Oil sheds gains, stocks dip as Fed comes into focus

Oil sheds gains, stocks dip as Fed comes into focus

Oil shed some of its gains on Tuesday as the United States raised the possibility of releasing crude reserves, while stocks inched lower as investors waited for this week's Federal Reserve meeting.

People walk past the entrance of the London Stock Exchange in London
FILE PHOTO: People walk past the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

LONDON: Oil shed some of its gains on Tuesday as the United States raised the possibility of releasing crude reserves, while stocks inched lower as investors waited for this week's Federal Reserve meeting.

Investors were noncommittal before the expected interest rate cut from the Fed on Wednesday and the next round of U.S.-China trade talks on Thursday.

U.S. stocks futures were lower, indicating an open in the red on Wall Street.

European shares opened lower, with energy stocks giving up gains as crude prices eased. The pan-European STOXX 600 index dropped 0.2per cent.

MSCI's All-Country World Index, which tracks shares across 47 countries, was down 0.1per cent on the day.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.76per cent. Chinese shares fell 1.68per cent. Hong Kong shares slumped 1.23per cent.

Brent crude oil, the international benchmark, fell 1.78per cent to US$67.79 per barrel on Tuesday. On Monday, it surged as much as 14.6per cent for its biggest one-day percentage gain since at least 1988.

U.S. West Texas Intermediate futures were down 1.70per cent to US$61.85 per barrel following a 14.7per cent surge on Monday, the biggest one-day gain since December 2008.

Saturday's attack on Saudi oil facilities has halved the kingdom's oil output, creating the biggest disruption to global oil supplies in absolute terms since the overthrow of the Iranian Shah in 1979, International Energy Agency data show.

U.S. President Donald Trump has authorized the release of emergency crude stockpiles if needed, which could ease some upward pressure on crude futures.

Trump said on Monday it looked like Iran was behind the attacks but stressed that he did not want to go to war, striking a slightly less bellicose tone than his initial reaction.

Iran has rejected U.S. charges that it was behind the attacks. Tension between the two countries was already running high over Iran's suspected ambitions to assemble nuclear weapons. The strikes in Saudi Arabia are likely to raise regional tensions further.

SPARE CAPACITY

"Although Saudi Arabia's spare capacity and U.S. Strategic Petroleum Reserves could plug some of the lost output, where oil trades in the near term will be influenced by how long it takes for Saudi production to fully recover," said Lukman Otunuga, research analyst at FXTM.

"It is this concern over negative supply shocks amid geopolitical tensions which should keep oil prices buoyed in the short term."

The yield on benchmark 10-year Treasury notes slipped to 1.8223per cent. Euro zone government debt yields edged lower amid the geopolitical uncertainty stemming from the Saudi attack.

The dollar was flat against a basket of other currencies.

The Fed is expected to cut interest rates at a policy meeting ending on Wednesday, although disagreement exists among policymakers.

Trump on Monday said on Twitter that the Fed should enact a "big interest rate drop, stimulus". However, historical precedent suggests the Fed is likely to cut the expected quarter of a point and go no further.

Futures contracts tied to the Fed's policy rate imply a 64.9per cent chance the U.S. central bank will cut its benchmark rate by a quarter of a point to a range of 1.75per cent to 2per cent on Wednesday.

Gold prices were higher by 0.04per cent at US$1,498.52 per ounce.

"To have a lasting impact on gold, much higher oil prices would be needed, i.e. well above US$80 per barrel, in order to trigger a major inflationary shock, hitting the economy and slowing global growth," said Carsten Menke, commodity analyst at Julius Baer.

(Reporting by Ritvik Carvalho; additional reporting by Stanley White in Tokyo; editing by Giles Elgood, Larry King)

Source: Reuters

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