricity prices in recent weeks are reviving memories of last winter when prices hit record highs and Japan’s grid nearly failed in the worst energy crisis for the country since the Fukushima disaster.

Energy prices across the world have been hitting records ormulti-year highs as economies from Europe to Asia recover fromthe pandemic but face lingering supply chain and otherdisruptions.

(For graphic on Japan wholesale power prices daily highs – https://graphics.reuters.com/JAPAN-POWER/PRICES/zgpomrbjwpd/chart.png)

For a look at all of today’s economic events, check out our economic calendar.

($1 = 114.3400 yen)

(Reporting by Aaron Sheldrick; editing by Uttaresh.V)

Saudi Aramco Posts Profit Of $30.4 Billion In Q3

As the world’s largest oil companies continue to benefit from the reopening of the global economy and rising oil and gas prices, Saudi Arabia’s oil giant Aramco reported a 158% increase in third-quarter profit to $30.4 billion.

Analysts had expected a net income of $29.1 billion for the quarter, but the results exceeded expectations. In Q3 of 2020, Saudi Aramco earned $11.8 billion in net income.

In his remarks on Sunday, Aramco President and CEO Amin Nasser said the company’s exceptional third-quarter performance was brought about by a rebound in energy demand and an increase in economic activity in key markets.

“Because of supply chain bottlenecks there are still some headwinds for the global economy, but we are optimistic that energy demand will remain healthy for the foreseeable future,” added Nasser.

As the company benefits from rebounding global energy demand and increased economic activity in key markets, Saudi Aramco said that its net income increased due to higher crude oil prices and volumes sold, as well as higher refining and chemicals margins.

Recent price increases in WTI crude oil have reached levels not seen since 2014, as the focus switches from demand recovery to supply shortages. Gas prices have increased around 130% this year, which suggests the full impact of the global energy crisis will be evident in the fourth quarter.

In the fourth quarter, Saudi Aramco announced a significant dividend of $18.8 billion. In the third quarter, free cash flow rose to $28.7 billion, up from $12.4 billion for the same period in 2020, covering the payout. As a result of higher oil prices and stronger cash flows, gearing, which measures a company’s debt position, also improved to 17.2% from 23%.

In addition, Aramco said it will “invest for the future” with capital expenditures of $7.6 billion in the third quarter, representing an increase of 19% over the same period in 2020. Approximately $35 billion will be spent on capital expenditures by Aramco in 2021.

In terms of profits, “Big Oil,” as the world’s largest oil and gas companies are known, had a great quarter. Both ExxonMobil and Chevron reported profits that rose to multi-year highs in the quarter due to soaring oil prices. TotalEnergies saw a sharp increase in profit as well as record cash flow from Royal Dutch Shell.

The company plans to reach net-zero emissions from its operations by 2050, while simultaneously raising production to 13 million barrels a day by 2037.

Observers in the oil industry were both positive and skeptical about Saudi Arabia’s pledge to invest almost $190 billion to achieve net-zero emissions by 2060.

Saudi Aramco’s Quarterly Profit Surges on Oil Price, Volumes

The oil giant’s best quarterly earnings since its listing in December 2019 was fuelled by the strongest quarterly average crude prices since its shares began trading.

Aramco shares were up 1% in early trade after the company disclosed its results and have risen about 9% this year to a market valuation of just over $2 trillion, a goal sought by de-facto Saudi leader Crown Prince Mohammed bin Salman before the company’s initial public offering.

Aramco’s net income jumped to $30.4 billion for the quarter to Sept. 30 from $11.8 billion a year earlier, it said in a bourse filing. That was above the median net profit forecast of $28.4 billion from four analysts.

“Our exceptional third quarter performance was a result of increased economic activity in key markets and a rebound in energy demand, as well as our unique low-cost position,” Amin Nasser, Aramco’s chief executive, said in a statement.

Rita Guindy, an analyst at Arqaam Securities, said the sequential earnings growth is mainly driven by the upstream segment – with a 12% quarter-on-quarter improvement in crude oil volumes at 9.6 million barrels per day and a higher oil price.

The company’s free cash flow rose to $28.7 billion from $12.4 billion. It declared a dividend of $18.8 billion for the third quarter, in line with its guidance.

“There is good potential for a special dividend at the end of this year and that looks more and more likely now, in my view,” said Yousef Husseini, analyst at EFG Hermes, noting Aramco’s strong free cash flow and strong de-leveraging.

Oil prices have rallied to multi-year highs with global crude futures climbing 4.5% in the quarter, helped by the decision by OPEC+ to maintain its planned output increase rather than raising it on global supply concerns.

Brent oil futures are trading around $84.4 a barrel, up about 63% so far this year, while benchmark U.S. crude is at roughly $83.57 a barrel, up just over 70% over the same period.

Aramco’s market capitalisation is just below Apple’s market cap of $2.46 trillion, but above Alphabet’s $1.9 trillion valuation.

Of its major rivals, Exxon Mobil Corp also posted its highest quarterly net profit since the last quarter of 2017, while Royal Dutch Shell reported a third-quarter profit of $4.13 billion last week, below analyst forecasts, sending its share price lower.

Aramco’s capital expenditure rose 19% from a year earlier to $7.6 billion in the quarter.

(Reporting by Hadeel Al Sayegh and Saeed AzharEditing by William Mallard and Frances Kerry)

U.S., EU end Trump-era Tariff War Over Steel and Aluminum

Commerce Secretary Gina Raimondo told reporters that the deal will maintain U.S. “Section 232” tariffs of 25% on steel and 10% aluminum, while allowing “limited volumes” of EU-produced metals into the United States duty free.

It eliminates a source of friction between the allies and lets them focus on negotiating a new global trade agreement to address worldwide excess steel and aluminum capacity mainly centered in China and reduce carbon emissions from the industries.

EU trade chief Valdis Dombrovskis confirmed the deal, writing on Twitter that “we have agreed with U.S. to pause” the trade dispute and launch cooperation on a future global arrangement on sustainable steel and aluminum. Dombrovskis said the deal will be formally announced by Biden and European Commission President Ursula von der Leyen on Sunday.

U.S. officials did not specify the volume of duty-free steel to be allowed into the United States under a tariff-rate quota system agreed upon with the EU. Sources familiar with the deal, speaking on condition of anonymity, have said annual volumes above 3.3 million tons would be subject to tariffs.

The deal grants an additional two years of duty-free access above the quota for EU steel products that won Commerce Department exclusions in the past year, U.S. officials said.

The agreement requires EU steel and aluminum to be entirely produced in the bloc – a standard known as “melted and poured” – to qualify for duty-free status. The provision is aimed at preventing metals from China and non-EU countries from being minimally processed in Europe before export to the United States.

Europe exported around 5 million tons of steel annually to the United States prior to Trump’s imposition of the tariffs on national security grounds.

“The agreement ultimately to negotiate a carbon-based arrangement on steel and aluminum trade addresses both Chinese overproduction and carbon intensity in the steel and aluminum sector,” White House National Security Adviser Jake Sullivan told reporters, adding that the climate and workers can be protected at the same time.

U.S. steel production, which relies heavily on electric-arc furnaces, is regarded as having far lower carbon emissions than the coal-fueled blast furnaces prevalent in China.

Biden has sought to mend fences with European allies following Trump’s presidency to more broadly confront China’s state-driven economic practices that led to Beijing building massive excess steelmaking capacity that has flooded global markets.

The deal will eliminate Europe’s retaliatory tariffs against U.S. products including bourbon whiskey, Harley-Davidson motorcycles and motor boats that were set to double on Dec. 1, U.S. officials said.

“The end of this long tariff nightmare is in sight for U.S. distillers, who have struggled with the weight of the tariffs and the pandemic,” Distilled Spirits Council President Chris Swonger said, also urging Britain to lift its tariff on American whiskeys.

RECORD STEEL PRICES

Raimondo said the deal will reduce costs for steel-consuming U.S. manufacturers. Steel prices have more than tripled in the past year to records topping $1,900 a ton as the industry has struggled to keep up with a demand surge after COVID-19 pandemic-related shutdowns, contributing to inflation.

U.S. primary aluminum producers, which had dwindled to two companies by the time Trump imposed the tariffs, will be able to maintain their investments in reviving domestic capacity because the quotas are set at very low levels, well below pre-tariff volumes, said Mark Duffy, CEO of the American Primary Aluminum Association industry group.

American Iron and Steel Institute President Kevin Dempsey said the quota arrangement will help “prevent another steel import surge that would undermine our industry and destroy good-paying American jobs.”

“We urge the U.S. and EU to take active steps to hold China and other countries that employ trade-distorting policies to account,” Dempsey added. “We also believe U.S.-EU cooperation should focus on new trade approaches to address climate change, including through development of effective carbon border adjustment measures.”

Due to its exit from the EU, Britain’s steel exports remain subject to the tariffs, as are those of other U.S. allies including Japan. The U.S. Chamber of Commerce, which opposed the metals tariffs from the start, said the duties and quotas should be dropped from “close allies.”

(Reporting by David Lawder and Andrea Shalal; Additional reporting by Jan Strupczewski; Editing by Will Dunham and Heather Timmons)

Exxon Posts Strongest Results Since 2017, Vows to Resume Share Buybacks

The higher profit follows several years of lackluster returns and heavy spending at Exxon, and as agitated shareholders this year voted to put three new directors on the company’s board due to dissatisfaction with its direction.

For more than a decade, Exxon had been once the largest U.S. corporate repurchaser of shares before suspending the practice in 2016.

“The upside surprise was the buyback program, no one was expecting it this soon,” said equity analyst Paul Sankey at Sankey Research.

The nation’s largest oil and gas company reported net income of $6.75 billion, or $1.57 per share, in the third quarter, the highest since the last quarter of 2017. That compared with a loss of $680 million, or 15 cents per share, in the year-earlier period.

REFINING GAINS

Exxon’s $1.58 a share profit beat the Refinitiv estimate by two cents. Third-quarter results reflected the highest refining profit in at least two years, soaring natural gas prices and energy shortages that pushed oil to a three-year high. Crude prices have continued to climb to near a seven-year high.

Exxon shares finished up 16 cents at $64.49 as some analysts expressed disappointed in the size of buyback program.

The company’s three businesses delivered higher returns from past cost-cutting restructurings and as the global economy emerges from the coronavirus pandemic, Chief Executive Officer Darren Woods said.

The benefits of those changes “are manifesting themselves,” Woods told analysts on a conference call, adding that Exxon expects to “deliver the same growth in earnings and cash flow as our pre-pandemic plans” that called for $30 billion in annual profit by 2025.

That outlook will allow the company to resume buybacks starting next year under a plan to spend up to $10 billion on share repurchases through 2023, Exxon said.

“The macro winds are at Exxon’s back,” said Stewart Glickman, energy equity analyst at CFRA Research.

CARBON EMISSIONS CUTS

In 2016, Exxon cut share repurchases amid weak results, saying it would buy shares only to offset dilution from executive pay plans as opposed to returning cash to shareholders.

In the decade prior, Exxon spent $210 billion on its own stock, more than any other U.S. company in that period.

A day after Exxon’s Woods appeared before Congress to address the company’s previous dismissal of global warming, Exxon said it would increase spending to cut its carbon emissions to $15 billion between 2022 and 2027.

Profits in oil and gas soared in the third quarter on the strength of international demand, reaching nearly $4 billion compared with a $383 million loss a year ago. Chemical profits slipped from last quarter’s high but more than tripled from the same period last year.

The company said it will benefit in the fourth quarter from higher oil and gas volumes, increased European seasonal gas demand and the $1 billion sale of its UK North Sea assets.

Exxon shares are up than 50% this year, as earnings bounced back from last year’s historic loss, but remain below where they traded in early 2020. This year’s profit has allowed the company to repay about $11 billion in debt taken on last year to cover its dividend.

Earlier this year, Exxon spent heavily on a proxy battle waged by a hedge fund unhappy with the oil and gas company’s strategy. The fund, Engine No. 1, was successful in convincing enough shareholders to vote for three new directors to serve on Exxon’s board.

(Graphic: Exxon, once a buyback giant, to resume the practice: https://fingfx.thomsonreuters.com/gfx/ce/dwvkrawbapm/Pasted%20image%201635518149103.png)

(Reporting by Arathy S Nair in Bengaluru; Editing by Shounak Dasgupta, Steve Orlofsky and Paul Simao)

Oil Prices Rebound, Edge Up Ahead of Next Week’s OPEC Meeting

However, Brent and U.S. crude oil benchmarks both declined on the week after reaching multi-year highs on Monday.

Brent crude rose 6 cents to settle at $84.38, while U.S. West Texas Intermediate crude rose 76 cents, or 0.9%, to $83.57.

“While more Iranian supply may come online, it looks like OPEC+ is unlikely to raise production which is giving strength to the market today,” said John Kilduff, partner at Again Capital LLC in New York.

Prices have been pressured since Wednesday by a report that U.S. crude stocks rose by 4.3 million barrels in the latest week. Iran has said talks on reviving the international deal on its nuclear programme will restart by the end of November, bringing it a step closer to boosting oil exports.

Crude has surged in 2021 as economies recover from the COVID-19 pandemic, but prices are on track to fall this week, with Brent facing its first weekly decline in about two months.

U.S. energy firms added oil and natural gas rigs for a 15th month in row in October as oil prices soared to fresh seven-year highs, spurred by rising oil prices to its highest since count April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.

Exxon and Chevron are looking to add drilling rigs in the Permian shale basin after sharply cutting crews and output in the region last year, the companies said Friday. Chevron said it will add two drilling rigs and two completion crews this quarter.

On Thursday, Algeria said a crude output increase by OPEC+ in December should not exceed 400,000 barrels per day (bpd) because of market uncertainties and risks. The alliance, which is gradually unwinding last year’s record output cuts, meets on Nov. 4.

British and European gas prices continued to fall on Friday after Russian President Vladimir Putin said Russia could start pumping gas into European storage.

(Additional reporting by Alex Lawler; Additional reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by David Goodman, David Holmes and David Gregorio)

Nordic Airline Wideroe Launches Unit for Emissions-Free Flying

Privately-owned Wideroe serves short-haul routes in a sparsely populated region with few train lines and challenging geography. It has 40 Bombardier Dash 8 propeller planes and 3 Embraer E190-E2 jets.

Wideroe plans to have its first zero-emissions plane flying in 2026 and aims to replace its 26 Dash 8-100 and -200, which will be obsolete between 2030 and 2035, with zero-emissions planes, either electric or using hydrogen as fuel.

Called Wideroe Zero and launching on Friday, the new company would help Wideroe achieve its aim of a zero-, or near-zero, emissions fleet, Chief Executive Stein Nilsen said in an interview.

“To be free to think outside the box we decided to establish a new company with the main target of finding this path to find a more sustainable (business),” he said.

Wideroe Zero would also try to find new market opportunities, he added, when the airline industry, which accounts for 2.5% of global CO2 emissions in 2018, according to Our World in Data, is under pressure to be more sustainable.

New technologies are disrupting the industry too, Nilsen said, citing the emergence of electric vertical take-off and landing aircraft (eVTOL) as an example of the rapid change that Wideroe wants to take advantage of.

“As a short-haul airline, this is very interesting for us,” said Nilsen. “We need to be prepared for something more disruptive in the market place for our niche.”

The planned switch coincides with upheaval in the Nordic airlines industry, with major carriers Norwegian Air and SAS restructuring operations and newcomers such as Flyr and Play launching following the disruption caused by the pandemic.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Barbara Lewis)

Shell Says Break-Up of Group Would Not Work In Real Life

Hedge fund Third Point, which has built a large stake in Shell, on Wednesday called for the oil major to split into multiple companies to improve its performance.

The push was the latest broadside against global oil and gas giants, who have faced calls from governments and climate-conscious investors to shift to renewable energy while still meeting current high levels of fossil fuel demand.

Shell, along with other European oil majors, has set targets to slowly move away from oil production while investing in non-fossil energy sources like solar and wind power.

Billionaire Daniel Loeb, who runs Third Point, said on Wednesday that the company is being pushed in “too many different directions,” and that it should consider separating its legacy energy production from renewables and liquefied natural gas (LNG) businesses, a notion company officials rejected.

“If you were to split that into component pieces, I think that can sound really interesting from a financial perspective,” finance chief Jessica Uhl told reporters on Thursday.

“But in terms of real solutions, I think that breaks down and our ability to integrate and bring these different pieces of the puzzle together will be how we uniquely make a difference in the energy transition.”

Shell Chief Executive Ben van Beurden told reporters that Shell’s strategy is coherent and well understood by a majority of its shareholders.

Loeb did not respond to a request for comment Thursday.

Over the past two years, Shell shares have posted a total return of negative 16%, according to Refinitiv Eikon data. Those returns lag U.S. majors Exxon Mobil Corp and Chevron Corp, though over a longer period, Shell and other European companies have outperformed their U.S. counterparts, who have focused less on emissions reduction and renewable investments.

“If nothing else, the move by Third Point signals that Shell has not convinced the investment community that there is value in keeping all of these businesses in-house,” said Andrew Logan, senior director of oil and gas at Ceres, a nonprofit organization that works with institutional investors and companies.

Shell reported third-quarter profit of $4.13 billion on Thursday, below analyst forecasts. Shares fell 3.2% on Thursday.

Loeb, in his letter on Wednesday, said Shell would benefit from a different structure that would let it cut costs and invest more aggressively in decarbonization.

However, Iain Pyle, investment director at UK-based Abrdn, one of Shell’s top 10 largest shareholders according to Refinitiv Eikon data, said while breaking the company into faster- and slower-growing pieces has a certain “spreadsheet logic” to it, he would probably not support Loeb’s campaign.

“There are few companies out there where I would imagine the divisions are as kind of interlocked and interwoven as they are at Shell,” Pyle said. “The upstream feeds the trading business feeds the refinery, feeds the chemicals plant, feeds the retail arm, and breaking it apart is quite tough.”

(GRAPHIC: Shell returns over time: https://tmsnrt.rs/3EoIGwb)

Shell set itself a tougher emissions-cutting targets for its direct emissions, aiming to halve them by 2030 in absolute terms rather than just cutting intensity-based emissions, which leaves open the possibility of an overall increase.

Shell’s direct emissions are dwarfed by the emissions caused by the combustion of its products through its customers, known as Scope 3.

The company has pledged to become a net-zero emissions company by 2050, but is under pressure to make faster progress, with a Dutch court ordering it in May to cut all of its emissions – including Scope 3 – by 45% by 2030.

Shell is appealing the court ruling, with van Beurden saying earlier this year that “a court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer” to reducing global emissions.

Coal and natural gas demand has already reached new peaks, surpassing pre-pandemic levels, with oil not far behind. Gas and power prices surged this autumn as tight gas supplies have collided with strong demand in economies recovering from the COVID-19 pandemic.

Shell’s cash flow from operations in the quarter rose by around 54% on the year to $16 billion, which in turn helped it to reduce net debt to $57.5 billion, compared with $65.7 billion in the previous quarter.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Shadia Nasralla; additional reporting by Svea Herbst Bayliss and Simon Jessop; Editing by David Gaffen, Jason Neely, Mark Potter, Barbara Lewis, Christina Fincher and Marguerita Choy)

U.S. House Democrats Grill Big Oil in Climate Deception Probe

It was the first time executives of the top oil majors – ExxonMobil, Shell Oil, BP America and Chevron – and the heads of the American Petroleum Institute (API) and Chamber of Commerce answered questions about climate change in Congress under oath.

Democratic Representative Ro Khanna said at the House of Representatives Committee on Oversight and Reform hearing that oil companies have started to improve their talking points around climate change. But Khanna said their support of lobbying groups that either deny climate science or work to kill major climate policies contradicts their statements.

“I don’t believe that you purposely want to be out there spreading climate misinformation but you’re out there funding these groups,” Khanna said.

Appearing before the panel were CEOs Darren Woods of ExxonMobil, Gretchen Watkins of Shell Oil, David Lawler of BP America and Mike Wirth of Chevron. They all testified virtually.

Khanna asked them if any would commit to an independent audit to verify that none of their funds were going to groups that deny climate science, or whether they would commit to pulling their memberships from API even if the oil lobby group continues to lobby against policies such as electric vehicle credits and methane fees. None of the executives said yes.

Committee Democrats said the hearing opens a year of investigations into whether Big Oil has deceived Americans about its role in climate change.

The hearing came as President Joe Biden heads to Scotland for U.N. climate talks and as Congress haggles over climate provisions in major social spending and infrastructure legislation.

Environmental groups and their congressional allies hope the probe evokes the Big Tobacco hearings of the 1990s when tobacco industry executives were grilled about their knowledge of the addictive properties of their products, which began a shift in public opinion about that industry.

Democrats also said youth people will have to deal with the effects of climate change, driven by emissions from fossil fuels.

“One thing that often gets lost in these conversations is some of us have to actually live in the future that you all are setting on fire for us,” Representative Alexandria Ocasio-Cortez, 32, told the executives, all older than 50.

The United Nations this summer released a report saying that unless immediate, rapid and large-scale action is taken to reduce emissions, the average global temperature is likely to reach or cross the 1.5-degree Celsius (2.7 degrees F) warming threshold within 20 years.

Oil executives and trade group officials at the hearing used the platform to try to distance themselves from previous efforts to dismiss climate science, saying their policies evolved as the science became more clear.

Exxon’s Woods said his company “responded accordingly” when the “scientific community’s understanding of climate change developed” and maintained that he believes oil and gas will still be needed to meet growing global energy demand.

Woods and Chevron’s Wirth played up oil and gas as essential for operation of hospitals, schools and offices.

BP America’s Lawler and Shell’s Watkins talked about their recognition that climate change was a problem in the 1990s and about their current efforts to adapt their business models to add more renewable energy and lower emissions.

‘PARTISAN THEATER’

Representative James Comer, the panel’s top Republican, did not mention climate change in his opening remarks and said the panel should be addressing inflation and high energy prices he linked to Biden administration policies.

“The purpose of this hearing is clear: to deliver partisan theater for prime-time news,” Comer said.

The lone Republican witness, Neal Crabtree, a welder who lost his job after Biden canceled the Keystone XL oil pipeline, said his main crisis was not climate change but paying for his mortgage and food for his family.

The Democratic-led committee criticized the companies’ scant support for the Paris climate agreement. It released an analysis that found from 2015, when the pact was agreed, to 2021, Exxon reported in its lobbying disclosures only one instance of lobbying on the Paris Agreement, and none on any of the 28 bills related to the pact.

“That means that only 0.06% of Exxon’s 1,543 total instances of legislative lobbying since 2015 has been devoted to the Paris Agreement or related legislation,” the analysis said.

Woods emphasized Exxon’s investments in carbon capture, a technology to capture emissions for burial underground or to pump them into aging oilfields to squeeze out more crude.

The energy executives also said that more time is needed for a transition to cleaner energy.

(Reporting by Valerie Volcovici and Timothy Gardner; Editing by David Gregorio and Mark Porter)

China Calls for Overhaul of Farm Subsidy Rules Under WTO

“There are very unfair rules in the agriculture sector, and enormous subsidies some developed country members are entitled to, that severely distort international agricultural trade,” Wang Shouwen, vice minister of China’s Ministry of Commerce, told a press briefing.

Agricultural subsidies allowed for developing countries, however, are capped at 10% of the value of production and have “very limited impact” on trade, added Wang, yet are vital for ensuring grain supply and food security.

WTO members including the United States have, however, long complained about China’s agricultural subsidies, with Washington winning a case against Beijing’s price support for grains in 2019.

Wang also addressed issues raised by major trade partners at a recent policy review and said China took the concerns seriously. But it did not accept criticism on issues that fell outside the scope of its WTO commitments.

“We understand hopes from other countries that China should further relax its entry barriers for investment, but using this to criticise China and claiming China has not fulfilled its duties under WTO is not reasonable, fair or acceptable,” he said.

The government is willing to negotiate at the WTO or through bilateral investment deals to resolve such concerns, Wang said, adding that China has applied to join the Comprehensive and Progressive Agreement for Trade Pacific Partnership (CPTPP).

The United States said last week that China’s industrial policies “skew the playing field” against imported goods and services, as well as their foreign providers, and that Washington would pursue all means to secure reforms.

China’s other major trading partners – including Australia, Britain, Canada and the European Union – also called for the world’s second-largest economy to further open its vast markets.

China risks slower growth if it does not do enough to spur market competition, a report showed this month.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Stella Qiu, Hallie Gu and Dominique Patton; Editing by Sam Holmes)