Oil sheds gains, stocks inch lower

Oil has shed some of its massive gains as the United States flagged the possible release of crude reserves, while stocks inched lower as investors remained on the sidelines ahead of this week’s Federal Reserve meeting.

Investors were non-committal ahead of an expected interest rate cut from the Fed on Wednesday and the next round of US-China trade talks on Thursday.

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

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

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.66 per cent. Chinese shares fell 1.07 per cent, while Hong Kong shares slumped 1.18 per cent.

US stocks futures were flat to slightly lower , indicating subdued open on Wall Street later.

Brent crude oil, the international benchmark, fell 0.1 per cent to $US68.96 per barrel on Tuesday. On Monday, it surged as much as 14.6 per cent for its biggest one-day percentage gain since at least 1988.

US West Texas Intermediate futures were down 0.87 per cent to $US62.25 per barrel following a 14.7 per 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.

US President Donald Trump has authorised 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 US 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 even further.

“Although Saudi Arabia’s spare capacity and US 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.”

Gold prices were steady at $US1,497.48 per ounce.

The yield on benchmark 10-year Treasury notes fell slightly to 1.8292 per cent.

Euro zone government debt yields edged lower as geopolitical uncertainty stemming from the attack on Saudi underpinned a cautious tone in bond markets.

The US dollar was flat against a basket of peer currencies.

The Fed is expected to cut interest rates at a policy meeting ending on Wednesday, which could put pressure on the Bank of Japan to ease policy at a meeting the following day.

Trump on Monday said on Twitter that the Fed should enact a “big interest rate drop, stimulus”.

However historical precedent and the United States’ changing energy diet suggest the Fed is likely to stick with an expected quarter of a point cut and go no further.

Futures contracts tied to the Fed’s policy rate imply a 64.9 per cent chance that the US central bank will cut its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.75 per cent to 2 per cent on Wednesday.

Trump said on Monday that the United States has reached initial trade agreements with Japan, but traders are also focused on the US-Sino trade war.

“In the next week, positive developments on Brexit and/or Iran have the potential to move markets higher from here. It shows why staying strategically invested in equities is important,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“But with scope for central banks to disappoint and global growth continuing to slow, we see little reason to change our tactically more cautious stance.”

Deputy-level talks between the United States and China are scheduled to start in Washington on Thursday, paving the way for high-level talks next month aimed at resolving a bitter trade row that has dragged on for more than a year.


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