UPDATE 2-U.S. oil output rises 1.7% June to highest since April 2020 -EIA

Adds oil and products demand data

By Stephanie Kelly

NEW YORK, Aug 31 (Reuters) – U.S. crude oil production rose in June by 1.7% to its highest since April 2020, according to a monthly report from the U.S. Energy Information Administration on Wednesday.

Oil production rose to about 11.8 million barrels per day in June from about 11.6 million bpd the month prior, the report showed. Producers cut back drastically on output in 2020 after pandemic lockdowns slashed demand, and companies have been gradually boosting production.

Production in North Dakota rose 3.4% to about 1.1 million barrels per day in June, highest since March, the report showed.

New Mexico output rose 2% to 1.5 million barrels per day in June, highest on record. Output in Texas fell 0.1% to just under 5 million barrels per day in June, lowest since February.

Monthly gross natural gas production in the U.S. Lower 48 states rose to a record 109.3 billion cubic feet per day (bcfd) in June, the EIA said in the monthly report.

In top gas producing states, monthly output rose 0.4% to a record 31.1 bcfd in Texas, and fell 0.5% in Pennsylvania to about 20.6 bcfd.

Demand for U.S. crude and petroleum products rose in June to about 20.8 million bpd, the highest since August 2019, according to the EIA.

Demand for motor gasoline rose to 9.1 million bpd, the highest since August 2021, the EIA said.

(Reporting by Stephanie Kelly; Additional reporting by Arathy Somasekhar; Editing by David Gregorio and Jonathan Oatis)

((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))

Stock-picking hedge funds poised for worst performance in 10 years

Aug 31 (Reuters) – Hedge funds that actively buy and sell stocks are set for their worst performance in 10 years, based on new data from Preqin, suggesting that the tide may be turning against stock picking strategies.

Globally, funds that buy and sell stocks have seen their cumulative returns drop 12.24% in the 12 months ending July 31, investment data provider Preqin said. Year to date cumulative returns for 2022 were down 11.42%.

Growing global recession risks, rising interest rates and an inflation surge not seen in decades threatens to reverse a 10-year run-up in the US S&P 500 index.

The S&P 500 stock index is down 16% so far this year and set for its worst year since 2008.

Stock picking, where a portfolio manager actively decides when to buy and sell a stock, traditionally has been one of the most commonly used trades among hedge funds.

But this approach faces an increasingly uncertain market backdrop. Equity hedge funds in general are down 10% for the year, while credit funds which trade bonds have fared better and are down around 2%, Preqin said.

“Stock picking has become difficult in a world of high inflation and rising interest rates,” said London-based hedge-fund manager Crispin Odey.

Odey, whose fund manages USD 4.7 billion in assets, said it was difficult to find opportunities to short or bet against a stock, when inflation has eroded the value of money but not the nominal value of companies. Odey said his hedge fund is up 130% year-to-date and up 15% in August.

Choppy markets have hit profits from other hedge fund trading strategies.

Systematic equity hedge funds that code their trading ideas into computer programmes had a negative 3.68% return cumulatively in the 12-months ending in July, the Preqin data showed.

Bond funds managed actively and by computers had negative cumulative returns of 1.06% and 1% respectively for the same period, Preqin said.

“This has been a year when the tide has gone out and we can see who is swimming with no shorts on,” Mark Dowding, the chief investment officer of BlueBay Asset Management said, referring to comments made by billionaire investor Warren Buffett.

BlueBay’s hedge funds, which trade bonds, are up between 5-17% in 2022, Dowding said.

In contrast, macro trading hedge funds which buy and sell financial instruments based on the economic outlook are having the strongest year so far, the Preqin data showed.

Actively managed macro hedge funds were up 6.39%, a bit more than those managed systematically, which have brought in cumulative returns around 3.08%.

(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and Jane Merriman)

Philippines open to new oil exploration talks with China -minister

MANILA, Aug 31 (Reuters) – The Philippines is open to new talks with China on oil and gas exploration, the Southeast Asian country’s foreign minister said on Wednesday.

A deal with China or any other country on joint oil and gas exploration, however, should comply with Philippine laws, Foreign Affairs Secretary Enrique Manalo, said during a congressional hearing on his department’s 2023 budget.

Talks over joint energy exploration between Manila and Beijing in the South China Sea had been terminated, Manalo’s predecessor said in June, citing constitutional constraints and issues of sovereignty. nL1N2YA0N7

President Ferdinand Marcos Jr, who took power in June, said last month he would try to “find ways to work to resolve the conflicts that we have” with China, so ties could normalise after years of maritime disputes.

Manalo told lawmakers that future activities related to oil and gas cooperation in the South China Sea “will be anchored on the Philippine constitution and with the national interest as the primordial consideration”.

China’s embassy in Manila did not immediately respond to a request for comment on Manalo’s remarks.

A 2016 international arbitration ruling made clear the Philippines had sovereign rights to exploit energy reserves inside its 200-mile Exclusive Economic Zone. But China, which claims about 90% of the South China Sea as its territory, has refused to recognise that decision.

(Reporting by Enrico Dela Cruz
Editing by Bernadette Baum)

((enrico.delacruz@thomsonreuters.com))

European shares bounce back ahead of inflation data

Aug 31 (Reuters) – European shares edged higher on Wednesday, supported by strong performances in tech stocks following a three-day selloff, with focus on regional inflation figures due later in the session.

The continent-wide STOXX 600 was up 0.4%, snapping three consecutive days of losses. But the index was set for a monthly loss of nearly 4%.

Rate-sensitive tech stocks, down for three straight days on expectations of aggressive interest rate hikes globally, climbed 2.1%.

Among stocks, Italian luxury group Brunello Cucinelli fell 3.9% after posting its half-year results.

Dormakaba Holding slipped 2% after the Swiss security group forecast organic growth slightly above its target range, but added that the outlook applied only to the first half of the 2022/23 financial year.

Gains were also capped as Russia began halting gas flow via a major pipeline to the continent’s largest economy on Wednesday.

Focus in now on euro zone inflation reading for August due at 0900 GMT.

(Reporting by Anisha Sircar in Bengaluru; Editing by Sherry Jacob-Phillips)

Gold set for fifth monthly fall as investors brace for more US rate hikes

Aug 31 (Reuters) – Gold prices were set on Wednesday for a fifth straight monthly drop, as solid US economic data and hawkish Federal Reserve comments pointed to more interest rate increases, denting the non-yielding metal’s appeal.

Spot gold fell 0.1% to USD 1,721.59 per ounce, having hit its lowest level since July 27 at USD 1,718.70 earlier in the session. Bullion has lost 2.5% so far in August.

US gold futures dipped 0.2% to USD 1,733.10.

“The Fed does not have intentions to significantly ease in the near term. Their focus is on inflation and what they want to do is perhaps even create some two-way risks around policy expectations where they’re giving a bit less explicit forward guidance,” said Ilya Spivak, a currency strategist at DailyFX.

This contributes to gold’s weakness and the US dollar’s strength, Spivak added.

New York Fed chief John Williams said on Tuesday the US central bank will be likely to need to get its policy rate “somewhat above” 3.5% and keep it there through the end of 2023.

Even though gold is seen as a hedge against inflation, rate hikes raise the opportunity cost of holding bullion while boosting the dollar.

Latest data showing US job openings increased in July and a bigger-than-expected rebound in consumer confidence in August bolstered expectations that the Fed will maintain its aggressive policy stance.

The dollar index steadied close to a two-decade peak reached on Monday.

A number of European Central Bank policymakers have also called for swift rate rises.

Spot gold may test a support at USD 1,710 per ounce, a break below which could open the way towards USD 1,680-USD 1,698 range, according to Reuters technical analyst Wang Tao.

Spot silver fell 0.7% to USD 18.37 per ounce and was down more than 9% for August, its biggest monthly drop since September 2020.

Platinum was flat at USD 847.45, but was headed for a more than 5% drop for the month. Palladium gained 1.6% to USD 2,121.27 per ounce.

(Reporting by Eileen Soreng in Bengaluru; Editing by Subhranshu Sahu, Sherry Jacob-Phillips and Jane Merriman)

Rate hike bets buoy euro and bolster US dollar

SINGAPORE, Aug 31 (Reuters) – The dollar was firm on Wednesday as stronger-than-expected US economic data and hawkish Federal Reserve comments pointed to higher interest rates, while rate-hike bets in Europe also have the common currency clinging on above parity.

German inflation running at its highest in nearly 50 years and a growing chorus of European Central Bank officials calling for big rate hikes has markets pricing a better-than-even chance of a 75 basis point (bps) rate hike next week.

The euro rose 0.16% to USD 1.0032 in the Asia trade, which if sustained would make for a third session of gains in a row, though it is still nearly 2% down for the month. Eurozone inflation data is due at 0900 GMT.

“The story in Europe is really not any better. The only thing that is kind of holding the euro just around parity is this hawkish rhetoric coming from ECB speakers,” said Rodrigo Catril, a currency strategist at National Australia Bank.

“The inflation numbers we got from Germany are kind of setting expectations for a strong number as well coming for the euro zone today.”

The US dollar index, which measures the greenback against a basket of currencies, hovered at 108.64, just below a two-decade peak of 109.48 made on Monday. It has climbed about 2.7% for the month, and is on track for a third straight month of gains.

Meanwhile, sterling GBP gained 0.21% to USD 1.1679, after hitting a fresh 2-1/2-year low of USD 1.1622 overnight. The sliding yen JPY steadied at 138.61 per dollar.

Chinese data out on Wednesday showed that factory activity in the world’s second-largest economy contracted again in August, as new COVID infections, the worst heatwaves in decades and a property sector crisis weighed on production.

Commodity currencies such as the Aussie were little fazed by the weak China data, however, having been battered by a strong US dollar overnight. The Australian dollar was up 0.31% to USD 0.68755, though that is after a 0.7% overnight fall.

The kiwi was up 0.19% to USD 0.6140, after having slid 0.43% overnight.

Likewise, the Chinese offshore yuan was kept under pressure at 6.9029 per dollar .

All eyes remain on the US nonfarm payrolls data due on Friday, with a robust job openings data released overnight potentially foreshadowing a strong showing at the end of the week, making the case for more aggressive rate hikes.

New York Fed chief John Williams told the Wall Street Journal that it will “take some time” before interest rates would be cut, while Atlanta Fed President Raphael Bostic said: “I don’t think we are done tightening.”

Traders are now pricing in about a 72.5% chance of a 75 bps Fed funds rate hike next month.

Cryptocurrencies were staging a rebound on Wednesday, with Bitcoin up 2.86% to USD 20,385, and Ether, the coin linked to the ethereum blockchain network, up 5.45% to USD 1,606.3.

(Reporting by Rae Wee; Editing by Sam Holmes and Kim Coghill)

Oil crawls back up on signs of firm US fuel demand, weaker dollar

MELBOURNE, Aug 31 (Reuters) – Oil prices recovered slightly on Wednesday as data pointed to firm fuel demand in the United States, providing respite after a 5% drop a day earlier on fear of demand suffering from increased China COVID-19 curbs and central bank interest rate hikes.

A slightly weaker US dollar also shored up the market, with oil consequently being cheaper for buyers holding other currencies.

US West Texas Intermediate (WTI) crude futures jumped 90 cents, or 1%, to USD 92.54 a barrel at 0306 GMT, after sliding USD 5.37 in the previous session driven by recession fears.

Brent crude futures for October, due to expire on Wednesday, climbed 70 cents, or 0.7%, to USD 100.01 a barrel, trimming Tuesday’s USD 5.78 loss. The more active November contract was up 96 cents, or 1%, at USD 98.80 a barrel.

The price swings since the Ukraine conflict began six months ago have rattled hedge funds and speculators and thinned trading, which in turn has made the market whipsaw even more, as seen on Tuesday.

“I can’t stress, the low liquidity means we’re in for some volatile moves,” said Commonwealth Bank commodities analyst Vivek Dhar.

Supporting market sentiment on Wednesday, data from the American Petroleum Institute (API) showed gasoline inventories fell by about 3.4 million barrels, while distillate stocks, which include diesel and jet fuel, fell by about 1.7 million barrels for the week ended Aug. 26.

The drawdown in gasoline stockpiles was nearly triple the 1.2 million barrel drop that eight analysts polled by Reuters had expected on average. For distillate inventories they had expected a drop of about 1 million barrels.

However, API data showed crude stocks rose by about 593,000 barrels, against analysts’ estimates of a drop of around 1.5 million barrels.

Price gains were capped by worries that some of China’s biggest cities – from Shenzhen to Dalian – are imposing lockdowns and business closures to curb COVID-19 at a time when the world’s second-biggest economy is already experiencing weak growth.

“Worsening outbreaks of COVID-19 in China are also impacting sentiment,” ANZ Research analysts said in a note.

On the supply side, oil exports from Iraq were unaffected by the worst violence seen in Baghdad for years, three sources told Reuters on Tuesday. Clashes eased on Tuesday after powerful cleric Moqtada al-Sadr ordered his followers to end their protests.

The main factor supporting prices at the moment is talk from members of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, that they might cut output to stabilize the market. OPEC+ is next due to meet on Sept. 5.

“They’ll jawbone,” Dhar said. “They’ll try and flag that futures prices don’t reflect true tightness. But to get everyone to agree to cut output is another challenge.”

(Reporting by Sonali Paul in Melbourne; Editing by Christopher Cushing)

Oil prices fall on recession fears

LONDON, Aug 31 (Reuters) – Oil prices continued to slide on Wednesday on investor worries about the ailing state of the global economy, the prospect of key central bank interest rate hikes, and increased restrictions to curb COVID-19 in China.

US West Texas Intermediate (WTI) crude futures were down USD 1.34, or 1.46%, at USD 90.30 a barrel, after sliding USD 5.37 in the previous session on recession fears.

Brent crude futures for October, due to expire on Wednesday, were down USD 1.79 at USD 97.52 a barrel following Tuesday’s USD 5.78 loss. The more active November contract was down USD 1.40, or 1.43%, at USD 96.44 a barrel.

The price swings since the Ukraine conflict began six months ago have rattled hedge funds and speculators and thinned trading, which in turn has made the market whipsaw even more, as seen on Tuesday.

“The latest signs of stuttering growth are contracting Chinese factory activity in August and the slower-than-expected expansion of the country’s service sector,” Tamas Varga, analyst at PVM Oil Associates, said.

“Additionally, both the Fed and the ECB are thought to hike interest rates significantly next month, probably by as much as 0.75% – and all these make equity investors run for the exit. Oil duly follows, at least for the time being.”

China’s factory activity extended declines in August as new COVID infections, the worst heatwaves in decades and an embattled property sector weighed on production, suggesting the economy will struggle to sustain momentum.

Some of China’s biggest cities from Shenzhen to Dalian are imposing lockdowns and business closures to curb COVID-19 outbreaks at a time when the world’s second-biggest economy is already experiencing weak growth.

Some bullish factors provided a floor to prices. Data from the American Petroleum Institute (API) showed gasoline inventories fell by about 3.4 million barrels, while distillate stocks, which include diesel and jet fuel, fell by about 1.7 million barrels for the week ended Aug. 26.

However, API data showed crude stocks rose by about 593,000 barrels, against analysts’ estimates of a drop of around 1.5 million barrels.

Another factor supporting prices is talk of output cuts by members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+. OPEC+ is next due to meet on Sept. 5.

Russian action on natural gas lent further support. Gazprom halted natural gas flows through Europe’s key supply route on Wednesday as the economic battle intensified between Moscow and Brussels.

(Reporting by Julia Payne in London, Mohi Narayan in New Delhi and Sonali Paul in Melbourne; Editing by Christopher Cushing, Kenneth Maxwell, Kim Coghill and Jan Harvey)

UPDATE 10-Oil prices slump again, hit by demand concerns

U.S. crude, gasoline stockpiles fall – EIA

China factory data disappoints

OPEC+ looks at output cut

Updates to settle, new quotes, recasts

By David Gaffen

NEW YORK, Aug 31 (Reuters) – Oil prices extended their slide on Wednesday, led lower by worries that the global economy would slow further with renewed restrictions to curb COVID-19 in China.

Brent crude LCOc1 futures for October due to expire on Wednesday, settled at $96.49, down $2.82 a barrel, or 2.8%. The more active November contract LCOc2 lost $2.20 to $95.64 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 futures ended down $2.09, or 2.3%, at $89.55 a barrel.

“The weakness coming out of China has played a significant role” in lowering prices, said Harry Altham, energy analyst for EMEA & Asia at StoneX Group in London. “There are fears of demand destruction across the West as interest rates rise and inflation concerns grip Western economies.”

The market has been primarily concerned with inadequate supply in the months following Russia’s invasion of Ukraine and as OPEC struggled to increase output. That drove near-term contracts to a sharp premium over later-dated futures earlier this year, but that pattern has reversed somewhat as output has increased.

Both OPEC and the United States saw production hit its highest levels since the early days of the coronavirus pandemic, with OPEC’s output hitting 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020. nL8N3072WW

“The fear that there’s a slowdown here and then also the potential here for some additional supply increases coming down the pike is having some pressure on the market,” said Mike Sabo, market strategist at RJO Futures in Chicago.

The Joint Technical Committee of the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, said it now sees an oil surplus this year of 400,000 bpd, up 100,000 bpd from its forecast a month earlier. nL1N3070O4

Some OPEC+ members have called for cuts. The group is next due to meet on Sept. 5 amid weakening demand in Asia that spurred Saudi Arabia to lower its official selling prices to that region.

U.S. crude stocks fell by 3.3 million barrels, the U.S. Energy Information Administration said Wednesday, while gasoline stocks were down 1.2 million barrels. EIA/S

China’s factory activity extended declines in August due to new COVID infections, the worst heat wave in decades and an embattled property sector that weighed on production, suggesting the economy will struggle to sustain momentum. nL1N30702O

Parts of China’s southern city of Guangzhou imposed COVID curbs on Wednesday, joining the tech hub of Shenzhen in battling flare-ups.nL1N307085

(Reporting by David Gaffen in New York; additional reporting by Julia Payne in London; editing by Jonathan Oatis)

Asia continues global stock slump as Fed tightening fears flare

TOKYO, Aug 31 (Reuters) – Asian markets extended the global stocks selloff on Wednesday, as investor worries about aggressive monetary tightening were inflamed further by strong US jobs data.

The overnight JOLTS report on job openings – closely watched by the Federal Reserve – pointed to extremely tight labour conditions, defying the Fed’s tightening efforts so far and bolstering the case to do more.

To discourage speculation about rate reductions next year, New York Fed President John Williams said on Tuesday that the central bank likely needed to get the policy rate above 3.5%, and was unlikely to cut rates at all in 2023.

“The strong JOLTS data and Fed rhetoric was the overwhelming narrative,” knocking stocks further and pushing up bond yields, Tapas Strickland, an analyst at National Australia Bank, wrote in a note to clients.

“Financial conditions are a key transmission mechanism for monetary policy, and equities are part of that.”

Japan’s Nikkei sagged 0.6%, while Australia’s share benchmark slid 0.4% and South Korea’s Kospi lost 0.5%.

Chinese blue chips retreated 0.5%. Hong Kong’s Hang Seng slumped 1.8%, with its tech shares tumbling 2.5%.

MSCI’s broadest index of Asia-Pacific stocks declined 0.7%. Its world equity index slumped 0.9% on Tuesday, for a third straight day of losses.

US equity futures though pointed to some respite, with S&P 500 e-minis indicating a 0.3% rebound from the index’s 1.1% slide on Tuesday.

Investors will now be even more attentive to the monthly US jobs report on Friday.

Earlier on Tuesday, data showed German inflation rose to its highest in almost 50 years in August, strengthening the case for the European Central Bank to also go for a super-sized rate hike next month.

Money markets currently place 68.5% odds of a 75 basis-point increase by the Fed on Sept. 21.

The two-year US Treasury yield, which is relatively more sensitive to the monetary policy outlook, hit a fresh 15-year high at 3.497% overnight, but eased back to 3.4558% in Tokyo trading.

The 10-year Treasury yield, which hit a two-month high of 3.153% on Tuesday, stood at 3.1137%.

The dollar index, which measures the currency against six major peers, softened slightly to 108.69, after starting the week by marking a new two-decade high at 109.48.

Gold was little changed at USD 1,723.62, hovering near a one-month low of USD 1,719.56, set Monday.

Crude oil rebounded from declines of more than USD 5 overnight, as industry data showed US fuel stocks fell more than expected.

US West Texas Intermediate (WTI) crude futures rose 64 cents to USD 92.28 a barrel in early Asian trading, after sliding USD 5.37 in the previous session driven by recession fears.

Brent crude futures climbed 48 cents, or 0.5%, to USD 99.79 a barrel, trimming Tuesday’s USD 5.78 loss.

(Reporting by Kevin Buckland)

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