Dollar up, yen steady as BOJ policy shift looms

NEW YORK/LONDON, March 18 – The dollar edged higher on Monday ahead of a slew of central bank meetings this week, with the Bank of Japan potentially set to end negative interest rates and the market waiting for the Federal Reserve’s latest projections for its rate cut plans.

In addition to Japan and the United States, central banks in Britain, Australia, Norway, Switzerland, Mexico, Taiwan, Brazil, and Indonesia are all due to meet this week.

The dollar index, which measures the US currency against six other major currencies, rose 0.145% at 103.600. It has strengthened just over 2% this year as the US economy has fared better than expected, leading investors to rein in bets that the Fed will cut rates quickly and deeply this year.

Markets are now pricing in less than three cuts of 25 basis points each in 2024, down from almost double that at the year’s start, LSEG data shows. Futures show about a 51% chance of the first rate cut coming by June, also down sharply from earlier expectations, according to CME Group’s FedWatch Tool.

The yield on benchmark 10-year Treasury notes rose to a three-week high of 4.348%. The advance adds to dollar strength as the market sees rates staying higher for longer.

The focus on Wednesday will be on whether Fed policymakers change their projections, or dot plots, for the economy and rate cuts for this year and the next two. The Fed in December projected 75 basis points of easing in 2024.

“I think they’re going to stay with three cuts, but if they change, it’s more likely to be to two cuts, rather than four,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “One thing that could surprise people would be that the median dot goes up for unemployment.”

The Japanese yen traded little changed, up 0.05% at 149.16 per dollar.

The yen has had a whirlwind few weeks, weakening to 150.88 to the dollar last month. It then rebounded to a one-month high of 146.48 at the start of March, on the back of stronger-than-expected economic data and rising bets that the BOJ is preparing to end eight years of negative interest rates.

Bigger-than-expected pay hikes by major Japanese firms have cemented expectations that the BOJ will exit ultra-loose monetary policy, potentially as soon as at its meeting on Tuesday.

“Recently there have been some signs and some statements from a few of the members of the Bank of Japan signaling that they feel this is a time to not maintain an accommodative financial environment,” said Juan Perez, director of trading at Monex USA in Washington. “But this week it’s really doubtful that they’re going to make a move. They would shock markets.”

April was more likely for the BOJ to exit its ultra-easy monetary policy as a jump in inflation could occur when Japanese subsidies for household energy end that month, Chandler said.

The euro last bought USD 1.0871, down 0.15% while the sterling was at USD 1.27245, down 0.12% ahead of the Bank of England meeting on Thursday when the central bank is expected to hold rates at 5.25%.

Australia’s central bank is due to meet on Tuesday and is widely expected to hold rates steady. The Australian dollar fell 0.05% against the US dollar to USD 0.656.

The US dollar rose 0.52% against the Swiss franc. Some investors think the Swiss National Bank could cut interest rates on Thursday, with inflation having long been within its 0-2% target range.

(Reporting by Herbert Lash, additional reporting by Harry Robertson in London and Ankur Banerjee in Singapore; Editing by Tomasz Janowski, Josie Kao, and Sharon Singleton)

US yields hit three-week highs ahead of Fed meeting

March 18 – Benchmark 10-year US Treasury yields hit three-week highs on Monday as traders looked ahead to the Federal Reserve’s meeting this week for further clues on its rate path this year.

Benchmark 10-year notes’ yields reached 4.348%, up almost 5 basis points on the day and the highest since Feb. 23. The yields are approaching their February high of 4.354%.

Two-year yields touched 4.751%, their highest since Feb. 23. They reached 4.759% last month.

The inversion in the yield curve between two-year and 10-year notes narrowed by 2 basis points to minus 40 basis points.

Market focus is on the Fed’s two-day meeting on Tuesday and Wednesday. It is expected to hold rates steady, with the market’s attention on policymakers’ updated economic and interest rate projections.

“I think that the most important data point is going to be the Fed meeting, and what they show in the summary of economic projections to guide the market through their thoughts on Q1 data,” said Subadra Rajappa, head of US rates strategy at Societe Generale.

Yields rose each day last week following strong economic data reports. These include March 12’s report showing the consumer price index (CPI) rising 0.4% last month, driven largely by higher costs for gasoline and shelter. Thursday’s producer price index (PPI) also exceeded forecasts, rising 0.6% in February versus 0.3% expected.

Traders in Fed funds futures have since reduced bets that the Fed will cut rates by June to 54%, from 59% on Friday, according to the CME Group’s FedWatch tool.

“It seems like a lot of the street is moving towards fewer Fed cuts this year,” said Natalie Trevithick, head of investment grade credit strategy at asset manager Payden & Rygel. “It was questionable why we fell so dramatically in the fourth quarter when everything was so strong. So I think we just went too far too fast, and we’re retracing some of that here.”

The economic data calendar is light this week in lieu of the Fed’s two-day meeting. February housing starts and building permits figures will come on Tuesday, while last week’s initial jobless claims and US services and manufacturing purchasing managers’ index data will come on Thursday.

Last week’s strong data was reinforced on Monday by the National Association of Home Builders’ housing market index, which showed builder confidence rose in March for the fourth month in a row on strong buyer demand, reaching its highest level since July.

The US Treasury Department on Monday auctioned USD 76 billion in 13-week bills and USD 70 billion in 26-week bills. The 13-week auction met with a bid-to-cover ratio of 2.81 times, while the 26-week auction met with a bid-to-cover ratio of 2.76 times.

The Treasury will hold auctions on Tuesday for USD 75 billion in 42-day bills, USD 46 billion in 52-week bills, and USD 13 billion in 20-year bonds.

(Reporting by Matt Tracy; Editing by Richard Chang)

Gold regains ground as investors strap in for Fed policy meet

March 18 – Gold prices firmed after dipping to one-week lows on Monday as investors awaited a series of central bank meetings this week, including the US Federal Reserve’s policy decision on Wednesday, to pick up on clues on inflation and interest rates.

Spot gold was up 0.2% at USD 2,159.69 per ounce at 2:20 p.m. EDT (1820 GMT) after hitting its lowest level since March 7 earlier in the session. Bullion had hit a record high of USD 2,194.99 on March 8.

US gold futures settled 0.1% higher at USD 2,164.3.

“Gold is in anticipation of the interest rate decision on Wednesday, but also maybe the Bank of Japan’s interest rate decision tonight – it can show that globally inflation is rising and obviously gold is a global inflation hedge,” said Daniel Pavilonis, senior market strategist at RJO Futures.

Bullion fell about 1% last week after data showed that US consumer prices increased solidly in February and producer prices rose more than expected, indicating some stickiness in inflation.

Although gold is traditionally considered an inflation hedge, higher interest rates to rein in the elevated prices discourage investment in bullion since it pays no interest.

The Bank of Japan is expected to exit its ultra-dovish monetary policy at its two-day meeting ending on Tuesday.

The Bank of England will hold its meeting on Thursday and is expected to stay put on rates.

Markets also widely anticipate no change in interest rates at the end of Fed’s two-day policy meeting on Wednesday, but are pricing in a 53% chance of a rate cut in June.

“The changes in the dot plot, the expectations of the Fed funds, I think is going to play a role in whether or not gold will resume and continue its uptrend,” Pavilonis added.

Spot silver fell 0.4% to USD 25.06, platinum lost 1.8% to USD 916.19 per ounce and palladium dipped 4.2% to USD 1,031.73.

(Reporting by Anjana Anil in Bengaluru; Editing by Mark Potter, Josie Kao, and Ravi Prakash Kumar)

Oil prices climb 2% to 4-month high on lower Iraq, Saudi exports

NEW YORK, March 18 – Oil prices climbed about 2% to a four-month high on Monday on lower crude exports from Iraq and Saudi Arabia and signs of stronger demand and economic growth in China and the US

Brent futures rose USD 1.55, or 1.8%, to settle at USD 86.89 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.68, or 2.1%, to settle at USD 82.72.

That pushed both benchmarks into technically overbought territory with Brent closing at its highest since Oct. 31 and WTI closing at its highest since Oct. 27.

In other energy markets, US gasoline futures RBc1 closed at their highest since Aug. 31.

On the supply side, Iraq, OPEC’s second-largest producer, said it would reduce crude exports to 3.3 million barrels per day (bpd) in coming months to compensate for exceeding its OPEC+ quota since January, a pledge that would cut shipments by 130,000 bpd from last month.

In January and February, Iraq pumped significantly more oil than an output target established in January when several members of the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, a group known as OPEC+, agreed to support the market.

In Saudi Arabia, OPEC’s largest producer, crude exports fell for a second straight month, down to 6.297 million bpd in January from 6.308 million bpd in December.

In Russia, meanwhile, Ukrainian attacks on energy infrastructure have idled around 7% of refining capacity in the first quarter, according to a Reuters analysis.

Market participants said refinery outages will push Russia to increase oil exports through its western ports in March by almost 200,000 bpd to around 2.15 million bpd.

In the US, meanwhile, oil output from top shale-producing regions will rise in April to the highest level in four months, according to a federal energy outlook.

SIGNS OF GROWING DEMAND

In China, the world’s biggest oil importer, factory output and retail sales beat expectations in the January-February period, marking a solid start for 2024 and offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence.

“Crude oil is up … today. With demand for crude from China continuing to be a dominant factor,” analysts at energy consulting firm Gelber and Associates said in a note.

China’s crude oil throughput in January and February rose 3% compared to the same two months a year earlier as refineries raised production to meet strong demand for transport fuels over the busy Lunar New Year travel period.

In the world’s biggest economy, the US Federal Reserve (Fed) is widely expected to keep interest rates unchanged when it ends its latest two-day policy meeting on Wednesday.

Stronger-than-expected US economic growth and stickier inflation this year have led investors to push back expectations on the Fed’s first rate cut to June, from May, and reduce bets on how many cuts are likely this year.

Lower interest rates would reduce the cost of buying goods and services, which could boost economic growth and increase oil demand.

In a move expected to boost oil demand, US Energy Secretary Jennifer Granholm said crude oil stockpiles in the Strategic Petroleum Reserve (SPR) at year-end will be at or exceeding the level that would have existed prior to massive sales two years ago.

In other US news expected to boost oil demand, BP’s 435,000 bpd Whiting, Indiana, refinery has returned to normal operations for the first time since a February power outage.

(Reporting by Scott DiSavino, Natalie Grover, Mohi Narayan, and Colleen Howe; Editing by Muralikumar Anantharaman, David Evans, Mark Potter, Louise Heavens, and Paul Simao)

Nerves stretched, China data dump kicks off key week

March 18 – A batch of top-tier Chinese economic data releases gets Asian markets underway on Monday, with sentiment pretty fragile after last week’s global market wobble and as investors brace for US and Japanese policy decisions later in the week.

Asian equity markets are on the defensive. The MSCI Asia ex-Japan index’s 1.4% slump on Friday – its steepest since January – sealed its biggest weekly loss in two months, while Japan’s Nikkei 225 lost 2.5% for its biggest weekly loss this year.

The sharp rebound in US bond yields is taking its toll on risk appetite, and was probably the main catalyst for the selloff in global stocks last week.

The ICE BofA US Treasuries index fell every day last week, its worst run since August resulting in the biggest weekly fall since October. The two-year yield rose 24 basis points, almost the equivalent of a quarter-point rate hike.

The Asia and Pacific calendar this week is packed with hugely important economic data releases and central bank policy meetings, none more so than the Bank of Japan’s two-day meeting that starts on Monday.

Expectations are high that the BOJ will raise interest rates for the first time since 2007, bringing the curtain down on eight years of ‘negative interest rate policy’, or NIRP.

Japan’s biggest companies agreed to raise wages by 5.28% for 2024, the heftiest pay hikes in 33 years, the country’s largest union group said on Friday, reinforcing views that policymakers will make their historic move on Tuesday.

Sources have also told Reuters that the BOJ will offer guidance on how much government bonds it will buy upon ending NIRP and yield curve control (YCC), to avoid causing market disruptions.

Policy decisions from the central banks of China, Australia, Indonesia, and Taiwan are also on tap this week, as are inflation figures from Japan and New Zealand’s fourth-quarter GDP report.

The week kicks off on Monday, though, with four key indicators from China – business investment, retail sales, industrial production, and unemployment.

Some green shoots of recovery in China are gradually becoming visible. There are signs that capital is no longer flooding out the country, stocks have recovered, and some economic data is improving – China’s economic surprises index is the highest since October.

But the road to recovery will be long and rocky. Figures last week showed that house prices fell at their fastest annual rate in over a year, and new bank lending growth fell to the lowest on record.

Figures on Monday are expected to show that business investment growth in February ticked up to 3.2%, industrial output growth slowed to 5.0% and retail sales also slowed to 5.2% from the month before. These are all year-on-year measures.

Here are key developments that could provide more direction to markets on Monday:

– China ‘data dump’ (February)

– Japan machinery orders (January)

– Malaysia trade (February)

(By Jamie McGeever; Editing by Aurora Ellis)

US yields rise further ahead of next week’s Fed meeting

WASHINGTON, March 15 – The benchmark US Treasury yield rose to its highest level in three weeks on Friday, as a mixed batch of data signaled a still-resilient economy, boosting expectations for fewer interest rate cuts by the Federal Reserve this year.

Benchmark 10-year notes’ yields were last up 1.4 basis points (bps) at 4.310%, their highest since Feb. 22. They are on track to post their largest weekly gain since mid-October at 21.8 bps.

US two-year yields were 3.9 bps higher at 4.730%, their highest since Feb. 26. Their weekly performance was the best since mid-January at 23.7 bps.

The two- and 10-year yields’ rise marks the fifth consecutive day of rising yields.

The US five-year note’s yield itself posted the biggest weekly gain since mid-May last year at 26.4 bps. It was last at 4.329%.

Friday’s US economic data showed US industrial production remained relatively flat in February, advancing only 0.1% from January, while manufacturing orders rose 0.8% in February after being revised down sharply in January. The cost of imported goods rose in February for the second month in a row.

Yields extended gains on this week’s news of higher-than-expected inflation. These include February’s consumer price index (CPI) on Tuesday, which rose 0.4%, largely driven by higher gasoline and shelter costs. Thursday’s producer price index (PPI) also exceeded forecasts, rising 0.6% in February versus 0.3% expected.

Traders in Fed funds futures reduced bets that the Fed will cut rates by June to 57.9%, from 62.5% on Thursday, according to the CME Group’s FedWatch tool. While the timing is in question, traders still see at least two rate cuts by the end of 2024.

The Fed is expected to hold rates steady when it meets next week, with the market focused on policymakers’ updated economic and interest rate projections.

“Everything is gradually coming in the direction that the Fed wants it to,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management.

“Even though we did get some new information. I don’t think it’s really changed the landscape all that much, which has to do with the cumulative effect of data releases.”

The inversion in the yield curve between two-year and 10-year notes US2US10=TWEB widened slightly to minus 42.2 basis points from minus 40.7 basis points on Tuesday.

New consumer sentiment data from the University of Michigan showed sentiment for the US economy declined in February from January. This put a slight damper on Treasury yields’ rise, said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

The survey showed inflation expectations over one year remained unchanged at 3%. But this increased to 2.7% from 2.4% over a three-year span, and to 2.9% from 2.5% over five years.

“Treasuries were weaker in the set-up to the University of Michigan print and since the data, we’ve seen yields partially retrace off the day’s peaks,” Lyngen wrote in a Friday note.

The yield on existing 30-year bonds remained relatively flat on the day on Friday at 4.433%. But they have posted their largest gain on the week since early February at 16.8 bps.

(Reporting by Matt Tracy in Washington; Editing by Richard Chang and Matthew Lewis)

US dollar poised for biggest weekly gain since mid-January; yen falls ahead of BOJ

NEW YORK, March 15 – The dollar rose to a more than one-week high on Friday after a mixed batch of data showed the US economy remained stable with small pockets of weakness, suggesting the Federal Reserve could keep interest rates higher for longer or reduce the planned number of rate cuts this year.

The dollar index, which tracks the US currency against six major peers, was on pace to post a weekly gain of 0.7%, the largest since mid-January. The index was last flat at 103.43.

Data on Friday showed a solid US manufacturing sector, with output rebounding by 0.8% last month after a downwardly revised 1.1% decline in the prior month. Analysts at Citi, however, said in a research note that the rebound in February partly reflects the revisions lower to January output and the reversal of a “weather-related drag in January in non-durable goods manufacturing sectors.”

US consumer sentiment and inflation expectations were little changed in March, a survey showed on Friday. The University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 76.5 this month, compared to a final reading of 76.9 in February.

The survey’s reading of one-year inflation expectations, a measure tracked by the Fed, was unchanged at 3.0% in March. The survey’s five-year inflation outlook held steady as well at 2.9% for the fourth straight month.

The Fed is scheduled to meet next week and while it is not expected to make any interest rate moves, hotter-than-expected US producer and consumer price data this week has led traders to rein in bets on future cuts.

“Ahead of the meeting, there’s nothing to indicate that the Fed can afford to be dovish at this point,” said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.

“That’s why we have Treasury yields going up and that’s why we have the dollar stronger. Gold fell as well. It’s all the standard correlations. So the Fed maybe gets higher for longer: they’re not being given any room to cut sooner than later.”

The rate futures market on Friday has priced in a 57% chance of the Fed cutting rates in June, compared to 71% on Monday, according to LSEG’s rate probability app. The market has also reduced the number of rate cuts it expects this year to less than three, from between three and four earlier this year.

Investors are also looking to a highly-anticipated meeting at the Bank of Japan next week.

The BOJ is close to ending eight years of negative interest rate policy, with internal preparations for an exit in the works since Kazuo Ueda took office as BOJ governor.

At the same time, Japan’s biggest companies agreed with labor unions to raise wages by the highest level in 33 years on Friday, reinforcing views the country’s central bank is poised to make a landmark shift away from negative interest rates.

The dollar continued to rise against the yen, up 0.5% at 149.02. On the week, the greenback rose 1.3%, on track for its biggest gain since mid-January.

The focus is also on other central bank decisions for signs of how quickly they will cut interest rates after a period of rapid rises to curb rampant inflation. The Bank of England and Swiss National Bank are due to meet next week.

The euro was slightly up at USD 1.0889. The European Central Bank council last week began a discussion on when to reduce its own rates, council member Olli Rehn said on Friday.

Sterling slipped 0.1% to USD 1.2737.

In cryptocurrencies, bitcoin prices fell as much as 7% in volatile trade from a record high touched on Thursday as risk sentiment took a hit. It was last down 0.3% at USD 70,483.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Iain Withers in London and Ankur Banerjee in Singapore, Editing by Chris Reese, Kirsten Donovan)

US equity funds attract inflows for third week in a row

March 15 – US equity funds drew inflows for a third consecutive week in the seven days to March 13, with investors optimistic about a rally on Wall Street and clinging to hopes of rate cuts this year, even as inflation proves stubborn.

According to data from the London Stock Exchange Group (LSEG), investors purchased USD 4.93 billion of US equity funds, the largest net weekly purchase since Feb 14.

Investor confidence has been bolstered by Wall Street’s record-breaking rally this year and recent remarks from Federal Reserve Chair Jerome Powell suggesting the central bank is close to being assured that inflation has eased enough to start reducing interest rates.

The S&P 500 touched a record high of 5189.26 last week and has gained about 8% so far this year.

Investors purchased US large-, small- and multi-cap funds worth a net USD 2.88 billion, USD 1.8 billion, and USD 771 million, respectively. However, mid-cap funds saw USD 584 million in net selling.

Tech and financials attracted the biggest inflows at a net USD 554 million and USD 389 million, respectively. Consumer discretionary witnessed a net USD 889 million exit.

Inflows to US bond funds slowed sharply to a net USD 3.81 billion from USD 10.54 billion in the prior week.

Demand for US general domestic taxable fixed income cooled to a net USD 1.76 billion from USD 4.65 billion, and for short/intermediate investment-grade funds to USD 1.64 billion from USD 4.21 billion.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Kirsten Donovan)

Peak rates boost US demand for riskier form of corporate debt

March 15 (Reuters) – The US market for one of the riskiest types of corporate debt is resurging this year, as companies cater to investor demand for assets that can lock in high yields for several years ahead of an expected decline in interest rates.

Holders of these bonds, called junior subordinated debt, are among the last to be paid in case of a default and companies can defer interest payments.

The reward for such high risk is yields that exceed those of senior bonds, for maturities of up to 40 years, though issuers typically call, or redeem, the bonds in five or 10 years.

Like stocks, these hybrid bonds rank low in a company’s capital structure, but they resemble bonds with interest payments.

With the Federal Reserve widely expected to start cutting rates later this year, investors are scrambling to get their hands on securities that will pay the current levels of high interest for years to come.

To meet this demand, five companies this year have issued USD 4.6 billion of junior subordinated debt, and a sixth hit the market on Thursday. This pace is significantly faster than in the last two years, Barclays data shows, with USD 8 billion issued in full-year 2023.

Barclays’ analyst Bradford Elliott estimates sales of junior subordinated bonds could reach USD 15 billion to USD 20 billion this year. Investors have plowed in a net USD 1 billion into funds that invest in hybrid bonds since October, he noted.

The renewed interest is giving companies an additional financing option as debt comes due.

INCREASING ATTRACTIVENESS

A change in Moody’s rating methodology on Feb. 1 has made hybrid bonds more attractive for companies, bankers and analysts said.

Last month, Moody’s said it would start giving 50% equity credit when rating a company’s hybrid debt or count half of an issuer’s subordinated debt as equity capital, up from 25% previously. The move, in line with S&P and Fitch, means companies can reliably use hybrid bonds to raise more capital without hurting their credit ratings.

Among issuers of junior subordinated debt so far this year, NextEra Energy Capital NEE.N used some of the proceeds to refinance short-term commercial paper.

Energy Transfer, which owns and operates a diversified portfolio of energy assets, said it refinanced preferred shares, another type of hybrid bond that is riskier than junior subordinated debt.

Daniel Botoff, global head of debt capital market syndicate at RBC Capital Markets, said junior subordinated debt also had a tax advantage over preferred shares.

“It is more cost-efficient for companies to issue junior subordinated debt whose interest payments were tax-deductible to refinance taxable preferred stock that is becoming callable,” Botoff said.

STRONG DEMAND

With strong demand, the average credit spreads on corporate hybrid bonds, or the premium paid over Treasuries, tightened nearly 200 basis points since it peaked at 523 basis points in October, Elliott said.

The six companies that have issued subordinated bonds this year paid 6% to 8% in yields, just 150-200 basis points more than on their higher-ranked senior bonds.

In another sign of firm demand, Energy Transfer increased its offering in January to USD 800 million from an initial USD 500 million. It received USD 5 billion in orders, Informa Global Markets data showed.

Hybrid bonds are “sensitive to macro conditions,” said Tim Crawmer, global credit strategist at Payden & Rygel. “They have a higher correlation to improving credit quality and improving equity risk sentiment than they do to interest rates.”

(Reporting by Shankar Ramakrishnan; additional reporting by Davide Barbuscia; editing by Paritosh Bansal and Richard Chang)

Oil prices dip, but set for weekly gain of over 3%

HOUSTON, March 15 – Oil prices dipped on Friday, a day after topping USD 85 a barrel for the first time since November, but prices were expected to finish more than 3% higher for the week on rising demand from US refiners completing planned overhauls.

Brent crude oil futures slid 9 cents or 0.11% to USD 85.33 a barrel at 12:16 p.m. CDT (1716 GMT). US West Texas Intermediate (WTI) crude was down 17 cents or 0.21% to USD 81.09.

“Supplies are tightening” for motor fuels, said Phil Flynn, analyst at Price Futures Group. “Prices are at risk to go higher.”

But “there are worries the US Federal Reserve won’t be able to cut interest rates” because inflation remains above the central bank’s target of 2%, Flynn added.

Cuts in interest rates are seen as opportunities for demand growth in the United States.

Prices had been range-bound for much of the last month roughly between USD 80 to USD 84 a barrel. Then the International Energy Agency on Thursday raised its view on 2024 oil demand for a fourth time since November as Houthi attacks have disrupted Red Sea shipping.

World oil demand will rise by 1.3 million bpd in 2024, the IEA said in its latest report, up 110,000 bpd from last month. It forecasts a slight supply deficit this year should OPEC+ members sustain their output cuts having previously forecast a surplus.

US energy firms this week added the biggest number of oil and natural gas rigs in a week since September, with the oil rig count also rising to its highest in six months, energy services firm Baker Hughes said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, rose by seven to 629 in the week to March 15. Baker Hughes said oil rigs rose six to 510 this week, their highest since September, while gas rigs rose one to 116.

The gains this week have come despite the US dollar strengthening at its fastest pace in eight weeks. A stronger dollar makes crude more expensive for users of other currencies.

Also supporting prices were Ukrainian strikes on Russian oil refineries, which caused a fire at Rosneft’s biggest refinery in one of the most serious attacks against Russia’s energy sector in recent months.

“We’re continuing to tread water,” said John Kilduff, partner with Again Capital LLC said of Friday’s activity.

US crude oil stockpiles also fell unexpectedly last week as refineries ramped up processing while gasoline inventories slumped as demand rose, the Energy Information Administration said on Wednesday.

Lower interest rates cut consumer borrowing costs, which can boost economic growth and demand for oil.

In the US, some signs of slowing economic activity were seen as unlikely to spur the Federal Reserve to start cutting interest rates before June as other data on Thursday showed a larger-than-expected increase in producer prices last month.

(Reporting by Erwin Seba; Additional reporting by Noah Browning, Arathy Somasekhar, and Sudarshan Varadhan; Editing by Michael Perry, Jason Neely, David Gregorio, and Alexander Smith)

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