Tag Archives: Oil

Oil spill leaves commodities spinning, safe-havens shine

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China, March 7, 2016. REUTERS/Aly Song/File Photo

By Marc Jones

LONDON (Reuters) – A slump in oil prices to the lowest in almost six months rattled markets on Friday, prompting a rally in safe-haven bonds, the yen and gold and taking the shine off a record-breaking week for world stocks.

Bourses flinched in both Asia and Europe and Wall Street also looked set for a subdued start as investors, who had been expecting to spend the day mostly looking ahead to U.S. jobs data and Sunday’s French elections, were caught off guard.

Traders had had to duck for cover overnight as both Brent <LCOc1> and U.S. <CLc1> crude fell more than 3 percent amid record trading volumes on mounting concerns about global oversupply.

Things only fully stabilized when Saudi Arabia’s OPEC chief hit the wires in European hours, saying there was a growing consensus among oil pumping countries that they needed to continue to “rebalance” the market.

Brent clawed back to $46.86 a barrel almost two dollars better off than its overnight low, but the scars left it an eye-watering 6 percent lower than at the start of the week.

“The whole commodity complex has been affected by this and it could have some pretty big implications if it continues for much longer,” said Saxo bank’s head of FX strategy John Hardy.

“If you look at global risk appetite, equities have been pretty quiet and that feeds into FX as well if carries on and there is a risk switch.”

Big commodity price drops do not just have an immediate impact on financial markets either.

As was seen during a slump between 2014 and 2016, they cause major headaches for countries that rely on their revenues. They also unleash deflationary forces, but can help energy-importing economies, firms and households by lowering their energy bills.

Oil has not been the only commodity that has suffered this week. Chinese iron ore futures <DCIOcv1> fell almost 7 percent in Shanghai overnight after tumbling 8 percent on Thursday.

Mining giant Rio Tinto <RIO.L> hit a six-month low, Glencore <GLEN.L> was set for its worst weekly loss in two months and copper miner Antofagasta <ANTO.L> since December.

The Canadian dollar <CAD=>, the Australian dollar <AUD=> and Russia’s rouble <RUB=> – some of the world’s most commodity- sensitive currencies – were all sent spinning, falling respectively to 14-month, four-month and seven-week lows.

They all fought back, though, after the Saudi OPEC governor’s comments to Reuters that: “A six-month extension (to production cuts) may be needed to rebalance the market, but the length of the extension is not firm yet.”

Rio Tinto <RIO.L> hit a six-month low on Friday, and Glencore <GLEN.L> was set for its worst weekly losses in two months, while for copper miner Antofagasta <ANTO.L> since December

LE PEN TO THE SWORD?

In calmer waters, the euro <EUR=> touched a six-month high of almost $1.10 ahead of France’s weekend election, in which polls now expect centrist Emmanuel Macron to convincingly beat right-wing and anti-euro rival Marine Le Pen.

The gap between French and German 10-year government borrowing costs also hit a six-month low and despite the dip on the day, European shares <.STOXX> were heading for a healthy 1.2 percent rise for the week. World shares <.MIWD00000PUS> hit a record high on Wednesday.

“I think now this election is no longer an issue and the market is already starting to focus on new issues: inflation, the (euro zone) economy, and the U.S. data,” said DZ Bank strategist Daniel Lenz.

He was referring to U.S. non-farm payroll numbers due out at 1230 GMT (8:30 a.m. EDT) are expected to show 185,000 jobs were created in April following March’s underwhelming 98,000 figure.

The dollar <.DXY> and U.S. government bond yields <US10YT=RR> had both been nudged lower by the commodity market worries. It is set to be the fourth weekly fall on the trot for the greenback which is now at its lowest since November.

The yen <JPY=> and gold <XAU=> rose in tandem as investors took refuge in safe havens, though the latter remained on track for its biggest weekly decline in nearly six months on bets that U.S. interest rates will rise again in the coming months.

“I think the payrolls will be under consensus,” said fund manager Hermes chief economist Neil Williams.

“It fits with my view that the U.S. is going to peak out at a far lower interest rate than markets expect. The Fed’s dot plots says 3 percent, but I’m going closer to 1.5 percent.”

Emerging markets were also caught in the commodities sell-off. The main emerging currencies were all on track for weekly losses and MSCI’s closely-followed EM stocks index <.MSCIEF> hit a 10-day low.

China markets have also been wobbling in recent weeks but the commodity market woes have been the central focus.

Brent traded volumes on Thursday reached an all-time high of nearly 542,000 contracts, suggesting that big betting hedge funds may have been ripping out long positions.

“It is now-or-never for oil bulls,” said U.S. commodity analysis firm The Schork Report. “They either put up a defence here or risk further emboldening the bears for a run at the $40 threshold (for WTI).”

(Addition Reporting by Abhinav Ramnarayan, Veronica Brown and Helen Reid in London; Editing by Hugh Lawson and Ed Osmond)

Last stand: Nebraska farmers could derail Keystone XL pipeline

Art and Helen Tanderup are against the proposed Keystone XL Pipeline that would cut through the farm where they live near Neligh, Nebraska, U.S. April 12, 2017. REUTERS/Lane Hickenbottom

By Valerie Volcovici

Neligh, NEBRASKA (Reuters) – When President Donald Trump handed TransCanada Pipeline Co. a permit for its Keystone XL pipeline last month, he said the company could now build the long-delayed and divisive project “with efficiency and with speed.”

But Trump and the firm will have to get through Nebraska farmer Art Tanderup first, along with about 90 other landowners in the path of the pipeline.

They are mostly farmers and ranchers, making a last stand against the pipeline – the fate of which now rests with an obscure state regulatory board, the Nebraska Public Service Commission.

The group is fine-tuning an economic argument it hopes will resonate better in this politically conservative state than the environmental concerns that dominated the successful push to block Keystone under former President Barack Obama.

Backed by conservation groups, the Nebraska opponents plan to cast the project as a threat to prime farming and grazing lands – vital to Nebraska’s economy – and a foreign company’s attempt to seize American private property.

They contend the pipeline will provide mainly temporary jobs that will vanish once construction ends, and limited tax revenues that will decline over time.

They face a considerable challenge. Supporters of the pipeline as economic development include Republican Governor, Pete Ricketts, most of the state’s senators, its labor unions and chamber of commerce.

“It’s depressing to start again after Obama rejected the pipeline two years ago, but we need keep our coalition energized and strong,” said Tanderup, who grows rye, corn and soybeans on his 160-acre property.

Now Tanderup and others are gearing up for another round of battle – on a decidedly more local stage, but with potentially international impact on energy firms and consumers.

The latest Keystone XL showdown underscores the increasingly well-organized and diverse resistance to pipelines nationwide, which now stretches well beyond the environmental movement.

Last year, North Dakota’s Standing Rock Sioux, a Native American tribe, galvanized national opposition to the Energy Transfer Partners Dakota Access Pipeline. Another ETP pipeline in Louisiana has drawn protests from flood protection advocates and commercial fishermen.

The Keystone XL pipeline would cut through Tanderup’s family farm, near the two-story farmhouse built in the 1920s by his wife Helen’s grandfather.

The Tanderups have plastered the walls with aerial photos of three “#NoKXL” crop art installations they staged from 2014 to 2016. Faded signs around the farm still advertise the concert Willie Nelson and Neil Young played here in 2014 to raise money for the protests.

The stakes for the energy industry are high as the Keystone XL combatants focus on Nebraska, especially for Canadian producers that have struggled for decades to move more of that nation’s landlocked oil reserves to market. Keystone offers a path to get heavy crude from the Canada oil sands to refiners on the U.S. Gulf Coast equipped to handle it.

TransCanada has route approval in all of the U.S. states the line will cross except Nebraska, where the company says it has been unable to negotiate easements with landowners on about 9 percent of the 300-mile crossing.

So the dispute now falls to Nebraska’s five-member utility commission, an elected board with independent authority over TransCanada’s proposed route.

The commission has scheduled a public hearing in May, along with a week of testimony by pipeline supporters and opponents in August. Members face a deadline set by state law to take a vote by November.

“TENS OF THOUSANDS” OF JOBS

TransCanada has said on its website that the pipeline would create “tens of thousands” of jobs and tens of millions in tax dollars for the three states it would cross – Montana, South Dakota and Nebraska.

TransCanada declined to comment in response to Reuters inquiries seeking a more precise number and description of the jobs, including the proportion of them that are temporary – for construction – versus permanent.

Trump has been more specific, saying the project would create 28,000 U.S. jobs. But a 2014 State Department study predicted just 3,900 construction jobs and 35 permanent jobs.

Asked about the discrepancy, White House spokeswoman Kelly Love did not explain where Trump came up with his 28,000 figure, but pointed out that the State Department study also estimates that the pipeline would indirectly create thousands of additional jobs.

The study indicates those jobs would be temporary, including some 16,100 at firms with contracts for goods and services during construction, and another 26,000, depending on how workers from the original jobs spend their wages.

TransCanada estimates that state taxes on the pipeline and pumping stations would total $55.6 million across the three states during the first year.

The firm will pay property taxes on the pumping stations along the route, but not the land. It would pay a different – and lower – “personal property” tax on the pipeline itself, said Brian Jorde, a partner in the Omaha-based law firm Domina Law Group, which represents the opposition.

The personal property taxes, he said, would decline over a seven-year period and eventually disappear.

TRUMP: ‘I’ll CALL NEBRASKA’

The Nebraska utilities commission faces tremendous political pressure from well beyond the state it regulates.

“The commissioners know it is game time, and everybody is looking,” said Jane Kleeb, Nebraska’s Democratic party chair and head of the conservation group Bold Alliance, which is coordinating resistance from the landowners, Native American tribes and environmental groups.

The alliance plans to target the commissioners and their electoral districts with town halls, letter-writing campaigns, and billboards.

During the televised ceremony where Trump awarded the federal permit for the pipeline, he promised to weigh in on the Nebraska debate.

“Nebraska? I’ll call Nebraska,” he said after TransCanada Chief Executive Russell Girling said the company faced opposition there.

Love, the White House spokeswoman, said she did not know if Trump had called Nebraska officials.

The commission members – one Democrat and four Republicans – have ties to a wide range of conflicting interests in the debate, making it difficult to predict their decision.

According to state filings, one of the commissioners, Democrat Crystal Rhoades, is a member of the Sierra Club – an environmental group opposing the pipeline.

Another, Republican Rod Johnson, has a long history of campaign donations from oil and gas firms.

The others are Republicans with ties to the farming and ranching sectors – including one member that raises cattle in an area near where the pipeline would cross.

All five members declined requests for comment.

PREPPING THE WITNESSES

TransCanada has been trying since 2008 to build the 1,100-mile line – from Hardisty, Alberta to Steele City, Nebraska, where it would connect to a network feeding the Midwest and Gulf Coast refining regions. The firm had its federal permit application rejected in 2015 by the Obama administration.

Opponents want the pipeline, if not rejected outright, to be re-routed well away from Nebraska’s Sandhills region, named for its sandy soil, which overlies one of the largest freshwater aquifers in the United States.

The Ogallala aquifer supplies large-scale crop irrigation and cattle-watering operations.

“It all comes down to water,” said Terry Steskal, whose family farm lies in the pipeline’s path.

Steskal dug his boot into the ground on his property, kicking up sand to demonstrate his biggest concern about the pipeline. If the pipeline leaks, oil can easily seep through the region’s porous soil into the water, which lies near the surface.

TransCanada spokesman Terry Cunha said the company has a good environmental record with its existing Keystone pipeline network in Nebraska, which runs east of the proposed Keystone XL.

The company, however, has reported at least two big pipeline spills in other states since 2011, including some 400 barrels of oil spilled in South Dakota last year.

The Domina Law Group is helping the opposition by preparing the landowners, including the Tanderups and Steskals, for the August hearings, much as they would prepare witnesses for trial.

If the route is approved, Jorde said the firm plans to file legal challenges, potentially challenging TransCanada’s right to use eminent domain law to seize property.

Eminent domain allows for the government to expropriate private land in the public interest. But Jorde said he thinks TransCanada would struggle to meet that threshold in Nebraska.

“Some temporary jobs and some taxes is not enough to win the public interest argument,” he said.

(Additional reporting by Ethan Lou in Calgary; Editing by Richard Valdmanis and Brian Thevenot)

Trump administration grants permit for Keystone XL pipeline: TransCanada

A depot used to store pipes for Transcanada Corp's planned Keystone XL oil pipeline is seen in Gascoyne, North Dakota, January 25, 2017. REUTERS/Terray Sylvester

By Luciana Lopez

(Reuters) – The United States has issued a presidential permit for TransCanada Corp’s Keystone XL oil pipeline, the Canadian company said on Friday, ending a years-long battle between environmentalists and the industry over whether Washington should approve it.

U.S. President Donald Trump will announce the permit alongside TransCanada &lt;TRP.TO&gt; Chief Executive Officer Russell Girling at the White House later Friday, according to a senior administration official. White House spokesman Sean Spicer said a Keystone XL announcement would come at 10:15 a.m. EDT.

TransCanada’s U.S.-listed shares &lt;TRP.N&gt; jumped 3.7 percent to $49.50 in premarket trading.

The pipeline linking Canadian oil sands to U.S. refiners had been blocked for years by former President Barack Obama, who said it would do nothing to reduce fuel prices for U.S. motorists and contribute to emissions linked to global warming. Environmental groups have forcefully opposed the pipeline.

Trump, however, campaigned on a promise to approve it, saying it would create thousands of jobs and help the oil industry, and signed an executive order soon after taking office in January to advance the project.

The multibillion-dollar Keystone XL pipeline would bring more than 800,000 barrels per day of heavy crude from Canada’s oil sands in Alberta into Nebraska, linking to an existing pipeline network feeding U.S. refineries and ports along the Gulf of Mexico.

Approvals are still needed from state regulators, and the pipeline could face legal challenges.

Expedited approval of projects is part of Trump’s approach to a 10-year, $1 trillion infrastructure package he promised on the campaign trail. The White House is looking for ways to speed up approvals and permits for other infrastructure projects, which can sometimes take years to go through a regulatory maze.

“It does fit into the overall strategy the president has for infrastructure,” the administration official said. The official, who asked not to be identified, added that Sean McGarvey, president of North America’s Building Trades Unions, was also expected to be present at the announcement.

Conservatives have said they support quick approval. Nick Loris, an energy and environmental researcher at the Heritage Foundation, said on Thursday that approval would “re-establish some certainty and sanity to a permitting process that was hijacked by political pandering.”

Environmental groups that have opposed the pipeline say they will continue the fight with petitions, political pressure and mass protests.

(Reporting by Luciana Lopez in New York; Additional reporting by Valerie Volcovici in Washington; Editing by Peter Cooney and Jeffrey Benkoe)

U.S. judge denies tribe’s request to stop oil flow in Dakota Access pipeline

Members of the Cheyenne River Sioux Tribe and others sing as they prepare to evacuate the main opposition camp against the Dakota Access oil pipeline near Cannon Ball, North Dakota, U.S., February 22, 2017. REUTERS/Terray Sylvester

WASHINGTON (Reuters) – A U.S. federal judge on Tuesday denied a request by a Native American tribe for an emergency injunction to prevent oil from flowing through part of the Dakota Access Pipeline, saying such a move would be against the public interest.

The ruling, issued in court documents ahead of plans to start pumping oil through the pipeline next week, follows months of demonstrations in a remote part of North Dakota, where the Standing Rock Sioux tribe demonstrated in an attempt to stop the Dakota Access Pipeline crossing upstream from their reservation.

Judge James Boasberg of the U.S. District Court for the District of Columbia issued his decision denying the request by the Cheyenne River Sioux Tribe, saying the court “acknowledges that the tribe is likely to suffer irreparable harm to its members’ religious exercise if oil is introduced into the pipeline, but Dakota Access would also be substantially harmed by an injunction, given the financial and logistical injuries that would ensue.”

The pipeline is nearing completion after President Donald Trump signed an executive order last month smoothing the path for construction. He also cleared the way for the Keystone XL project that would pipe Canadian crude into the United States.

The Standing Rock Sioux and the Cheyenne River Sioux last week lost a legal bid to halt construction of the last link of the pipeline under Lake Oahe in North Dakota, which they say threatens tribal lands. The pipeline will be ready to carry oil by April 1.

Among the Republican Trump’s first acts in office was to sign an executive order that reversed a decision by the previous administration of Democratic President Barack Obama to delay approval of the Dakota pipeline, a $3.8 billion project by Energy Transfer Partners LP <ETP.N>.

Boasberg noted in his decision that any ruling to allow the tribe’s request for an injunction preventing oil from flowing through the pipeline would likely be overturned on appeal.

Thousands of Native American demonstrators and their supporters marched to the White House last Friday to voice outrage at Trump’s decision.

(Reporting by David Gaffen; Writing by Eric Walsh; Editing by G Crosse and Peter Cooney)

U.S. producer prices rise broadly in February

A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013. REUTERS/Jim Young

WASHINGTON (Reuters) – U.S. producer prices increased more than expected in February, and the year-on-year gain was the largest in nearly five years, pointing to a steady rise inflation pressures.

The Labor Department said on Tuesday that its producer price

index for final demand increased 0.3 percent last month after rising 0.6 percent in January. Economists polled by Reuters had forecast a 0.1 percent uptick.

In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012 and ahead of the 2.0 percent gain forecast in the Reuters poll. It followed a 1.6 percent increase in January.

Producer prices are rising as the prior weak readings, induced by cheap oil, drop out of the calculation. Crude oil prices have risen above $50 per barrel.

Also boosting price pressures are the dollar’s 1.5 percent drop against the currencies of the United States’ main trading partners since January and overall commodity price gains in tandem with a firming global economy.

A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 percent in February, the biggest gain since April 2016. The so-called core PPI rose 0.2 percent in January.

Core PPI increased 1.8 percent in the 12 months through February after advancing 1.6 percent in January.

The Federal Reserve has a 2 percent inflation target and tracks a measure that is currently at 1.7 percent. Fed officials were due to start a two-day policy meeting later on Tuesday.

The U.S. central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 percent and 1.00 percent. It has projected three hikes in 2017.

In February, prices for final demand services increased 0.4

percent, accounting for more than 80 percent of the rise in the PPI. That was the biggest rise since June 2016 and followed a 0.3 percent gain in January.

The cost of energy products increased 0.7 percent last month, slowing from January’s 4.7 percent surge.

Wholesale food prices increased 0.3 percent after being unchanged in January. Healthcare costs rose 0.2 percent after a similar gain in January. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures index.

The volatile trade services component, which measures changes in margins received by wholesalers and retailers, rose 0.4 percent last month after shooting up 0.9 percent in January.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Lisa Von Ahn)

Oil touches three-month lows as U.S. supply swells

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada

By Jessica Resnick-Ault

NEW YORK (Reuters) – Oil hovered around three-month lows on Monday, as rising inventories and drilling activity in the United States, the world’s top energy consumer, offset optimism over OPEC’s efforts to restrict crude output and reduce a global glut.

After more than two months of reduced production from the Organization of the Petroleum Exporting Countries, the market is facing evidence that U.S. production remains high and global markets remain oversupplied.

“There is growing skepticism that the production cut has been enacted long enough to take care of the overhang,” said Gene McGillian, director of market research at Tradition Energy. “The longs who piled in last year are turning on the market because there seems to be a realization that a six-month agreement isn’t long enough to rebalance the market.

Brent crude futures fell 7 cents to $51.30 a barrel by 11:33 a.m. Eastern (1633 GMT), having earlier hit a session low of $50.85, its lowest level since Nov. 30.

U.S. West Texas Intermediate crude (WTI)  fell 20 cents to $48.29 a barrel, a 0.4 percent loss.

Prices have fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run.

Goldman Sachs said in a note it remained “very confident” about commodity prices and maintained its price forecast of $57.50 for WTI in the second quarter.

The slide could be the result of traders unwinding bullish long positions, and could slow as those positions are unwound, Tradition Energy’s McGillian said.

U.S. drillers added oil rigs for an eighth consecutive week, Baker Hughes data showed on Friday, and they have announced ambitious production growth plans as they rebound from a two-year price war with OPEC. [RIG/U]

OPEC and other major oil producers, including Russia, reached an agreement at the end of November to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.

Russia’s top oil major Rosneft warned that a recovery in U.S. oil output may deter OPEC and non-OPEC producers from extending production cuts beyond June and might lead to a new price war.

Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in U.S. inventories to a new high. [EIA/S]

“It will be interesting to see how OPEC rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?” BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum.

He added that OPEC’s task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.

Money managers cut their net long positions in U.S. crude futures and options in the week to March 7.

(Additional reporting by Jane Chung in Seoul, Keith Wallis in Singapore and Amanda Cooper in London; Editing by Marguerita Choy and Greg Mahlich)

Higher energy prices boost producer inflation

empty shopping cart

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. producer prices rose more than expected in January, recording their largest gain in more than four years amid increases in the cost of energy products and some services, but a strong dollar continued to keep underlying inflation tame.

The Labor Department said on Tuesday its producer price index for final demand jumped 0.6 percent last month. That was the largest increase since September 2012 and followed a 0.2 percent rise in December.

Despite the surge, the PPI only increased 1.6 percent in the 12 months through January. That followed a similar gain in the 12 months through December. Economists polled by Reuters had forecast the PPI rising 0.3 percent last month and the year-on-year increase moderating to 1.5 percent.

The U.S. dollar pared losses against a basket of currencies after the data. Prices of U.S. Treasuries were mixed while U.S. stock index futures were largely flat.

The rise in producer prices comes as manufacturers report paying more for raw materials. The Institute for Supply Management’s (ISM) prices index surged in January to its highest level since May 2011. The ISM index, which is closely correlated to the PPI, has increased for 11 straight months.

The gains in PPI last month largely reflected increases in the prices of commodities such as crude oil, which are being boosted by a steadily growing global economy. Oil prices have risen above $50 per barrel.

But with the dollar strengthening further against the currencies of the United States’ main trading partners and wage growth still sluggish, the spillover to consumer inflation from rising commodity prices is likely to be limited.

A government report on Friday showed import prices excluding fuels fell in January for a third straight month. Data on Wednesday is expected to show the consumer price index increased 0.3 percent in January after a similar gain in December, according to a Reuters survey of economists.

Last month, prices for final demand goods increased 1.0 percent, the largest rise since May 2015. The gain accounted for more than 60 percent of the increase in the PPI. Prices for final demand goods advanced 0.6 percent in December.

Wholesale food prices were unchanged last month after climbing 0.5 percent in December. Healthcare costs rose 0.2 percent. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index.

The volatile trade services component, which measures changes in margins received by wholesalers and retailers, shot up 0.9 percent in January after being unchanged in the prior month.

A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent. That followed a 0.1 percent gain in December. The so-called core PPI increased 1.6 percent in the 12 months through January, slowing from December’s 1.7 percent gain.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Oil price slides on prospect of rising U.S. production

Gas nozzles

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices fell on Wednesday on expectations that U.S. producers would boost output, just as OPEC signaled that a global supply-reduction deal will shrink the oil glut this year.

Brent crude futures, the international benchmark for oil prices, were down 75 cents $54.72 a barrel at 1230 GMT.

U.S. West Texas Intermediate (WTI) crude oil futures were trading down 81 cents at $51.67 per barrel.

U.S. shale production is set to snap a three-month decline in February, the U.S. Energy Information Administration said on Tuesday, as energy firms boost drilling activity with crude prices hovering near 18-month highs.

February production will edge up 40,750 barrels per day (bpd) to 4.748 million bpd, the EIA said. In January, it was expected to drop by 5,900 bpd.

“It’s the eternal question about the current flat price and what it does to U.S. crude oil production,” Petromatrix oil strategist Olivier Jakob said.

The Organization of the Petroleum Exporting Countries, excluding Indonesia, pumped 33.085 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, down 221,000 bpd from November, OPEC said in a monthly report on Wednesday.

OPEC cut its forecast of supply in 2017 from non-member countries following pledges by Russia and other non-members to join OPEC in limiting output.

OPEC now expects non-OPEC supply to rise by 120,000 bpd this year, down from growth of 300,000 bpd last month, despite an upwardly revised forecast of U.S. supply.

Under the agreement, OPEC, Russia and other non-OPEC producers have pledged to cut oil output by nearly 1.8 million bpd, initially for six months, to bring supplies back in line with consumption.

The output cuts agreed by OPEC and others are likely to come largely from field and refinery maintenance, BMI Research said in a note. It said oil producers are expected to use lower volumes needed for domestic power generation in a bid to maintain export volumes.

“Sticking to output targets is important but export volumes from the participating countries are a much better indicator of how the cuts will affect the market,” it said.

“Participating members are keen not to sacrifice vital export revenue so are trying to find ways to limit domestic crude usage in order to prioritize filling their contracts to foreign refiners.”

A committee responsible for monitoring compliance with the agreement meets in Vienna on Jan. 21-22.

(Additional reporting by Naveen Thukral in Singapore. Editing by Jane Merriman and David Evans)

Oil surges to one-and-a-half-year high, Fed rate increase looms

A gas station attendant pumps fuel into a customer's car at PetroChina's petrol station in Beijing, China,

By Marc Jones

LONDON (Reuters) – Oil prices surged to their highest since mid-2015 and U.S. Treasury yields hit a more than two-year peak on Monday after the world’s top crude producers agreed to the first joint output cut since 2001.

Coming at the start of a week when the United States is expected to raise interest rates for the only the second time since the global financial crisis, the weekend agreement between the Organization of Petroleum Exporting Countries and key non-OPEC states set the markets alive.

Brent oil futures soared 5 percent to top $57 a barrel for the first time since July 2015 and U.S. crude leapt above $54 a barrel to send global inflation gauges spiking as well.

There was particular surprise as Saudi Arabia, the world’s number one producer, said it may cut its output even more than it had first suggested at an OPEC meeting just over a week ago.

“The original OPEC deal pointed to a fairly lumpy 3 percent cut (in production), so this suggests there is a bit more upside for oil prices,” said Neil Williams, chief economist at fund manager Hermes.

On the rise in bond yields, which tend to set global borrowing costs, he added: “The Fed hike is mostly baked in so when we do get it, it will be more about the statement.”

European oil companies jumped more than 2 percent on the oil surge and helped the pan-regional STOXX 50 index add 0.1 percent, having just had its best week in exactly five years.

Bond markets in contrast were under heavy pressure. Euro zone government bond yields were sharply higher with German Bunds up 5 basis points at 0.40 percent as U.S. yields topped 2.5 percent for the first time since October 2014.

“We have seen OPEC and non-OPEC producers agreeing, which is boosting reflation expectations around the world,” said Chris Weston, an institutional dealer with IG Markets.

In another sign of the reflation trade, breakeven rates –the gap between yields of five-year U.S. debt and a matching tenor in inflation-protected securities — were at two-month highs.

Wall Street futures, meanwhile, pointed to the main U.S. indexes barely budging when they resume, having enjoyed an uninterrupted gain of nearly 4 percent over the past six sessions.

FED UP

Focus was also on the currency markets as the dollar rose to its highest since February against the Japanese yen, before what is almost certain to be the first rate hike of the year from the U.S. Federal Reserve on Wednesday.

Japan’s yen also tends to suffer when oil prices rise, since the country is a major importer.

The Norwegian crown, Canadian dollar and Russia rouble were the big gainers from the oil deal. The rouble rose almost 2 percent against both the dollar and euro as Russia shares, which have rocketed almost 90 percent since January, hit the latest in a string of record highs.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent after posting its biggest weekly rise in nearly three months last week.

China stocks suffered their biggest fall in six months as blue chips were knocked by fresh regulatory curbs to rein in insurers’ aggressive stock investments and rising bond yields prompted profit-taking in equities.

The blue-chip CSI300 index fell 2.4 percent, to 3,409.18 points, while the Shanghai Composite Index lost 2.5 percent to 3,152.97 points.

China’s insurance regulator, which recently warned it would curb “barbaric” acquisitions by insurers, said late on Friday it had suspended the insurance arm of China’s Evergrande Group from conducting stock market investment.

Concerns were also rumbling about U.S.-Sino relations after Donald Trump re-ignited controversy over Taiwan.

“I fully understand the ‘one China’ policy, but I don’t know why we have to be bound by a ‘one China’ policy unless we make a deal with China having to do with other things, including trade,” Trump said in an interview with Fox News.

Emerging markets are already bracing for a difficult run if U.S. rate hikes push up the dollar and global bond yields.

Turkey’s lira has borne the brunt of much of the pressure in recent weeks, and it took another 1 percent hit alongside a sharp fall in Turkish bonds after data showed the country’s economy suffering its first contraction since 2009.

Gold, meanwhile, which had a bumper first half of 2016, hit its lowest level since early February at $1,152 an ounce.

(Additional reporting by Saikat Chatterjee in Hong Kong, editing by Larry King)

Islamic State attacks Kirkuk as Iraqi forces push on Mosul

Forces takce cover behind rocks

By Maher Chmaytelli and Michael Georgy

BAGHDAD (Reuters) – Islamic State launched a major counter-attack on the city of Kirkuk on Friday as Iraqi and Kurdish forces pursued operations to seize territory around Mosul in preparation for an offensive on the jihadists’ last major stronghold in Iraq.

Islamic State’s assault on Kirkuk, which lies in an oil- producing region, killed 18 members of the security forces and workers at a power station outside the city, including two Iranians, a hospital source said.

Crude oil production facilities were not targeted and the power supply continued uninterrupted in the city. Kirkuk is located east of Hawija, a pocket still under control of Islamic State that lies between Baghdad and Mosul.

With air and ground support from the U.S.-led coalition, Iraqi government forces captured eight villages south and southeast of Mosul. Kurdish forces attacking from the north and east also captured several villages, according to statements from their respective military commands overnight.

The offensive that started on Monday to capture Mosul is expected to become the biggest battle fought in Iraq since the U.S.-led invasion in 2003.

The United Nations says Mosul could require the biggest humanitarian relief operation in the world, with worst-case scenario forecasts of up to a million people being uprooted.

About 1.5 million residents are still believed to be inside Mosul. Islamic State has taken 550 families from villages around Mosul and is holding them close to IS locations in the city, probably as human shields, a spokeswoman for the U.N. human rights office said in Geneva.

The fighting has forced 5,640 people to flee their homes so far from the vicinity of the city, the International Organization for Migration said late on Thursday.

The Turkish Red Crescent said it was sending aid trucks to northern Iraq with food and humanitarian supplies for 10,000 people displaced by fighting around Mosul.

EXPLOSIVE DEVICE

A U.S. service member died on Thursday from wounds sustained in an improvised explosive device blast near the city.

Roughly 5,000 U.S. forces are in Iraq. More than 100 of them are embedded with Iraqi and Kurdish Peshmerga forces, advising commanders and helping them ensure coalition air power hits the right targets, officials say.

However, the Kurdish military command complained that air support wasn’t enough on Thursday.

“Regrettably a number of Peshmerga have paid the ultimate sacrifice for us to deliver today’s gains against ISIL. Further, Global Coalition warplane and support were not as decisive as in the past,” the Kurdish command said in a statement.

Prime Minister Haidar al-Abadi, addressing anti-Islamic State coalition allies meeting in Paris via video link, said the offensive was advancing more quickly than planned.

A senior Kurdish military official told Reuters the offensive by the Iraqi and Kurdish forces was moving steadily as they push into villages on the outskirts of Mosul.

But he expected the offensive to slow down once they approach the city itself, where Islamic State had built trenches, dug tunnels and might use civilians as human shields.

“I believe it will be more clear within the coming weeks once we get rid of those villages and we come closer to the city how quickly this war will end. If they (Islamic State) decide to defend the actual city then the process will slow down.”

Once inside Mosul, Iraqi special forces would have to go from street to street and from neighbourhood to neighbourhood to clear explosives and booby traps, the official said.

Islamic State denied that government forces had advanced. Under the headline “The crusade on Nineveh gets a lousy start,” the group’s weekly online magazine Al-Nabaa said it repelled assaults on all fronts, killing dozens in ambushes and suicide attacks and destroying dozens of vehicles including tanks.

HOLED UP

In Kirkuk, Islamic State attacked several police buildings and a power station in the early hours of Friday and some of the attackers remained holed up in a mosque and an abandoned hotel.

The militants also cut the road between the city and the power station 30 km (20 miles) to the north.

Several dozen took part in the assault, according to security sources who couldn’t confirm a claim by Islamic State that it had taken a Kurdish police officer hostage.

The assailants in Kirkuk came from outside the city, said the head of Iraq’s Special Forces, Lieutenant General Talib Shaghati, speaking on a frontline east of Mosul.Iran’s Foreign Ministry spokesman Bahram Ghasemi reacted to the killing of the Iranian citizens in Kirkuk, saying these attacks are “the last breath of terrorists in Iraq”.

At least eight militants were killed, either by blowing themselves up or in clashes with the security forces, the sources said. Kurdish forces had dislodged the militants from all the police and public buildings they had seized before dawn, they said.

MACHINE GUN

Kurdish NRT TV footage showed machine gun fire hitting a drab two-floor building that used to be a hotel, and cars burning in a nearby street.

Islamic State claimed the attacks in online statements, and authorities declared a curfew in the city where Kurdish forces were getting reinforcements.

Kurdish Peshmerga fighters took control of Kirkuk in 2014, after the Iraqi army withdrew from the region, fleeing an Islamic State advance through northern and western Iraq.

On the frontline south of Mosul, thick black smoke lingered from oil wells that Islamic State torched to evade air surveillance, in the region of Qayyara.

The army and the U.S.-led coalition took back this region in August and are using its air base as a hub to support the offensive on Mosul.

“Long live Iraq, death to Daesh,” was painted on a wall near an army checkpoint there, referring to an Arabic acronym of Islamic State.

The army Humvees at the checkpoint carried Shi’ite flags, revealing that the soldiers of this unit belonged to Iraq’s majority community.

Flying Shi’ite flags in the predominantly Sunni region and the participation of the Popular Mobilization Force, a coalition of mostly Iranian-trained militias, in a support role to the army has raised concerns of sectarian violence and revenge killings during or after the battle.

The nation’s top Shi’ite cleric, Grand Ayatollah Ali al-Sistani, on Friday renewed a call to spare civilians.

“All those who are participating in the battle have to respect the humanitarian principles and refrain from seeking vengeance,” said a sermon delivered in Sistani’s name in the holy Shi’ite city of Kerbala by one of his representatives.

(Additional reporting by Michael Georgy near Qayyara, Stephen Kalin east of Mosul and Saif Hameed in Baghdad; editing by Giles Elgood)