Oil prices slip on US energy demand forecast

HOUSTON – Oil prices slipped on Tuesday after a US government agency forecast steady US oil demand in 2025 while lifting its forecast for supply.

Declines were limited by new US sanctions on Russian oil exports to India and China.

Brent futures fell USD 1.09, or 1.35%, to settle at USD 79.92 a barrel. US West Texas Intermediate (WTI) crude finished at USD 77.50 a barrel, down USD 1.32, or 1.67%.

On Monday, prices jumped 2% after the US Treasury Department on Friday imposed sanctions on Gazprom Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called shadow fleet of tankers.

On Tuesday, the US Energy Information Administration said the country’s oil demand would remain steady at 20.5 million barrels per day (bpd) in 2025 and 2026, with domestic oil output rising to 13.55 million bpd, an increase from the agency’s previous forecast of 13.52 million bpd for this year.

Phil Flynn, senior analyst with Price Futures Group, said markets were anticipating the EIA short-term energy outlook to see if a predicted gain in supply would be reversed.

“They’re waiting to see if the glut EIA predicted earlier is still in the forecast,” Flynn said.

While analysts were still expecting a significant price impact on Russian oil supplies from the fresh sanctions, their effect on the physical market could be less pronounced than what the affected volumes might suggest.

ING analysts estimated the new sanctions had the potential to erase the entire 700,000-bpd surplus they had forecast for this year, but said the real impact could be lower.

“The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they said in a note.

Uncertainty about demand from major buyer China could blunt the impact of the tighter supply. China’s crude oil imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.

(Reporting by Erwin Seba in Houston, Arunima Kumar, Colleen Howe, Trixie Yap; Editing by Kim Coghill, Kirsten Donovan, Tomasz Janowski, Emelia Sithole-Matarise, Paul Simao, and David Gregorio)

US recap: Dollar rises for fifth day, yields steady

The dollar index rose for a fifth day, edging higher as equity markets turned mixed while oil rose to a new five-month high.

The US 10-year Treasury yield pared gains after posting a new 14-month high, and the yield curve steepened, in calmer markets following Friday’s US jobs report. Treasury markets will digest consumer inflation data and retail sales later this week.

A battered pound settled off its low amid short-covering as gilt prices steadied. Prime Minister Keir Starmer said Britain will keep to the fiscal rules set out in finance minister Rachel Reeves’ October budget. Further pound gains are seen limited until after speeches by BOE’s Breeden and Taylor the next two days and U.K. inflation data on Wednesday.

EUR/USD trimmed its losses after falling to a fresh 26-month low near its 21-day lower Bollinger. It’s expected to eventually find its way to parity as long as France-German yield spreads are widening and euro zone fundamentals remain bleak. An absence of countertrend buyers mutes advances, while option barriers are set at lower levels.

European Central Bank chief economist Philip Lane told an Austrian newspaper that the central bank can ease policy further this year but must find a middle ground.

The yen held broad gains amid wobbly share prices and as a speech (10:30 local time) and press conference by hawkish-leaning BoJ Deputy Governor Himino approaches. There is reporting that wage gains and higher import costs have raised BOJ’s recognition of inflationary pressures.

Treasury yields were down marginally to up 1 basis point as the curve steepened. The 2s-10s curve was up about 1 basis point to +38.8bps.

The S&P 500 slipped 0.2% as tech shares weakened

Oil rose over 2% to a 4-month high as sanctions on Russian oil may send India and China buying elsewhere.

Gold fell 1.2% as the dollar strengthened, while copper edged up 0.4% on signs of increased demand.

Heading toward the close: EUR/USD -0.34%, USD/JPY -0.14%, GBP/USD -0.19%, AUD/USD +0.28%, DXY +0.22%, EUR/JPY -0.45%, GBP/JPY -0.41%, AUD/JPY +0.12%.

(Editing by Terence Gabriel; Reporting by Robert Fullem)

Oil prices climb 2% to 4-month high with sanctions expected to disrupt Russian supplies

NEW YORK – Oil prices climbed about 2% to a four-month high on Monday on expectations that wider US sanctions on Russian oil would force buyers in India and China to seek other suppliers.

Brent futures rose USD 1.25, or 1.6%, to settle at USD 81.01 a barrel, while US West Texas Intermediate (WTI) crude rose USD 2.25, or 2.9%, to settle at USD 78.82.

That put Brent on track for its highest close since Aug. 26 and WTI on track for its highest close since Aug. 12, and kept both benchmarks in technically overbought territory for a second day in a row.

Moreover, with Brent and WTI front-month prices rising over 6% over the past three trading sessions, the premium of front-month contracts over later-dated futures, known in the energy industry as time spreads, soared to the highest in several months.

With interest in the energy market growing, total futures volume in Brent on the Intercontinental Exchange rose to its highest on Jan. 10 since hitting a record in March 2020. Open interest and total futures volumes for WTI CL-TOT on the New York Mercantile Exchange rose to their highest since March 2022.

Chinese and Indian refiners are seeking alternative fuel supplies as they adapt to new US sanctions on Russian producers and tankers that are designed to curb the revenues of the world’s second-largest oil exporter.

“There are genuine fears in the market about supply disruption. The worst-case scenario for Russian oil is looking like it could be the realistic scenario,” PVM analyst Tamas Varga said. “But it’s unclear what will happen when Donald Trump takes office next Monday.”

Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 million barrels per day (bpd) of oil in 2024, or 25% of Russia’s exports. The bank is increasingly expecting its projection for a Brent range of USD 70-USD 85 to skew to the upside.

“No one is going to touch those vessels on the sanctions list or take new positions,” said Igho Sanomi, founder of oil and gas trading company Taleveras Petroleum.

At least 65 oil tankers have dropped anchor at multiple locations, including off the coasts of China and Russia, since the United States announced the new sanctions package.

Many of the tankers named have been used to ship oil to India and China after previous Western sanctions, and a price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some of the ships have also moved oil from Iran, which is under sanctions as well.

Six European Union countries called on the European Commission to lower the price cap put on Russian oil by G7 countries, arguing it would reduce Moscow’s revenue to continue the war while not causing a market shock.

FACTORS WEIGHING ON OIL PRICES

In a move that could reduce some of the supply risk premium built up in global oil markets, mediators gave Israel and Hamas a final draft of a deal to end the war in Gaza after a midnight “breakthrough” in talks attended by envoys of both Joe Biden and Donald Trump.

The dollar climbed to a 26-month high versus a basket of other currencies following data last week that showed US job growth unexpectedly accelerated in December and the unemployment rate fell to 4.1%, which could lead to higher inflation.

That prompted traders to scale back bets on how many interest rate cuts the US Federal Reserve would make this year. Markets were now no longer fully pricing in even one rate cut from the Fed in 2025, down from roughly two quarter-point cuts priced at the start of the year.

A stronger US currency could reduce demand for energy by making dollar-priced commodities like oil more expensive for buyers using other currencies.

Higher interest rates, used to combat rising inflation, could also reduce demand for energy by boosting borrowing costs and slowing economic growth.

(Reporting by Scott DiSavino in New York, Anna Hirtenstein in London, Florence Tan in Singapore, Rahul Paswan in Bangalore, and Paul Carsten in London; Editing by David Goodman, Will Dunham, and Bill Berkrot)

Gold drops 1% as robust US jobs data strengthens dollar

Gold prices dipped on Monday as the US dollar soared to an over two-year high after a robust jobs report last week cemented expectations the Federal Reserve would proceed with caution in cutting interest rates this year.

Spot gold fell 1% to USD 2,661.76 per ounce as of 03:57 p.m. ET (2057 GMT). Prices hit their highest in a month on Friday. US gold futures settled 1.3% lower at USD 2,678.60.

“We had a better-than-expected US job report which strengthened the US dollar and the Treasury yields… (Gold’s) move lower here is some follow-through on the stronger than expected report,” said Bob Haberkorn, senior market strategist at RJO Futures.

There is also some profit-taking after gold had a great week last week, Haberkorn added.

The dollar index rose to its highest since November 2022 after the US jobs report underscored the strength of the economy and muddied the Fed outlook.

A higher dollar makes bullion more expensive for overseas buyers.

Trump will be sworn in as president of the US next week. His proposed tariffs and protectionist trade policies are expected to be inflationary and could spark trade wars, adding to gold’s allure as a safe-haven asset.

Investors now await US inflation data, weekly jobless claims and retail sales this week for further insights into the economy and the Fed’s policy plans.

“Should CPI inflation data on Wednesday show signs of persisting, any calls for a rate cut in the first half of the year will be firmly dismissed again,” Fawad Razaqzada, market analyst at City Index and FOREX.com, wrote in a note.

Currently, markets expect a 25-basis-point cut this year, compared with expectations of 40 basis points last week.

Higher interest rates make the non-yielding bullion less attractive.

Spot silver lost 2.6% to USD 29.62 per ounce, platinum dropped 1.4% to USD 950.90 and palladium shed 0.5% to USD 943.50.

(Reporting by Anjana Anil in Bengaluru; Editing by Krishna Chandra Eluri and Shreya Biswas)

China flags more policy measures to bolster yuan

SHANGHAI/HONG KONG – China announced more tools to support its weak currency on Monday, unveiling plans to park more dollars in Hong Kong to bolster the yuan and to improve capital flows by allowing companies to borrow more overseas.

A dominant dollar, sliding Chinese bond yields, and the threat of higher trade barriers when Donald Trump begins his US presidency next week have left the yuan wallowing around 16-month lows, spurring the central bank into action.

The People’s Bank of China (PBOC) has tried other means to arrest the sliding yuan since late last year, including warnings against speculative moves and efforts to shore up yields.

On Monday, authorities warned again against speculating against the yuan. The PBOC raised the limits for offshore borrowings by companies, ostensibly to allow more foreign exchange to flow in.

PBOC Governor Pan Gongsheng meanwhile told the Asia Financial Forum in Hong Kong that the central bank will substantially increase the proportion of China’s foreign exchange reserves in Hong Kong, without providing details.

China’s foreign reserves stood at around USD 3.2 trillion at the end of December. Not much is known about where the reserves are invested.

“Today’s comments from the PBOC indicate that currency stability remains an important priority for the central bank, despite the market often discussing the possibility of intentional devaluation to offset tariffs,” said Lynn Song, chief economist for Greater China at ING.

“Increasing China’s foreign reserves will give more ammunition to defend the currency if the market situation eventually necessitates it.”

China’s onshore yuan traded at 7.3318 per dollar as of 0450 GMT on Monday, not far from a 16-month low of 7.3328 hit on Friday.

It has lost more than 3% to the dollar since the US election in early November, on worries that Trump’s threats of fresh trade tariffs will heap more pressure on the struggling Chinese economy.

The central bank has been setting its official midpoint guidance on the firmer side of market projections since mid-November, which analysts say is a sign of unease over the yuan’s decline.

Monday’s announcements underscore the PBOC’s challenges and its juggling act as it seeks to revive economic growth by keeping cash conditions easy, while also trying to douse a runaway bond rally and simultaneously stabilize the currency amid political and economic uncertainty.

It has in recent days unveiled other measures. In efforts to prevent yields from falling too much and to control the circulation of yuan offshore, it said it is suspending treasury bond purchases but plans to issue huge amounts of bills in Hong Kong.

Gary Ng, senior economist at Natixis, said while China’s onshore market has a much better pool of yuan deposits, Hong Kong plays a “significant role with higher turnover driven by FX swaps and spot transactions.”

“This means that Hong Kong can be a venue for supporting the yuan through trading activities and potential investments.”

Data on Monday showed China’s exports gained momentum in December, with imports also showing recovery, although the export spike at the year-end was in part fuelled by factories rushing inventory overseas as they braced for increased trade risks under a Trump presidency.

(Reporting by Shanghai Newsroom, Selena Li and Summer Zhen in Hong Kong; Writing by Ankur Banerjee; Editing by Vidya Ranganathan and Jacqueline Wong)

No let up from dollar, US yield squeeze

A sea of red across most equity markets and no end in sight to the rise in the dollar and US bond yields is the backdrop to what is likely to be another nervy session in Asia on Tuesday.

As if that wasn’t reason enough for investors to keep their guard up, US CPI inflation data will be released the following day, when the fourth quarter US earnings season kicks off too.

The S&P 500’s fall on Monday at one point wiped out all the index’s post-US election gains. Although it managed to close off those lows, there is no doubt that high and rising US bond yields continue to weigh heavily on wider equity market sentiment.

The global backdrop isn’t helping either, amid swirling trade tensions and uncertainty surrounding the new incoming US administration ahead of Donald Trump’s inauguration next week.

On that front, the Biden administration’s announcement on Monday of new US export restrictions on artificial intelligence chips will only deepen the unease.

The new regulations, among the toughest yet from Washington and designed to limit the global distribution of these coveted processors, could deal a significant blow to the earnings of AI and tech firms, including Nvidia.

The dollar on Monday rose to a fresh 26-month high, a further tightening of financial conditions that will be felt in domestic US markets but especially in overseas asset prices.

Analysts at Goldman Sachs on Friday raised their dollar forecasts to include the euro falling below parity with the dollar within the next three to six months. With the euro slipping below USD 1.02 on Monday it wouldn’t be a shock if the parity break comes in the next six weeks.

The dollar has started the week on a strong footing. It has risen 14 out of the last 15 weeks, a remarkable run that has seen it appreciate 10% against its major G10 rivals. Emerging and Asian economies continue to feel the squeeze from dollar and Treasury yields.

Tuesday’s calendar in Asia is light, with Australian consumer confidence, Indian factory gate inflation figures, and the latest Japanese trade and current account numbers the main events.

Japan’s yen remains under heavy selling pressure around 158 per dollar, close to the 160/dollar area that has previously prompted yen-buying intervention from Japanese authorities.

Policy decisions in Indonesia and South Korea, and a raft of Chinese economic indicators, should be the local catalysts for more market fireworks later in the week.

The annual Asian Financial Forum in Hong Kong continues. Speakers on Tuesday include the chairman of Alibaba, the managing director of China International Capital Corporation Limited, and CIOs at several major global investment funds.

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

– Japan trade, current account (November)

– India wholesale price inflation (December)

– Bank of Japan Deputy Governor Himino Ryozo speaks

(Reporting by Jamie McGeever; Editing by Deepa Babington)

Hedge funds increased bearish bets ahead of Friday’s blowout US jobs report, banks say

NEW YORK – Global hedge funds added more bets against US stocks over the last week through Jan 9, ahead of a blowout US jobs report that sparked a sell-off on Wall Street, Morgan Stanley and Goldman Sachs said in notes on Friday.

The US Labor Department’s closely watched employment report on Friday showed job growth accelerated to 256,000 jobs in December, the most since March, while the unemployment fell to 4.1%.

The hotter-than-expected jobs data sent stocks spiralling, sending the S&P 500 down 1.54% on Friday and erasing all its 2025 gains.

Morgan Stanley said portfolio managers increased shorts – or bets stocks will fall – in sectors such as staples, software, financials and healthcare in the days ahead of the jobs report, while they sold long positions in communication services.

Still, the bank said hedge funds bought European and Asian stocks over the same period.

Goldman Sachs also said short positions outpaced long additions to portfolios, but it saw this trend in all regions, led by North America and Europe.

“We’ve seen a rotation where managers have been taking profits, selling their longs, and then adding to shorts,” said Jon Caplis, CEO of hedge fund research firm PivotalPath. He said the move is also related to the Federal Reserve’s more hawkish take on interest rate cuts and big data releases, such as the consumer price index on Wednesday.

One exception was the technology, media, and telecommunications sector (TMT), Goldman Sachs said, as hedge funds added it at the fastest pace in three months.

Stocks in the technology sector were among the hardest hit on Friday, down 2.23%, behind financials and real estate. Big tech companies start to report earnings after Martin Luther King Jr. Day on Jan 20.

As two of the biggest global prime brokers, Goldman Sachs and Morgan Stanley track the portfolios of their hedge fund clients to indicate positioning and flow trends.

(Reporting by Carolina Mandl, in New York; editing by Diane Craft)

Gold rebounds on Trump policy uncertainty despite robust US jobs data

Gold prices rebounded on Friday as uncertainty surrounding the incoming Trump administration’s policies lifted safe-haven appeal, even as a stronger-than-expected US employment data reinforced expectations the Federal Reserve might not cut interest rates as aggressively this year.

Spot gold was up 0.6% at USD 2,686.24 per ounce as of 01:57 p.m. EST (1857 GMT), while US gold futures settled 0.9% higher at USD 2,715.00.

Gold prices briefly slipped to USD 2,663.09 an ounce after data showed the US added 256,000 jobs last month, compared with economists’ estimate of a rise of 160,000. The unemployment rate stood at 4.1%, compared with a forecast of 4.2%.

Bullion prices, however, quickly rebounded and hit their highest levels since Dec. 12, poised for a weekly gain of more than 1.7%.

“Gold’s price action points to a lack of committed sellers of the metal; a diffidence well-learned from last year’s remarkable rise,” said Tai Wong, an independent metals trader.

“The momentum from the knee-jerk reaction faded quickly and the short-term traders and programs that sold reversed quickly.”

The dollar rallied while US stock futures fell sharply after the jobs data. Markets show traders now expect the Fed to cut interest rates by just 30 basis points over the course of this year, compared with cuts worth about 45 basis points before the data.

“Gold is still acting resilient in the face of a much stronger-than-expected jobs report … One of the factors that’s been supporting gold is this uncertainty that we’ve seen going into the (US presidential) inauguration,” said David Meger, director of metals trading at High Ridge Futures.

As President-elect Donald Trump’s Jan. 20 inauguration approaches, investors are anxious about his vow to impose tariffs on a wide range of imports, fearing they could fuel inflation and further limit the Fed’s ability to lower rates.

While bullion is prized as a safeguard against inflation, high interest rates dull its allure as a non-yielding asset.

Spot silver gained 0.9% to USD 30.38 per ounce, platinum fell 0.2% to USD 959.10 and palladium added 2.2% to USD 943.93. All three metals were headed for weekly gains.

(Reporting by Anjana Anil, Ashitha Shivaprasad, Swati Verma, and Daksh Grover in Bengaluru; Editing by Paul Simao and Tasim Zahid)

Oil prices rally 3% as US hits Russian oil with tougher sanctions

Oil prices rallied nearly 3% to their highest in three months on Friday as traders braced for supply disruptions from the broadest US sanctions package targeting Russian oil and gas revenue.

President Joe Biden’s administration imposed fresh sanctions targeting Russian oil producers, tankers, intermediaries, traders, and ports, aiming to hit every stage of Moscow’s oil production and distribution chains.

Brent crude futures settled at USD 79.76 a barrel, up USD 2.84, or 3.7%, after crossing USD 80 a barrel for the first time since Oct.7.

US West Texas Intermediate crude futures rose USD 2.65, or 3.6%, to settle at USD 76.57 per barrel, also a three-month high.

At their session high, both contracts were up more than 4% after traders in Europe and Asia circulated an unverified document detailing the sanctions.

Sources in Russian oil trade and Indian refining told Reuters the sanctions would severely disrupt Russian oil exports to its major buyers India and China.

“India and China (are) scrambling right now to find alternatives,” Anas Alhajji, managing partner at Energy Outlook Advisors, said in a video posted to social network X.

The sanctions will cut Russian oil export volumes and make them more expensive, UBS analyst Giovanni Staunovo said.

Their timing, just a few days before President-elect Donald Trump’s inauguration, makes it likely that Trump will keep the sanctions in place and use them as a negotiating tool for a Ukraine peace treaty, Staunovo added.

Oil prices were also buoyed as extreme cold in the US and Europe has lifted demand for heating oil, Alex Hodes, analyst at brokerage firm StoneX, said.

“We have several customers in the New York Harbor that have been seeing an uptick in heating oil demand,” Hodes said. “We have seen a bid in other heating fuels as well,” he added.

US ultra-low sulfur diesel futures, previously called the heating oil contract, rose 5.1% to settle at USD 105.07 per barrel, the highest since July.

“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by … demand for heating oil, kerosene, and LPG,” JPMorgan analysts said in a note on Friday.

(Reporting by Shariq Khan; Additional reporting by Anna Hirtenstein, Enes Tunagur, and Sudarshan Varadhan; Editing by David Goodman and Frances Kerry, Kirsten Donovan, Deepa Babington, Louise Heavens, and David Gregorio)

Sinking US equity risk premium rings alarms: McGeever

ORLANDO, Florida – Theory suggests that the divergence in value between US stocks and bonds will eventually get so extreme that investors will need to reduce their exposure to ultra-pricey equities and start loading up on beaten-down Treasuries. If the so-called US ‘equity risk premium’ (ERP) can be considered a useful indicator, that point may soon be upon us.

The ERP can be measured in various ways, but it is essentially the difference between the earnings yield on the S&P 500 index and the 10-year Treasury yield. In ‘normal’ times the ERP should be positive, offering investors a reasonable premium for holding stocks over ‘risk-free’ government debt.

These are not normal times though. Long-term bond yields are soaring even though the Federal Reserve has begun to cut interest rates, as sticky inflation and Washington’s worrisome debt and spending trajectory are rattling investors.

Meanwhile, the artificial intelligence frenzy and ‘US exceptionalism’ narrative led by a handful of Mega Cap tech stocks have fueled a boom on Wall Street that has lifted aggregate valuations to their highest level in years – or even decades by some measures.

As a result, the ERP is collapsing. By some gauges, it is the lowest in almost a quarter of a century, and has even slipped into negative territory. If the 10-year Treasury yield continues rising, the ERP is liable to shrink even further.

So stocks look expensive, nominally and relative to bonds, but does that mean it’s time to hit sell?

AMBER TO GREEN

This situation is ringing alarms for many equity strategists. Societe Generale’s team calculates that a tick up in the 10-year yield to 5.00% would push the ERP into “unhealthy territory” although probably wouldn’t cause much pain in the S&P 500. They argue the “buy” signal for bonds will flash brighter when the Treasury yield approaches nominal trend growth, currently around 5.2%.

“We believe this should be the anchor point for the bond scare on the growth outlook and the point where US bonds become fundamentally appealing,” they wrote this week.

The 10-year yield hit 4.79% on Friday, the highest since November 2023, and more than 100 basis points higher than when the Fed started lowering its policy rate in September.

Of course, there is no one trigger to buy stocks or bonds, far less a specific number or single relative value metric. Portfolio adjustment is a complex and often lengthy deliberation, and investors currently have to navigate a host of unknown variables like the incoming Trump administration’s trade policies and the Fed’s next steps.

What’s more, the ERP can send different signals depending on what’s driving it and the wider macroeconomic context.

UNSUSTAINABLE

In March 2009, the ERP soared to a historic high of 7% as bond yields were flattened near zero after the collapse of Lehman Brothers six months earlier. March 2009 turned out to be the stock market low, with the S&P 500 bottoming out at an eerie 666 points.

Similarly, the ERP spike towards 6% in April 2020 at the onset of the COVID-19 pandemic was fueled by the collapse in Treasury yields and also signaled the equity market low.

The consensus opinion today is that the recent decline in the ERP is primarily being driven by the yield spike, suggesting bonds are becoming attractive on a relative value basis.

Investors tend to like nice round numbers, so a 10-year bond yield of 5.00% would likely draw in some buyers, but portfolio managers may be hesitant to go all in, given the current uncertainty surrounding US fiscal and monetary policy.

As Unlimited’s Bob Elliott notes, it is an unsustainable divergence – either yields need to fall enough to justify existing equity prices, or stocks need to fall to reflect higher rates.

The “buy bonds” and “sell stocks” signals may be flashing amber, but determining when they will turn to green remains a challenge.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Andrea Ricci)

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