Dollar’s retreat temporary, likely to reclaim recent highs

BENGALURU, Nov 2 (Reuters) – The dollar’s retreat in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said the greenback still had enough strength left to reclaim or surpass its recent highs and resume its relentless rise.

Up around 16.0% for the year, the dollar has come off an over-two-decade peak it hit in September, as the US Federal Reserve, which powered the currency’s rally, was expected to be nearing the end of its interest rate tightening cycle.

The Fed is widely expected to raise its benchmark rate by 75 basis points on Wednesday, its fourth jumbo increase in a row. However, for the December meeting interest rate futures showed a split on the odds of a 75 or 50 basis point increase.

Over a two-thirds majority of analysts, 30 of 44, who answered an additional question in a Reuters Oct. 28-Nov. 1 poll said the dollar would either reclaim its recent highs (22) or move past them by end-year (8). The remaining 14 said it would fall from its current levels.

“Everybody’s talking about a pivot, whether or not after we get this week’s meeting over and done with the Fed will be able to move by less. But I fail to see that as being a factor which is going to significantly undermine the dollar,” said Jane Foley, head of FX strategy at Rabobank.

Foley also said investors need to get into riskier currencies for the dollar to weaken significantly and added “as long as the Fed is still hiking, even by small increments, I don’t think that environment would be there.”

The poll also showed most emerging market currencies, which have hit their lowest levels in at least a decade, were expected to remain around those levels or sink deeper over the remainder of the year and into early next.

While the dollar was expected to remain defiantly strong in the near-term, the 12-month outlook was still for the currency to cede some ground to its peers.

“We still see the dollar as toppish, which doesn’t mean that it couldn’t go up another percent or two – which likely means going up a couple of percent against some currencies and maybe being flatter or even falling against some others,” said Steve Englander, head of G10 FX strategy at Standard Chartered.

The euro EUR=, down over 13% against the dollar and less than 1% away from its worst annual performance since the currency’s inception in 1999, was expected to remain under pressure over the next three months.

The common currency, which has mostly traded below parity against the dollar since August, was forecast to stay there over the next three months and to trade at an equal footing against the greenback only in six months.

It was then expected to climb higher to trade around USD 1.04 in a year.

Those six and 12-month median forecasts were a slight upgrade from the October poll and the first since April.

The Japanese yen, down nearly 22% for the year, was expected to claw back about half of this year’s historical losses over the next 12 months. It was expected to trade around 146.0, 141.7 and 135.0 per dollar over the next three, six and 12 months respectively.

Sterling, which has gained over 10% since sinking to a record low of USD 1.0327 in September amid political turmoil, was forecast to be another 2.0% stronger at USD 1.17 in a year. Predictions ranged from USD 1.06 to USD 1.29.

(Reporting by Hari Kishan; Polling by Sujith Pai and Prerana Bhat, Editing by William Maclean)

US recap: EUR/USD rebound halts on US data, Fed and risk rethinks

Nov 1 (Reuters) – The dollar index rebounded on Tuesday from an early 0.75% loss to modest gains after US data lifted Fed hike expectations before Wednesday’s FOMC meeting and key data later in the week.

Fed hike pricing rose to an implied terminal rate above 5% and 10-year Treasury yields rebounded 16bp from their lows mostly due a surprise rise on September job openings to 10.717 million versus 10.000 forecast and August’s upwardly revised 10.280 million.

Though not very timely, the data suggests the labor market was much tighter than expected, with job openings 42% higher than their pre-pandemic record highs.

The ISM manufacturing index dipped to 50.2 from 50.9 versus 50.2 forecast. New orders and employment indexes improved, though dives in the prices and supplier deliveries pointed to less inflation pressure.

Far more important will be broader ISM non-manufacturing out Thursday and forecast at 55.3 from 56.7.

September construction spending was up 0.2% against -0.5% forecast.

The earlier haven dollar selloff was greased by risk-on flows due to unsubstantiated rumors China might look into revamping its zero-COVID policies next year.

The early slide in Treasury yields was both a correction of big yield rises into month-end and on hopes the Fed will ease off the brakes after a fourth 75bp hike Wednesday. But October’s huge rebound in equities and little progress in loosening the tight labor market or inflation may dim those hopes.

EUR/USD fell 0.1% after hitting its lowest since last Tuesday. Record high euro zone inflation prompted ECB President Christine Lagarde to tout rate hikes, but the 2.84% implied ECB rates ceiling looks timid versus 10.7% inflation.

USD/JPY recovered most of its early losses egged on by intervention angst, but may need fairly hawkish Fed guidance to do battle with the MoF near 150.

Sterling was flat after the dollar’s rebound. The BoE’s small, inaugural QT was well received ahead of the 75bp hike expected at Thursday’s MPC meeting.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold rises over 1% in run-up to Fed rate announcement

Nov 1 (Reuters) – Gold rose over 1% on Tuesday as the US dollar and bond yields slipped from session highs, with the focus turning to a key Federal Reserve announcement for cues on whether it would scale back or retain its aggressive stance on interest rates hikes.

Spot gold rose 0.9% to USD 1,647.24 per ounce by 3:14 p.m. ET (1914 GMT), going as high as USD 1,696.94 earlier in the session. US gold futures settled up 0.6% at %1,649.70.

“Gold is in a position here where it’s keeping a good chunk of today’s gains going into the FOMC (Federal Open Market Committee meeting),” said Edward Moya, senior analyst with OANDA.

“The labor market is going to cool, it’s just not happening as quickly as people thought and that should keep the Fed’s path to slowing rate hikes in place – it might not be in December, but it probably will be at that February meeting.”

The dollar index pulled back from its one-week peak.

Benchmark 10-year Treasury yields also slipped on speculation that the Fed might signal a slower pace of policy tightening this week, even as it is expected to raise interest rates by another 75 basis points.

Gold is highly sensitive to rising rates as they increase the opportunity cost of holding the non-yielding bullion.

Prices have declined about 21% since rising past the USD 2,000 per ounce level in March, due to rapid rate hikes from the Fed.

“We continue to believe that gold will ultimately break below the USD 1,600 per ounce mark, but I think for now there is probably bit of resistance around USD 1,675-USD 1,680,” said Bart Melek, head of commodity markets strategy at TD Securities.

Meanwhile, spot silver rose 2.6% to USD 19.64 per ounce, after hitting a three-week peak.

Platinum climbed 2.2% to USD 945.93, while palladium advanced 2.3% to USD 1,883.13.

(Reporting by Seher Dareen, Swati Verma and Brijesh Patel in Bengaluru; Editing by Anil D’Silva and Shinjini Ganguli)

Why is the Bank of England selling government bonds?

LONDON, Nov 1 (Reuters) – The Bank of England passed a major milestone on Tuesday when it held its first auction to sell some of the 875 billion pounds (USD 1.01 trillion) of government bonds it bought during successive quantitative easing (QE) programs from 2009-2021.

Britain’s central bank is the first in the Group of Seven rich nations to actively sell QE bonds to investors.

It has been reducing its holdings of British government bonds, known as gilts, bought under QE since February, when the BoE said it would no longer buy new gilts to replace those which matured. Total holdings have since fallen to 838 billion pounds.

The US Federal Reserve and Bank of Canada have adopted similar policies, sometimes known as passive quantitative tightening (QT), to help shed bonds accumulated during years of stimulus to support crisis-hit economies.

WHAT IS THE BOE DOING NOW?

The BoE sold 750 million pounds of British government bonds with a remaining maturity of three to seven years at its first gilt auction on Tuesday, receiving solid demand from investors.

In August, the BoE said it wanted to reduce its total gilt holdings by 80 billion pounds over a 12-month period starting in late September. To achieve this, it said it would need to sell around 10 billion pounds of gilts every three months, in addition to not reinvesting the proceeds of maturing bonds.

A start to sales was delayed first by the postponement of September’s Monetary Policy Committee meeting after the death of Queen Elizabeth, and later by a chaotic sell-off in gilts triggered by then-Prime Minister Liz Truss’s plan for unfunded tax cuts.

The market turmoil forced the BoE to intervene and buy 19 billion pounds of long-dated and inflation-linked gilts in an emergency program that ran until Oct. 14.

The BoE will now hold eight gilt auctions this year, totaling 6 billion pounds of sales and including gilts with a maturity of up to 20 years.

It had originally aimed to sell 8.7 billion pounds of gilts this year, including some with a maturity of over 20 years – the type hit hardest by a fire sale of assets by pension funds following the Truss government’s Sept. 23 “mini-budget”.

The BoE says it still intends to reduce total gilt holdings by the 80 billion pounds announced in August. Policymakers will review the pace of sales annually.

WHY IS THE BOE SELLING GILTS?

British government bonds have a longer average maturity than those issued by other countries, so the BoE has to sell gilts to achieve the same pace of balance sheet reduction that other central banks would get by simply allowing their bonds to mature.

More broadly, QE was always intended to be temporary and Governor Andrew Bailey has been keen to reverse some of the purchases, especially after BoE gilt holdings doubled during the wave of QE purchases in the COVID-19 pandemic.

At its peak in December 2021, the BoE owned roughly half of all conventional British government bonds in issue.

The BoE does not intend to fully reverse QE, because regulatory changes since the 2008 financial crisis mean banks need to hold more cash than before. It has not set a long-term target for gilt holdings.

Reversing QE may help fight inflation, to the extent it pushes up borrowing costs and gives the government, business and the public less money to spend on other things.

However, the BoE says raising interest rates is its main tool for controlling inflation, because the impact is better understood than that of QT.

WHAT EFFECT WILL SELLING GILTS HAVE?

The BoE aims for QT to have relatively little impact on gilt prices and borrowing costs.

It sees the impact of QE and QT as depending heavily on financial market conditions – pushing borrowing costs up or down significantly if carried out at scale during times of market turmoil, but having little impact if done gradually while markets are calm.

The BoE’s 6 billion pounds of sales come alongside 37 billion pounds of gilt issuance by the government over the same period.

Bond strategists have questioned how strong demand will be, as gilt prices have slumped this year, and some investors suggested the central bank would be wiser to postpone sales until 2023.

Strategists at Citi noted that long-dated gilts prices rallied relative to those for shorter-dated gilts after the BoE announced on Oct. 18 that it would exclude them from its purchases this year.

The overall past effect of QE on the economy has been difficult to measure, and it is especially hard to separate the effect of actions by the BoE from spillovers from bond purchases by the Fed and the European Central Bank.

In broad terms, QE pushed down borrowing costs for medium or longer-term periods, slightly raised inflation and probably led to somewhat lower unemployment and faster growth than otherwise.

The BoE also emphasized the need for QE to stabilize markets at the start of the COVID-19 pandemic.

Critics say QE played a major role in pushing up house prices and stock markets for more than a decade, worsening inequality. The BoE has said that without QE, consumer price inflation would have undershot its 2% target during the 2010s, and that unemployment would have been much higher at points.

(USD 1 = 0.8671 pounds)

(Reporting by David Milliken; Editing by Catherine Evans)

China’s yuan bounces from 15-year low as dollar bulls retreat

SHANGHAI, Nov 1 (Reuters) – China’s yuan rose on Tuesday, bouncing off a near 15-year low against the US dollar, as investors sold off the safe-haven greenback amid an improvement in investor sentiment.

The yuan was also underpinned by higher stock markets. Hong Kong and China stocks jumped after rumors based on an unverified note circulating on social media that China was planning a reopening from strict COVID curbs in March.

A Chinese foreign ministry spokesman later said he was unaware of the situation.

The onshore yuan reversed earlier losses in afternoon spot trade, surging to a high of 7.2577 before finishing the domestic session at 7.2719, up 0.46% from previous late night close of 7.3050.

Earlier in the session, the People’s Bank of China (PBOC) set the midpoint rate at 7.2081 per dollar, the lowest since Jan. 24, 2008 and 0.43% weaker than the previous fix of 7.1768.

Currency traders took the breach of the key 7.2 per dollar level in the central bank fixing as a sign authorities were comfortable with further weakness.

As a result, the onshore yuan opened at 7.3201 per dollar and quickly touched 7.3280, the lowest since Dec. 26, 2007.

However, those losses were reversed in afternoon trade as the US dollar sank from a one-week top against a basket of major peers, as the mood in financial markets brightened ahead of the outcome of the Federal Reserve meeting on Wednesday.

The Fed’s aggressive monetary tightening has supported the greenback and US yields in recent months, and investors are now weighing the odds of a less aggressive Fed tightening.

Separately, foreign investors turned net buyers in China’s onshore yuan-denominated bond market in October, a person close to the foreign exchange regulator said, after eight straight months of outflows.

(Reporting by Shanghai Newsroom; Graphics by Sumanta Sen; Editing by Ana Nicolaci da Costa, Christian Schmollinger, and Sam Holmes)

Oil up nearly 2% as weaker dollar offsets China concerns

NEW YORK, Nov 1 (Reuters) – Oil prices rose on Tuesday, recouping losses from the previous session, on optimism that China, the world’s second-largest oil consumer, could reopen from strict COVID curbs.

Brent crude for January delivery rose USD 1.84, or 2%%, to settle at USD 94.65 a barrel. The December contract expired on Monday at USD 94.83 a barrel, down 1%.

US West Texas Intermediate (WTI) crude rose USD 1.84, or 2.1%, to USD 88.37 after falling 1.6% in the previous session.

An unverified note trending in social media, and tweeted by influential economist Hao Hong, said a “Reopening Committee” has been formed by Politburo Standing Member Wang Huning, and was reviewing overseas COVID data to assess various reopening scenarios, aiming to relax COVID rules in March 2023. Hong Kong and China stocks jumped on the rumors.

A Chinese foreign ministry spokesman later said he was unaware of the situation.

“We’re getting a lot of signals in that direction and the market is responding very positively to that,” said Phil Flynn, an analyst at Price Futures Group.

The Brent and WTI benchmarks both registered monthly gains in October, their first since May, after the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, cut their targeted output by 2 million barrels per day (bpd).

The OPEC+ cuts and record US oil export data also support oil price fundamentals, said CMC Markets analyst Tina Teng.

Tamas Varga of oil broker PVM, meanwhile, said that dwindling oil supply, a possible halt to release of oil from the Strategic Petroleum Reserve (SPR) and reinvigorated oil demand growth could also send crude back above USD 100 a barrel.

An oil investment lag is sowing seeds for a future energy crisis, OPEC secretary General Haitham Al Ghais said on Tuesday.

OPEC raised its forecasts for world oil demand in the medium and longer term on Monday, saying that USD 12.1 trillion of investment is needed to meet this demand.

These bullish factors have offset demand concerns raised by COVID-19 curbs that lowered China’s factory activity in October and cut into its imports from Japan and South Korea.

US crude oil stockpiles fell in the latest week, according to market sources citing American Petroleum Institute figures on Tuesday.

The API reported that crude stocks fell by about 6.5 million barrels for the week ended Oct. 28, they said. Gasoline inventories fell by about 2.6 million barrels, while distillate stocks rose by about 870,000 barrels, according to the sources, who spoke on condition of anonymity.

Eight analysts polled by Reuters estimated on average that crude inventories rose by about 400,000 barrels. US government data is due on Wednesday.

(Reporting by Stephanie Kelly in New York; additional reporting by Rowena Edwards in London and Isabel Kua in Singapore; Editing by David Goodman, Angus MacSwan and David Gregorio)

Japan spent record USD 42.8 billion in October interventions

TOKYO, Oct 31 (Reuters) – Japan spent a record USD 42.8 billion on currency intervention in October to prop up the yen, the finance ministry said, with investors keen for clues about how much more the authorities might step in to soften the yen’s sharp fall.

The 6.3499 trillion yen (USD 42.8 billion) was broadly in line with the estimates of Tokyo money market brokers who thought Japan had likely spent up to 6.4 trillion yen over two consecutive trading days of unannounced interventions.

A steep drop in the yen to a 32-year low of 151.94 to the dollar on Oct. 21 likely triggered the intervention, followed by another one on Oct. 24.

However, the amount was nearly double the 2.8 trillion yen Tokyo spent last month in its first yen-buying and dollar-selling intervention in more than two decades. The latest intervention records were registered from Sept. 29 to Oct. 27.

The interventions helped to trigger an immediate drop in the dollar of more than 7 yen on Oct. 21, and another dollar fall to the yen by around 5 yen on Oct. 24 albeit temporarily.

The Japanese currency has since come under renewed pressure.

“Big spending on intervention has proved effective to a degree,” said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities. “The way Japan stepped into the market was a little indecent though as they apparently targeted thin trade seen late Friday evening and early Monday morning.”

“This suggested that the Japanese authorities will continue to attack market players selling off the yen beyond 150 yen.”

UPBEAT DATA FOR US RATE HIKES

With solid US consumer spending data focusing attention on persistent inflation and dampening expectations of slower interest rate hikes by the Federal Reserve, while the Bank of Japan remains committed to ultra-low interest rates, the dollar was rising again late on Monday, up 1% at 148.45 yen.

Japan’s currency intervention data, comprising monthly totals released around the end of each month and daily spending released in quarterly reports, is watched closely for clues on how much more Japan might be willing to spend in its forays into the currency market.

Monday’s figures will draw additional scrutiny after the finance ministry refrained from commenting on its apparent actions in the market this month, taking a stealth approach to intervention. It confirmed last month’s yen-buying action immediately after it occurred.

But while the markets are keen to examine how much Japan is willing to commit to intervention, there is little doubt that – at least for the foreseeable future – it has sufficient resources to continue stepping into the market.

Indeed, Japan’s top currency diplomat, Masato Kanda, has said there was no limit to the authorities’ resources for conducting intervention.

Japan held roughly USD 1.2 trillion in foreign reserves at the end of September, the second biggest after China, about one-tenth of which are held as deposits parked with foreign central banks and the Bank for International Settlements and can be readily tapped for dollar-selling, yen-buying intervention.

Moreover, four-fifths of Japan’s total foreign reserves are held as US Treasuries, bought during bouts of dollar-buying intervention at those times when the yen was surging. Those can easily be converted into cash.

Other holdings include gold, reserves at the International Monetary Fund (IMF) and IMF special drawing rights (SDRs), although procuring dollar funds from these assets would take time, ministry officials say.

(USD 1 = 148.4900 yen)

(Reporting by Tetsushi Kajimoto; Editing by Edmund Klamann)

Meme stock rally could be sign that investor appetite for risk is returning

NEW YORK, Oct 31 (Reuters) – Rallies in Getty Images Holdings Inc. (GETY), Revlon Inc. (REV), Tilray Brands Inc. (TLRY) and other so-called meme stocks on Monday may be another sign that investors’ appetite for risk is rebounding as the broad S&P 500 closes out the month of October with an 8% gain.

Getty Images, which returned to public markets in late 2021 after merging with a SPAC, rallied nearly 35%, while Revlon Inc, which said last week that it was exploring a sale of the bankrupt company, rose 4.8%. Canadian cannabis company Tilray, meanwhile, jumped 12.1%.

“Ever since the October lows you’re seeing signs that perhaps investors are getting more optimistic and the tide has fully washed out,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

The S&P 500 is up about 8% since its closing low of 3,583.07 on Oct. 14, while the Russell 2000 index of small-cap stocks is up about 10% over the same time.

Retail investors, meanwhile, have sent a rolling average of about USD 1.4 billion a day into US equities, analysts at Vanda Research wrote last week, adding that they expected the pace of inflows to increase.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said the rally in shares of Getty Images is unlikely to be coming from a short squeeze, where bearish investors unwind their bets against a company’s shares, sending them higher.

The stock’s Monday volume, which stood at over 10 million shares after the close, far exceeded the 506,000 shares investors have shorted, he said.

“There is no way today’s price move is due to a short squeeze, it is virtually all long buying pressure,” Dusaniwsky said.

Many meme stocks have been pounded this year as the Federal Reserve tightens monetary policy, sapping investors’ appetite for risk. Shares of GameStop Corp. (GME), which put meme stocks into the spotlight with its epic rally in 2021, are down 24% for the year to date while AMC Entertainment Holdings Inc. (AMC) has fallen 60%.

While certain meme stocks have rebounded, there has not yet been a breakout in the Nasdaq Composite – which is down nearly 30% this year – that would suggest a broad return of investor risk appetite, said Art Hogan, chief market strategist at B. Riley Financial.

Instead, much of the recent broad gains in the market have coincided with a fall in Treasury yields, suggesting that the bond market and the Fed will largely dictate the direction of the market over the remainder of the year, Hogan said.

The central bank is widely expected to increase benchmark interest rates by 75 basis points on Wednesday, continuing its most aggressive rate hiking cycle since the 1970s.

“We’re on pins and needles to see if Powell will say anything that suggests they will taper the size of rate increases going forward,” Hogan said, referring to Federal Reserve Chair Jerome Powell. “If that’s the case that would further tamp down Treasury yields and create a tailwind for equities.”

(Reporting by David Randall in New York; Additional reporting by Lewis Krauskopf in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Hawkish Fed, stronger dollar set gold up for longest monthly losing spree

Oct 31 (Reuters) – Gold edged lower on Monday and was headed for its longest streak of monthly losses on record as a stronger dollar, elevated US bond yields and prospects for more rate hikes from the Federal Reserve dented the non-yielding metal’s appeal.

Spot gold fell 0.4% to USD 1,635.64 per ounce by 2:18 p.m. ET (1818 GMT), and was set for its seventh straight monthly decline, down about 1.5% this month.

US gold futures settled down 0.3% to USD 1,640.70.

A combination of factors from the expected rate hikes, the relative strength of the dollar and rising yields continue to pressure gold prices, said David Meger, director of metals trading at High Ridge Futures.

The dollar index rose 0.7%, making gold more expensive for other currency holders. The benchmark 10-year Treasury yields also edged up.

The Fed is widely expected to increase interest rates by 75 basis points at the policy meeting on Nov. 2. Traders will be keen on the Fed’s commentary on future rate hikes amid debate over when to downshift to smaller rate hikes.

Gold is highly sensitive to rising US interest rates, as that increase the opportunity cost of holding it. Gold prices have fallen more than USD 400 since scaling above the USD 2,000 per ounce level in March.

Spot silver fell 0.3% to USD 19.17 per ounce.

Platinum fell 2% to USD 925.52, but was headed for its biggest monthly gain since February 2021.

“We believe platinum’s wide discount to palladium should support substitution in the car industry and lift prices over the next 12 months,” UBS analysts said in a note.

Meanwhile, palladium slipped 2.6% to USD 1,850.03 and was set for its biggest monthly drop since May.

“Weaker industrial demand due to slower economic growth in Europe and the US and substitution from palladium to platinum will weigh on prices,” UBS analysts said.

(Reporting by Seher Dareen and Brijesh Patel in Bengaluru; Editing by Shailesh Kuber and Shinjini Ganguli)

Oil funds trapped between low inventories and slowing economy: Kemp

LONDON, Oct 31 (Reuters) – Portfolio investors’ oil positions are exhibiting significant week-to-week volatility as traders struggle to anticipate the net effect of an economic slowdown amid exceptionally low inventories of crude and diesel.

Hedge funds and other money managers purchased the equivalent of 33 million barrels in the six most important petroleum futures and options contracts in the week to Oct. 25.

The previous four weeks saw two large purchases (+62 million and +47 million barrels) and two large sales (-34 million and -50 million barrels) as investor sentiment see-sawed.

The mixed picture continued last recent week, with heavy buying of Brent (+29 million barrels), and smaller purchases of NYMEX and ICE WTI (+6 million) and US gasoline (+6 million).

But that was partly offset by small sales of US diesel (-4 million) and European gas oil (-2 million).

Fund managers still have an overall bullish bias on petroleum with long positions outnumbering shorts by a ratio of 5.17:1 (66th percentile for all weeks since 2013).

But uncertainty is high and confidence is low, with a net position of just 503 million barrels (33rd percentile for all weeks since 2013).

In Brent, the long-short ratio is in the 75th percentile (bullish) but the net position is only in the 41st percentile (relatively low confidence).

In middle distillates, the long-short ratio is in the 74th percentile, but the net position is more modest in the 58th percentile.

US and global crude and distillates inventories are at their lowest seasonal levels for decades, which creates an upside bias for prices.

But the US Federal Reserve is raising interest rates at the fastest clip for 40 years to squeeze inflation out of the economy.

And most other major central banks are following suit, resulting in a rapid tightening of financial conditions around the world.

The resulting cyclical slowdown is likely to dampen crude and distillate consumption and rebuild inventories to more comfortable levels.

The timing of any rebuild is uncertain, however, and inventories could remain tight or even deplete further in the short term.

In addition to purely economic factors, EU sanctions on maritime and insurance services for Russia’s crude and distillate exports scheduled to go into effect in December and February could tighten supplies even further.

With so many conflicting drivers, traders and investors are struggling to form a medium-term perspective on prices with any conviction, leaving the market directionless in the meantime.

(John Kemp is a Reuters market analyst. The views expressed are his own; Editing by Jan Harvey)

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