Awaiting the bond-bashing abating

Oct 23 – The big question this week hanging over global financial markets – and Asian markets in particular, given the lack of big-hitting regional economic indicators or policy decisions – is whether the US Treasuries selloff abates or not.

Third-quarter gross domestic product data from South Korea, and consumer price inflation reports from Australia, Singapore, and Tokyo are the main indicators this week, and flash purchasing managers indices from Japan and Australia will be published on Monday.

These figures may have a brief impact on their respective currencies, but are unlikely to move the dial in terms of broader market sentiment. That will come from the US bond market, and Monday’s price action could be instructive.

The ICE BofA Treasuries index fell 1.4% last week, its biggest fall since May, and is at an eight-year low. The TLT Treasuries ETF has lost a fifth of its value since mid-July.

Short-covering on Friday ahead of the weekend and Middle East event risk stopped the rot, at least momentarily. Perhaps ominously, however, Friday’s bond market relief didn’t ease the pressure elsewhere – Wall Street’s three main indices still closed 0.9%-1.5% lower.

The S&P 500 lost 2.4% last week, one of the biggest falls this year, and the VIX ‘fear index’ of US stock market volatility on Friday hit its highest since March.

That’s not a positive backdrop for Asia’s open on Monday, although braver investors might be looking for some bargains – the MSCI Asia ex-Japan index on Friday fell to its lowest in almost a year and is down 12% since the start of August.

Meanwhile, the stock and bond market selling has tightened financial conditions significantly. According to Goldman Sachs, financial conditions in emerging markets and globally are the tightest in almost a year.

It’s even worse in China – financial conditions in the world’s second-largest economy are the tightest since Goldman’s China index was launched in 2006.

Chinese central bank governor Pan Gongsheng on Saturday said that the central bank will make policy more “precise and forceful”, guide financial institutions to cut real lending rates, and reduce financing costs for firms and individuals.

His comments are significant because they are his first on policy since stronger-than-expected third-quarter economic data were released earlier this month.

In currencies, the yen and yuan open the week under heavy selling pressure and at critically important levels. Traders will again be on Bank of Japan intervention watch.

Meanwhile, Japanese and Australian PMI data for October are out on Monday. September’s reports showed that manufacturing activity in both countries shrank and services sector activity grew, although growth in Japan was the slowest this year.

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

– Japan flash manufacturing PMI (October)

– Australia flash PMI (October)

– Singapore inflation (September)

(By Jamie McGeever; Editing by Diane Craft)

Mideast turmoil pushes safe-haven gold to second weekly rise

Oct 20 – Gold extended gains on Friday and headed for a second consecutive weekly gain, as fears of a further escalation in the Middle East conflict fed bullion’s safe-haven appeal.

Spot gold was up 0.3% at USD 1,979.39 per ounce by 3:04 p.m. ET (1904 GMT), after hitting its highest since May earlier in the session. US gold futures settled 0.7% higher at USD 1,994.40.

Israel leveled a northern Gaza district after giving families a half-hour warning to escape, and hit an Orthodox Christian church where others had been sheltering, as it made clear that a command to invade Gaza was expected soon.

“People fluttered into gold and found a sense of safety amid geo-political risks. If there is an escalation in the Middle East conflict, gold prices will push through USD 2,000,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Gold has risen 2.5% this week, and added nearly USD 160 since the onset of the conflict.

On the technical front, “failure to trigger a long overdue consolidation and correction back down towards USD 1,946 could see prices move higher to eventually challenge resistance around USD 2,075, the nominal record high from 2020,” Ole Hansen, head of commodity strategy at Saxo Bank, wrote in a note.

Traders also digested comments from Fed Chair Jerome Powell on Thursday, who left open the possible need for more rate hikes – which would increase the opportunity cost of holding zero-yield bullion – but also noted emerging risks and a need to move with care.

In physical markets, gold dealers in India were forced to offer steeper discounts as a jump in domestic prices slowed demand ahead of a key festival.

Silver rose 1.4% to USD 23.35 per ounce, platinum gained 0.7% to USD 896.47. Both were set for their second consecutive weekly rise.

Palladium rose 0.9% to USD 1,104.18, but headed for its fourth straight weekly decline.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri and Shailesh Kuber)

Relentless climb in Treasury yields may have further to run after surging to 5%

NEW YORK, Oct 20 – Some investors believe a bond market selloff that has pushed the benchmark US Treasury yield to 5% may have more room to run, as the Federal Reserve gives little indication of veering from its “higher for longer” mantra.

Fed Chair Jerome Powell walked a narrow line in his speech before the New York Economic Club on Thursday, saying the stronger-than-expected economy might warrant tighter financial conditions while also noting emerging risks and a need to move with care.

Still, some traders interpreted his comments as an endorsement of keeping rates around current levels through most of next year. Yields on the benchmark 10-year Treasury, which move inversely to bond prices, rose briefly to 5% late on Thursday, a closely watched level not seen since 2007. Stocks sold off on Thursday with the S&P down 0.85%.

“The underlying message is ‘don’t be looking for a bailout from the Fed anytime soon,’” said Greg Whiteley, a portfolio manager at DoubleLine. “That gives people the go ahead to take rates above 5%.”

Whiteley said that he sees 10-year yields moving as high as 5.5% before peaking.

An extended climb in Treasury yields risks exacerbating the pressures that have dogged a broad array of assets in recent months. US government bonds are on track for an unprecedented third straight year of losses, while the S&P 500 is off 7% from its July high as the promise of guaranteed yields on US government debt draws investors away from equities. Credit spreads have widened in recent weeks, while mortgage rates have crept up to their highest since 2000.

“What really matters to the markets is how long we sustain 5% interest rates or higher and what sort of damage that does to the economy as a whole,” said Gennadiy Goldberg, head of US rates strategy at TD Securities. He believes a sustained move above 5% on the 10-year yield is “not out of the question.”

“The longer we remain at higher interest rates, the more likely something is to break,” Goldberg said.

Expectations that the Fed’s aggressive monetary tightening may cause a recession were pushed back several times over the past year as economic activity has proved more resilient to higher borrowing costs than many had predicted.

Powell on Thursday also nodded to the “term premium” as a driver for yields. The term premium is the added compensation investors expect for owning longer-term debt and is measured using financial models. Its rise was recently cited by one Fed president as a reason why the Fed may have less need to raise rates.

Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, said that higher yields and more broadly tightening financial conditions were “doing the Fed’s work for it” by tamping down growth and helping cool inflation.

While interest rate increases have an immediate impact on short-term yields, the recent surge in long-term bond yields indicates the market has embraced the idea that rates will remain higher for longer. “The Fed needs both barrels firing and now the long end of the curve has finally bought in that Fed won’t cut rates soon and when they do they won’t be sizable,” he said.

Alan Rechtschaffen, senior portfolio managers and financial advisor at UBS Global Wealth Management, was among those wary of the knock-on effects elevated yields could have.

“The Fed has to be cautious here because I don’t know that they’re entirely secure in being able to predict what’s going to happen next,” said Rechtschaffen, who believes yields will top out at around 5%, though a small risk exists of them going “significantly” higher.

Others saw hints of dovishness in Powell’s remarks, or at least caution. The Fed, Powell said, is “proceeding carefully” in evaluating the need for any further rate increases, a remark that left intact expectations that the Fed will keep its benchmark policy rate steady at the current 5.25% to 5.5% range at the upcoming Oct. 31-Nov. 1 meeting.

“There was an underlying sense of patience and caution, given the potential for delayed impacts of the tightening to date,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.

Still, even if the Fed cuts rates over the next few years, yields could stay above 5% if inflation and growth remain high, he said.

“A 5% yield is a shocking number … but the fact of the matter is that we’re back up to a level of rates that’s appropriate for this level of economic activity,” said Tipp.

(Reporting by Davide Barbuscia and David Randall; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Megan Davies, and Shri Navaratnam)

Oil drops after Hamas releases US hostages

BENGALURU, Oct 20 – Oil prices settled lower on Friday after the Islamist group Hamas released two US hostages from Gaza, leading to hopes the Israeli-Palestinian crisis could de-escalate without engulfing the rest of the Middle East region and disrupting oil supplies.

Brent crude futures fell 22 cents, or 0.2%, to settle at USD 92.16 a barrel.

US West Texas Intermediate crude futures for November delivery, which expired after settlement on Friday, fell 62 cents, or 0.7%, to USD 88.75 a barrel. The more active December WTI contract closed 29 cents lower at USD 88.08 a barrel.

Hamas’ armed wing released two US hostages from Gaza – a mother and her daughter – “for humanitarian reasons” in response to Qatari mediation efforts in the war with Israel, its spokesman Abu Ubaida said on Friday.

“The report took some of the risk premium out of the market,” said Phil Flynn, analyst at Price Futures Group. “The market went from starting the day with little hope and went to possible signs that there may be some way out of this crisis.”

Both contracts had gained more than a dollar per barrel during the session on signs of escalation of the conflict. For the week, both front-month contracts rose over 1%, a second straight weekly jump.

On Thursday, Israeli Defence Minister Yoav Gallant told troops at the Gaza border they would soon see the Palestinian enclave “from inside,” and the Pentagon said the US had intercepted missiles fired from Yemen toward Israel.

“The Middle East remains a big focus of the market because of fears of a region-wide conflict that would likely involve a disruption of oil supplies,” said John Kilduff, a partner at New York-based Again Capital.

Supply disruptions may be less likely now, Kilduff added, but “the market cannot ignore it – especially heading into the weekend when things could change rapidly and there will be no trading.”

Also supporting prices were forecasts of a tightening market in the fourth quarter after top producers Saudi Arabia and Russia extended supply cuts to year-end.

Large inventory draws, mostly in the US, support the thesis of an undersupplied market, UBS analyst Giovanni Staunovo said.

UBS expects Brent prices to trade in the USD 90 to USD 100 a barrel range over the coming sessions, Staunovo added.

Money managers cut their net long US crude futures and options positions by 56,850 contracts to 183,351 in the week to Oct. 17, the US Commodity Futures Trading Commission (CFTC) said on Friday.

(Reporting by Shariq Khan; Additional reporting by Paul Carsten, Florence Tan, and Sudarshan Varadhan; editing by Shri Navaratnam, Jason Neely, David Gregorio, and Jane Merriman)

Five alive: US yield curve nears historic level

Oct 20 – Another watershed day for US Treasuries on Thursday – the entire curve came within a whisker of trading above 5% – is set to weigh heavily on Asian market sentiment on Friday and potentially seal one of the biggest weekly losses for regional stocks in months.

The gloomy end to the week comes as investors also await inflation figures from Japan, Malaysia, and Hong Kong; remarks from Bank of Japan governor Kazuo Ueda; and an interest rate decision from China.

The People’s Bank of China is widely expected to leave its one- and five-year loan prime rates unchanged at 3.45% and 4.20%, respectively. But after Bank Indonesia’s shock rate hike on Thursday, traders won’t be taking anything for granted.

But market sentiment and direction across Asia on Friday will be driven by the dramatic repricing of the US bond market that shows no sign of cooling. If anything, it is heating up by the day.

The US 10-year yield has shot up 35 basis points this week, on track for its biggest weekly rise in over a decade. The 2s/10s yield curve has steepened 27 basis points, which would be the biggest weekly steepening move since March.

There are plenty of cross-currents flowing through markets right now – mixed US earnings, war in the Middle East and spiking oil prices, and another debacle on Capitol Hill as US lawmakers again failed to elect a House speaker.

But the catalyst for Thursday’s volatility was remarks by Federal Reserve Chair Jerome Powell, who said signs of above-trend growth or a too-strong labor market could warrant more monetary tightening.

Wall Street – which had earlier in the day traded higher on strong US jobs data and Netflix earnings – quickly flipped as bond yields leaped higher. The 10-year yield rose as high as 4.996%, a level not seen since July 2007.

The MSCI Asia ex-Japan index is already down more than 2% so far this week. Given the extent of Wall Street’s slide on Thursday and potential event risk from the Middle East over the weekend, it is almost certain to end the week at a new low for the year.

On the economic data front, data are expected to show Japan’s annual core inflation rate was 2.7% in September, cooling from 3.1% in August. That would be the lowest inflation since July last year.

The BOJ will scrutinize the data at its next policy meeting on Oct. 30 to 31, when policymakers are expected to raise their inflation outlook, potentially signaling another step towards exiting years of ultra-easy monetary policy.

Yen traders, with dollar/yen stuck up near 150.00, will be paying close attention too.

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

– China interest rate decision

– Japan inflation (September)

– BOJ governor Ueda speaks

(By Jamie McGeever; Editing by Josie Kao)

Wall Street ends down as Treasury yields surge, Powell speaks

NEW YORK, Oct 19 – US stocks ended lower on Thursday, with shares of Tesla down sharply and Treasury yields surging after Federal Reserve Chair Jerome Powell spoke about monetary policy and investors worried whether rates would stay higher for longer.

Tesla (TSLA) shares dropped a day after the carmaker missed Wall Street expectations on third-quarter gross margin, profit, and revenue, and its CEO Elon Musk said he was concerned about high interest rates affecting demand.

Treasury yields rose further and the benchmark 10-year note yield was at a 16-year high of almost 5%.

“The 10-year looks like it’s establishing a new higher trend, which … is putting pressure on equities, at least in the short term,” said Oliver Pursche, senior vice president, advisor for Wealthspire Advisors in Westport, Connecticut.

“Markets were hoping that Jay Powell would indicate that the Fed is going to pause in its interest rate hikes, and he effectively hinted at the idea that they’re going to have to raise again if they continue to have elevated concerns over inflation.”

Powell said at the Economic Club in New York that US central bankers were moving carefully on policy after aggressive rate hikes last year, but he added that the economy’s strength and continued tight labor markets could warrant further rate hikes.

According to preliminary data, the S&P 500 lost 37.02 points, or 0.86%, to end at 4,277.58 points, while the Nasdaq Composite lost 128.61 points, or 0.97%, to 13,185.69. The Dow Jones Industrial Average fell 254.24 points, or 0.76%, to 33,410.84.

Data this week has pointed to strong consumer demand and a tight labor market. A US Labor Department report on Thursday showed the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week.

Also in earnings, Netflix (NFLX) shares jumped after the world’s No. 1 streaming company by subscriber count said it was raising prices for some of its plans in the United States, Britain, and France after adding 9 million users in the third quarter.

(Reporting by Caroline Valetkevitch; additional reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by Dhanya Ann Thoppil, Saumyadeb Chakrabarty, Vinay Dwivedi, and David Gregorio)

Gold firms for third day on Mideast conflict, hopes of Fed rate pause

Oct 19 – Gold gained for a third consecutive session on Thursday as growing tensions in the Middle East sparked safe-haven demand, while remarks from Federal Reserve Chair Jerome Powell fuelled hopes the US central bank may pause rate hikes.

Spot gold rose 1.3% to USD 1,973.41 per ounce by 2:58 p.m. ET (1858 GMT). US gold futures settled 0.6% higher at USD 1,980.50.

Israel pounded Gaza with more air strikes, as British Prime Minister Rishi Sunak followed US President Joe Biden on visits to demonstrate support for the war against Hamas while urging Israel to ease the plight of besieged Gazans.

While gold has gained due to the war, “buying exhaustion is fairly imminent,” said Daniel Ghali, commodity strategist at TD Securities.

Powell walked a narrow line in his remarks, leaving open the possible need for more rate hikes because the economy had proved stronger than expected, but also noting emerging risks and a need to move with care.

“The market is not taking this as a hawkish stance by any means. It looks like there are too many risks to the outlook of the economy and this will likely support gold prices,” said Edward Moya, senior market analyst at OANDA.

Traders now see a 70% chance of no rate hike in December compared with a near 50% chance before Powell’s remarks, according to CME’s FedWatch Tool.

Higher interest rates increase the opportunity cost of holding gold, a non-yielding asset.

“Any signs of deteriorating data in the US is required to get discretionary interest into the precious metal, which has been a large missing piece. Recession would allow Fed to cut rates and help prices move north of USD 2,100,” Ghali added.

Spot silver rose 0.1% to USD 22.89, platinum was up 0.5% at USD 889.92 and palladium fell 1.5% to USD 1,112.12.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Krishna Chandra Eluri and Shailesh Kuber)

Fed’s Powell to take the stage amid a suddenly choppy landscape

Oct 19 – Federal Reserve Chair Jerome Powell will take the podium in New York on Thursday with his colleagues at the US central bank in apparent agreement to hold interest rates unchanged at their next meeting in two weeks but with still-great uncertainty about what happens after that.

In remarks scheduled for 12 p.m. (1600 GMT) at the Economic Club of New York, Powell will all but close out a frenetic month following US monetary policymakers’ last meeting in mid-September, when they opted to leave their benchmark lending rate unchanged in a range of 5.25% to 5.50% to assess how the economy was evolving.

Since then, data has shown US job growth reaccelerating unexpectedly, retail sales defying predictions of a slowdown and varying measures of prices offering up inconsistent signals as to whether inflation is on track to return to the Fed’s 2% target in a timely manner.

If that were not enough, the bond market is reeling and tightening financial conditions at a rapid clip. The most deadly Middle East conflict in years has erupted, with no swift resolution in sight and worries it may widen into a regional war with unknown economic consequences.

Hours before Powell was due to speak, the latest read on the labor market showed new claims for unemployment benefits tumbling to the lowest since January, although the rolls of those on benefits for more than a week edged up to the highest since July.

At the same time, the bond market sell-off continued, threatening to drive the yield on the 10-year Treasury note that is instrumental as a credit benchmark for households and businesses above the 5% threshold for the first time since 2007.

The Fed chair must parse it all while walking a fine line between sounding too confident or too doubtful, with a lean too far in either direction having the potential to swing financial markets – and overall financial conditions in their wake – in unwanted directions.

Powell’s appearance comes less than 48 hours before the beginning of the traditional quiet period ahead of the rate-setting Federal Open Market Committee’s meeting on Oct. 31-Nov. 1. While a handful of other Fed officials have appearances later on Thursday and Friday before blackout begins on Saturday, it is Powell’s remarks that will set the tone for policy expectations heading into that meeting, and financial markets will hang on every word.

“We think the Fed chair will stick to the message delivered by Vice Chair (Philip) Jefferson that the data has been coming in stronger than expected, but there has also been a big move in yields, which has tightened financial conditions, so no urgency for a policy response in November and the Fed can adopt a wait-and-see approach,” Evercore ISI Vice Chairman Krishna Guha wrote.

Indeed, another senior Fed official – Governor Christopher Waller – on Wednesday said he wants to “wait, watch and see” if the US economy continues its run of strength or weakens in the face of the Fed’s rate hikes to date. It was a notable signal from one of the Fed’s more hawkish policymakers that rates for now look set to remain where they are, and it parallels recent commentary from other officials during the turbulent inter-meeting period.

Should they leave rates unchanged in two weeks as is now widely expected, it would mark the first back-to-back meetings with no rate increase since the Fed kicked off its hiking campaign in March 2022.

While inflation has abated significantly from its peak levels in June 2022, progress has been choppy and Fed officials like Waller are eager to see if the tightening they’ve delivered so far begins to “bite” and slow activity sufficiently to return inflation to target without causing a recession.

A Reuters poll of more than 100 economists published on Wednesday showed more than 80% expect no rate hike at the next meeting, and most also believe the Fed is done with rate hikes even though a majority of policymakers at their September meeting projected one more quarter-point increase was likely to be needed by year end.

Many in the poll offered the caveat that if progress on inflation stalls out or reverses, the Fed would not hesitate to resume raising rates.

Waller said as much on Wednesday: “If the real economy continues showing underlying strength and inflation appears to stabilize or reaccelerate, more policy tightening is likely needed despite the recent run-up in longer-term rates.”

(Reporting by Dan Burns and Ann Saphir; Editing by Andrea Ricci and Chizu Nomiyama)

After US IPO stumbles, companies under pressure to offer bargains

NEW YORK, Oct 19 – Companies pursuing US initial public offerings (IPOs) after a string of lackluster stock market debuts are receiving advice from investment bankers to lower their valuation expectations.

The IPO market saw a flurry of big listings in the last five weeks, emerging from an arid spell that lasted most of 2022 and 2023 and was driven by stock market volatility amid rising interest rates.

There were four major IPOs, and three of them disappointed investors. Shares of German sandal-maker Birkenstock (BIRK), grocery delivery app Instacart (CART), and chip designer Arm Holdings (ARM) dropped below their IPO prices in the days that followed their debuts, though Arm’s shares are now slightly over that price.

Only the shares of marketing automation platform Klaviyo Inc (KVYO) have consistently traded over their IPO price, ending trading on Wednesday 2% over it.

Nine bankers and lawyers interviewed by Reuters said that high interest rates have made investors more risk-averse. They are advising companies to seek more conservative valuations in their IPOs so they can entice stock market investors with bargains.

“(Companies) understand that if you come to the IPO market in the near term, you’re going to suffer some of the hangover from the performance of these recent high-profile transactions,” said David Levin, co-head of equity capital markets at Guggenheim Securities.

The four big IPOs were a shot in the arm to US listing volumes. Total proceeds from IPOs on US exchanges totaled USD 19.4 billion from the start of 2023 to the end of last week, a two-year high that nearly tripled the haul over the same period last year, according to LSEG.

Those proceeds are a fraction of the haul during the same period from 2019-2021, however, when proceeds ranged from USD 43.3 billion to USD 119.2 billion.

The overall performance of IPOs this year has been lackluster. More than three-quarters of companies that went public, excluding blank-check acquisition firms, are trading below their IPO price, according to Renaissance Capital.

Healthcare payments tech firm Waystar, insurance group Hamilton, and oil-and-gas helicopter provider PHI Group will have to decide in the coming days whether they will proceed with their IPOs and how aggressively they will price them.

The companies have published their IPO registration statements so they can be ready to launch their stock market debuts in the next few days, ahead of a potential US government shutdown next month that would freeze listings because it would cut funding to the financial regulators overseeing them. It remains unclear whether the shutdown will happen, as US lawmakers struggle to elect a speaker in the House of Representatives.

Representatives from Waystar and PHI did not immediately respond to requests for comments. Hamilton declined to comment.

VALUATION ADJUSTMENT

Going by the performance of Birkenstock’s listing, some IPO hopefuls may have to significantly adjust their valuation expectations.

Birkenstock was seeking a valuation equivalent to about 27 times trailing 12-month earnings before interest, taxes, depreciation, and amortization at the top of its indicated IPO range. It ended trading on Wednesday worth only about 17 times that.

“When the stock opens more than 10% below where the IPO was priced, it is a clear sign the deal outpriced its demand,” capital markets consultant and Wharton School lecturer David Erickson said of Birkenstock’s IPO.

For some companies, the hostile IPO environment may prove too much. Rubrik, the cybersecurity software company backed by Microsoft Corp MSFT.O, was planning to launch its IPO investor roadshow as early as this month had the market been more receptive, a person familiar with the matter said. It is now holding back.

A Rubrik spokesperson declined to comment.

“We continue to see demand for high-quality companies, but investors remain cautious and sensitive to valuations,” said Robert Stowe, head of Americas equity capital markets at Barclays Plc (BARC).

(Reporting by Echo Wang in New York; Additional reporting by Deborah Sophia in Bengaluru
Editing by Greg Roumeliotis and Rod Nickel)

Oil slips as Venezuela sanctions ease, Middle East in focus

LONDON, Oct 19 – Oil prices fell about 1% on Thursday as the United States eased sanctions on Venezuela to allow more oil to flow globally, but fears that Israel’s military campaign in Gaza may escalate to a regional conflict kept a lid on losses.

Brent futures for December were down USD 1, or 1.1%, to USD 90.50 a barrel at 1307 GMT. U.S. West Texas Intermediate (WTI) futures for November, which expire on Friday, stood at USD 87.39 per barrel, down 93 cents, or 1.1%.

The more active December WTI contract fell 1%, or 83 cents, to USD 86.44 a barrel.

The United States issued a six-month licence authorising transactions in Venezuela’s energy sector, an OPEC member, after a deal was reached between Venezuela’s government and the political opposition there to ensure fair 2024 elections.

The deal is not expected to quickly expand Venezuela’s oil output but could boost profits by returning some foreign companies to its oilfields and providing its crude to a wider set of cash-paying customers, experts said.

Oil prices climbed about 2% in the previous session on concerns about disruptions to global supplies after Iran called for an oil embargo on Israel over the conflict in Gaza and after the U.S., the world’s biggest oil consumer, reported a larger-than-expected inventory draw, adding to already tight supplies.

The Organization of the Petroleum Exporting Countries (OPEC) is not planning to take any immediate action on OPEC member Iran’s call, sources told Reuters, easing concerns over potential disruptions.

“Although OPEC shows no indication of taking up Iran’s call to impose an oil boycott on Israel, oil will almost certainly become a feature of the conflict in several ways,” RBC Capital Markets analyst Helima Croft said.

“At a minimum, the prospect of Saudi Arabia phasing out its 1 million barrel per day (bpd) unilateral production cut as part of a grand bargain that would include Israel normalization is off the table for now,” Croft said, referring to recent talks over Saudi Arabia potentially normalising relations with Israel.

Saudi Arabia had said it would keep its voluntary cut until the end of the year.

Japan, the world’s fourth-largest crude buyer, on Thursday urged Saudi Arabia and other oil producing nations to increase supplies to stabilise the global oil market, as rising fuel prices amid the conflict could impact the global economy.

US crude oil and fuel inventories dropped last week on rising demand for diesel and heating oil, according to data from the Energy Information Administration (EIA). Distillate fuel stockpiles fell by 3.2 million barrels in the week to Oct. 13 to 113.8 million barrels, EIA data showed.

Crude inventories fell by 4.5 million barrels to 419.7 million barrels, while gasoline fell by 2.4 million barrels to 223.3 million barrels.

(Additional reporting by Katya Golubkova in Tokyo and Emily Chow. Editing by Mark Potter, Kirsten Donovan)

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