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Oil Markets Are Bearish But Downside Is Limited

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  • Oil prices fell to their lowest level this year on Wednesday morning, a clear sign of bearish sentiment in the oil market despite the recent price cap.
  • Despite bearish sentiment, Standard Chartered says that the downside to oil is limited as fundamentals are supportive and there are no major bearish catalysts looming.
  • Regarding the oil price cap, Standard Chartered has predicted that it will have little effect on oil prices as the main importers of Russian oil are not taking part.

Bearish

WTI and Brent crude oil prices fell for a third straight session on Tuesday, with the U.S. benchmark now at its lowest level in a year. Front-month Nymex crude for January delivery closed the day -3.5% to $74.25/bbl, its lowest in nearly a year, while February Brent crude finished -4% to $79.35/bbl, its weakest close since January 3. It’s now clear that the broader market selloff and worries about more aggressive monetary tightening by the Federal Reserve have overshadowed any positive effect from the new price cap on Russian oil sales.

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Oil traders have been anxiously waiting to see how the price cap on Russian oil will affect the market, but the measure is yet to impact prices.

Meanwhile, data released on Monday showed the U.S. ISM service sector index climbed slightly to 56.5% in November from 54.4% in October, which “triggered red flashing signals the Federal Reserve may keep interest rates higher for longer, increasing the odds of a U.S. recession and less energy use,’’ Stephen Innes, managing partner at SPI Asset Management, has told Morningstar. The ISM surveys non-manufacturing (or services) firms’ purchasing and supply executives. The services report measures business activity for the overall economy; above 50 indicates growth, while below 50 indicates contraction.

Bearish Oil Price Sentiment

So, just how bearish has sentiment become in the oil markets?

According to commodity analysts at Standard Chartered, speculative positioning in crude oil has been unremarkable through most of 2022, but has changed in recent weeks. The analysts have revealed that their proprietary crude oil money-manager positioning index that compares net longs across the four main New York and London-based crude contracts relative to open interest and historical norms is currently more negative than those for all other commodities they track. StanChart says that In recent months, crude oil has remained close to the bottom of the ranking of metals and energy in terms of implied positive speculative preference, while gasoline has been close to the top.

StanChart’s crude oil index currently stands at -70.3, the lowest since mid-April

2020 (about a week before WTI prices settled at a negative price). The index has now fallen

by 57.4 over the past three weeks marking the largest three-week fall since February

2020, just before the temporary collapse of the OPEC+ agreement.

Oil positioning

Source: Standard Chartered

However, StanChart says the situation this time around is very different from what it was during the historic oil price collapse of 2020, which is likely to limit the downside on oil prices. For one, the analysts note that oil market fundamentals are far more supportive this time than they were in early 2020; demand is not about to collapse due to a pandemic and no price wars by producers are present at the moment.

The experts say that oil prices are caught in the backwash from top-down macro trades with both positive and negative news on the economic front triggering selloffs. 

According to StanChart, negative U.S. economic data points are triggering an oil price selloff due to recessionary fears; however, positive data points are, ironically, having a similar effect due to the strengthening of the U.S. dollar.

Further, sentiment had been buoyed by hopes of China reopening, but as timescales dragged many traders have preferred to bet more in the metals markets instead.

Luckily for the oil bulls, the commodity experts say the new shorts are relatively weak and will soon be covered, helping to shore up oil, though in the short-term the market is likely to accentuate the negative.

Regarding the price cap on Russian sea-borne oil, StanChart has predicted that it will have little effect on oil prices. The analysts note that China, India, and Turkey are the three key swing

consumers of Russian oil and none has yet suggested that they would consider signing up to the cap. Without the participation of those three countries, the amount of Russian oil likely to move subject to the cap would likely be small even if Russia agreed to sell oil under those terms (which it has repeatedly said it will not).

The big question here in terms of market impact is then whether Russia can transport oil to its major consumers (including providing adequate insurance) without using EU or other G7 services. StanChart says that Russia has acquired a large enough ‘shadow’ tanker fleet since its invasion of Ukraine that it can use to move most of the displaced volumes; however, the analysts note that the insurance aspect is likely to cause significant issues. This has led analysts to predict that Russian crude output is likely to fall by 1.44 million barrels per day in 2023 thanks to a progressive shortage of high-quality equipment and a lack of access to international service companies as time goes by.

By Alex Kimani for Oilprice.com

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Economy grows more than expected, keeping the Bank of Canada 'on its toes' – Financial Post

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January GDP strongest monthly growth in a year

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The Canadian economy surprised to the upside in January, posting its strongest monthly growth in a year, which could keep the Bank of Canada “on its toes,” say economists.

Real gross domestic product (GDP), which measures the value of goods and services produced during a specific time frame, edged up by 0.6 per cent in January, according to Statistics Canada, beating analysts’ expectations of 0.4 per cent. The agency also expects a 0.4 per cent rise in GDP during February.

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“To put that two-month flurry of growth into perspective, the combined one per cent gain is as much as the economy grew in the entire 12 months of 2023,” Bank of Montreal chief economist Douglas Porter said in a note. “After a prolonged lull through much of last year … the economy looks to have caught some strong tailwinds early this year.”

GDP
Financial Post

The rise in GDP was due to broad-based growth in 18 of the 20 sectors measured by Statistics Canada.

The public sector, which includes education, health care and social assistance and public administration, increased 1.9 per cent in January, following two consecutive monthly declines. Education, which grew by six per cent, was the largest contributor to the country’s growth as activity rebounded from strikes by public sector workers in Quebec late last year.

Manufacturing fully recouped December’s decline in growth with a 0.9 per cent rise in January. A sudden drop in temperature in mid-January in parts of Canada contributed to increased activity in the utilities sector, which rose by 3.2 per cent, its highest growth rate since January 2022.

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The real estate and rental sector grew for a third consecutive month — by 0.4 per cent — on higher resale activity. The Greater Toronto Area, Hamilton-Burlington and most markets in Ontario’s Greater Golden Horseshoe contributed to the growth.

The information and cultural services sector, which includes the motion picture and sound recording industry, also grew for the third consecutive month, as activity continued to ramp up following the end of a strike by the Screen Actors Guild – American Federation of Television and Radio Artists in November.

These “robust” figures could pose a difficult challenge for the Bank of Canada, Toronto-Dominion Bank economist Marc Ercolao said in a note.

While the central bank has received “solid evidence” in the past two months that inflation is cooperating, “strong GDP data prints” such as today’s will “keep them on their toes,” said Ercolao, who expects the first interest rate cut to take place in July.

On the labour front, Statistics Canada said there were 632,100 job vacancies in January, down 34,800, or 5.2 per cent, from November. Vacancies in the manufacturing sector declined by 10.2 per cent to 37,500, the lowest level since September 2017.

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Monthly payroll increases were recorded in 13 of 20 sectors, led by retail trade, manufacturing and finance. But these gains were offset by a 0.3 per cent decline in construction.

The number of employees receiving pay and benefits from their employers, as measured by payroll employment, rose for the first time in the retail trade after four consecutive monthly declines.

Despite the strong start to the year, some economists expressed caution, especially regarding February’s GDP estimate.

Claire Fan, an economist at the Royal Bank of Canada, said the “substantially stronger-than-expected” numbers are partially driven by one-off factors such as the ending of the Quebec teachers’ strike, so growth isn’t likely to be sustained in the coming months.

“We’ve learned to take the advance estimates (February) with a grain of salt as they have been highly revision prone,” she said, while retaining RBC’s assessment of a weak economic backdrop.

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BMO’s Porter said Canada experienced something similar last year when GDP stalled after a strong start to the year.

“There could be a serious issue with seasonality here, especially in light of much milder winters recently,” he said.

Despite the increase in GDP, most economists have stuck to their previous predictions that June will be when the Bank of Canada issues its initial interest rate cut.

• Email: nkarim@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

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Former crypto mogul Sam Bankman-Fried sentenced to 25 years in prison

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Bankman-Fried, 32, sentenced for fraud on customers of the FTX cryptocurrency exchange he founded.

Former crypto tycoon Sam Bankman-Fried has been sentenced to 25 years in United States federal prison for stealing $8bn from customers of the now-bankrupt FTX cryptocurrency exchange he founded.

US District Judge Lewis Kaplan handed down the sentence at a Manhattan court hearing on Thursday after rejecting Bankman-Fried’s claim that FTX customers did not actually lose money and accusing him of lying during his trial testimony.

A jury found Bankman-Fried, 32, guilty on November 2 on seven fraud and conspiracy counts stemming from FTX’s 2022 collapse in what prosecutors have called one of the biggest financial frauds in US history.

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“He knew it was wrong,” Kaplan said of Bankman-Fried before handing down the sentence. “He knew it was criminal. He regrets that he made a very bad bet about the likelihood of getting caught. But he is not going to admit a thing, as is his right.”

Bankman-Fried stood with his hands clasped before him as Kaplan read the sentence.

Kaplan said the sentence reflected “that there is a risk that this man will be in position to do something very bad in the future. And it’s not a trivial risk at all.”

Prior to sentencing, Bankman-Fried stood and apologised. “A lot of people feel really let down. And they were very let down. And I’m sorry about that. I’m sorry about what happened at every stage,” he said.

“My useful life is probably over. It’s been over for a while now, from before my arrest.”

Sam Bankman Fried
Sam Bankman-Fried, centre left, is escorted out of Magistrate Court following a hearing in Nassau, Bahamas, Dec. 19, 2022 [File: Rebecca Blackwell/AP Photo]

Al Jazeera’s Kristen Saloomey, reporting from New York, said that Bankman-Fried could have received up to 110 years behind bars for his crimes and that the 25-year sentence was less than the 40-50 years that prosecutors were seeking.

“Given the scale of this crime, one of the largest frauds in history, the judge took a very strong stance but also showed some flexibility… perhaps based on the arguments made by Bankman-Fried’s lawyers and his family that he had always intended to do good”, she said.

Bankman-Fried had billed himself as a proponent of effective altruism – finding the best way to help other people, in particular by donating all or part of one’s wealth to charity rather than, say, volunteering at a soup kitchen.

When the cryptocurrency world lurched into crisis in the spring of 2022, he bought shares in the troubled platform BlockFi and another troubled company, Voyager.

However, prosecutors have said the responsible image he cultivated concealed his years-long embezzlement of customer funds.

“The defendant victimised tens of thousands of people and companies, across several continents, over a period of multiple years. He stole money from customers who entrusted it to him” prosecutors said in a court filing.

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Gas prices in the Thompson Okanagan jumped by 7 cents a litre, days before the next carbon tax increase – Vernon News – Castanet.net

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Some area gas stations are not waiting until April 1 to crank up the price of gas.

On April Fools Day, the federal Liberals will be increasing the controversial carbon tax, which will directly impact the price at the pump.

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However, overnight, several Thompson Okanagan gas stations have already increased the price, selling the liquid gold for 174.9.

In January, gas was selling for a ‘mere’ 143.9 cents a litre. The latest hike is a whopping 31-cent-a-litre increase in just three months.

And the price of petrol is guaranteed to go up again when the carbon tax increase is implemented on Monday.

Kelowna drivers are also paying more at the pump today, with the majority of stations raising the price to 174.9.

As of 9:30 Thursday morning, the Co-op stations on Rutland and Sexsmith roads were at 168.9 as was the Costco gas station.

Several Vernon stations are holding at 167.9.

In Penticton, motorists are also paying more, with the price at the majority of stations hitting the 174.9 mark.

Kamloops drivers are also taking a hit to the wallet with gas in the Thompson community also selling for 174.9.

The Kamloops Costco was the cheapest in the city at 161.9 cents a litre.

Enderby continues to have some of the cheapest gas in the region at 165.9, however the Esso in Tappen has them all beat at 157.9.

Gas in Vancouver has crested the $2 a litre mark, sitting at 202.9 cents a litre.

And as usual, Calgary motorists are paying significantly less than their BC counterparts, filling up for 154.9 cents a litre.

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