By Scott DiSavino

(Reuters) – U.S. natural gas prices last week plunged to a 30-month low, crossing below $2 per million British thermal units (mmBtu) for the second time this year, even as some producers have cut drilling to stave off further convulsions.

Since the start of the year, U.S. gas futures have collapsed by about 50%, a record drop for a quarter, on rising output and mostly mild weather so far this winter that kept heating demand low and allowed utilities to leave more gas in storage than usual.

But there is little chance of stopping output from continuing to grow. The amount of gas in U.S. storage, meanwhile, sits about 21% higher than is normal for this time of year, and that surplus will set up U.S. inventories to reach record highs before next winter’s heating season. [EIA/GAS] [NGAS/POLL]

Big gas producers including Chesapeake Energy Corp and Comstock Resources Inc are reducing their drilling. But gas that comes up with oil will continue to rise in the biggest shale fields. And oil producers are not cutting back.

“About a third of U.S. gas production is associated gas – produced from oil wells,” said Jacques Rousseau, a managing director at research firm ClearView Energy Partners LLC. “This production is unlikely to decline given current oil prices.”

The Permian basin of Texas and New Mexico, the nation’s biggest shale field, is hitting record monthly highs in oil output this year, according to U.S. Energy Information Administration (EIA) data. Gas from the Permian also has climbed to record highs every month this year.

So, while U.S. gas futures were down by 50% in the first quarter of 2023, at $2.22 per mmBtu, they are not low enough to forestall output gains, say analysts.

“Gas prices are begging the market to cut back on supply, amid falling U.S. consumption and constrained LNG export options,” said Stephen Ellis, an energy strategist at Morningstar Research Services LLC.

PRODUCTION REMAINS STICKY

U.S. gas production remains on track to hit 100.67 billion cubic feet per day (bcfd) this year, up from last year’s record 98.09 bcfd, according to the U.S. government.

Projected U.S. gas usage, including exports, will ease to 107.3 bcfd this year from a record 107.4 bcfd last year due to expected declines in domestic consumption from residential, commercial, industrial and power generation customers.

That usage drop comes despite an expected 14% increase in U.S. liquefied natural gas (LNG) exports now that Freeport LNG’s export plant in Texas has returned to production after an eight-month outage.

When operating at full power, Freeport LNG, which shut after a fire in June 2022, consumes about 2% of total U.S. gas supply.

Despite low gas prices, U.S. drillers have 160 rigs seeking gas up 16% from a year ago, according to data from Baker Hughes Co. [RIG/U]

Gas output in the Haynesville shale field in Arkansas, Louisiana and Texas where Chesapeake and Comstock are dropping rigs, also is on track to reach fresh highs in March and April, according to the EIA.

(Reporting by Scott DiSavino; Editing by Sandra Maler)

By Joice Alves

LONDON (Reuters) – Credit Suisse and UBS shares fell on Monday after Switzerland’s federal prosecutor opened an investigation into the emergency merger of the two lenders.

The office of the attorney general said on Sunday that the prosecutor opened an investigation into the state-backed takeover of Credit Suisse by UBS Group last month, looking into potential breaches of the country’s criminal law by government officials, regulators and executives at the two banks.

UBS and Credit Suisse were each set for their biggest daily decline in 10 days, falling around 4% in early trading before paring losses to stay down 2% and 1.8%, respectively at 1410 GMT. They underperformed the European banking index, which was up 1.2% on the day.

The banks declined to comment on the investigation.

The UBS takeover of rival Credit Suisse was engineered by Swiss authorities in a bid to rein in turmoil in global banking.

But the Swiss public and politicians have voiced concerns about the level of state support offered in the deal, with nearly 260 billion Swiss francs in liquidity and guarantees offered by the government and Swiss National Bank (SNB).

“The government underestimated how much antipathy the public in Switzerland have against the deal,” said Michael Field, Europe Market Strategist at Morningstar.

“Comments in the media this morning about 30% of workforce being cut don’t help either,” he added.

Swiss daily Tages-Anzeiger reported on Sunday, citing an unnamed senior UBS manager that the bank created by takeover of Credit Suisse is poised to reduce its workforce by 20-30%. The two banks combined have 120,000 staff worldwide and $1.6 trillion in assets.

Separately, data showed on Monday that sight deposits held by the SNB declined last week, suggesting that Credit Suisse and UBS may have cut back on use of emergency funds offered them.

The SNB, Credit Suisse and UBS declined to comment on the changes in sight deposits.

(Reporting by Joice Alves, Editing by Louise Heavens and Deepa Babington)

By Diane Bartz

WASHINGTON (Reuters) -The U.S. Federal Trade Commission (FTC) on Monday ordered Illumina to divest cancer diagnostic test maker Grail, finding that its ownership would stifle competition in the U.S. market for cancer tests.

Illumina said it would appeal the decision, and will seek expedited consideration from an appeals court. The company said the FTC order to unwind the deal would be automatically put on hold.

Judge Michael Chappell, an administrative law judge at the agency, ruled last year that the $7.1 billion acquisition of Grail would not hurt competition. The FTC staff appealed the decision to agency leadership.

The FTC, which enforces antitrust law, first filed a complaint in March 2021 to stop Illumina’s bid for its former subsidiary.

The agency has expressed concern that Illumina, the dominant provider of DNA sequencing of tumors and cancer cells that help match patients with the best treatment option, might raise prices or refuse to keep selling to rivals of Grail, which is seeking to market a powerful test to diagnose many kinds of cancer from a single blood test, known as liquid biopsy.

At a December hearing, Illumina pledged to keep selling its DNA sequencing services to other firms. It has offered to sign contracts to supply any of Grail’s rivals and to not raise prices.

Meanwhile, Illumina completed the takeover of Grail in August 2021, despite the lack of regulatory approval from Europe or the United States.

Illumina shares were off 1.4% at $229.35 on Monday.

Billionaire investor Carl Icahn, who owns 1.4% of Illumina, is waging a boardroom challenge. He has called for Illumina, now valued at $36 billion, to unwind its deal for Grail, which he called a risky acquisition that cost shareholders $50 billion. 

The deal also faces stiff headwinds in Europe.

In Brussels in early December, EU antitrust regulators proposed measures for Illumina to unwind its acquisition of Grail, three months after blocking the deal on concerns it would hurt competition. The EU antitrust watchdog is set to issue a final decision in early 2023.

Illumina has also appealed the Brussels decision, arguing that it does no business in Europe and thus the European Union competition enforcer has no jurisdiction.

Christine Wilson, a Republican commissioner who left the agency last week, voted to order the divestiture, saying that Illumina’s offer to address the harms were inadequate.

(Reporting by Diane Bartz; Additional reporting by Svea Herbst; Editing by Bill Berkrot)

By Steve Scherer and David Ljunggren

OTTAWA (Reuters) -About half of Canadian businesses see a mild recession over the next year, the Bank of Canada said on Monday in a first quarter survey, fewer than in the fourth quarter, and most are bracing for inflation to stay above 2% until at least 2025.

In the fourth quarter, some two-thirds of respondents had said they expected a recession was looming. Some 79% of firms see inflation staying above 3% for the next two years, down from 84% in the fourth quarter.

Overall business sentiment dropped a notch in the first quarter from the fourth, to 35% from 36%. The survey showed 59% of firms that were surveyed expected inflation to stay well above 2% until at least 2025.

A separate survey showed consumers have a similar view on the outlook for inflation and the economy.

Together the surveys “paint a picture of slowing growth, easing supply constraints and moderating inflation expectations, albeit with none of those problems fully solved and back to pre-pandemic norms as yet,” said Andrew Grantham, a senior economist at CIBC Capital Markets.

Over the past year, the bank raised rates eight times in a row by a total of 425 basis points to tame inflation, which peaked at an annualized rate of 8.1% last year and slowed to 5.2% in February.

The Bank of Canada left its key overnight interest rate on hold at the 15-year high of 4.50% in March, and repeated that it would pause further rate increases if inflation came down in line with its forecasts, reaching its 2% target next year.

The survey “results support the current pause from the Bank of Canada, but also the continued bias towards further hikes being possible,” Grantham said.

The latest business survey largely backs up data showing the economy slowing, though Statistics Canada last week said gross domestic product was stronger than expected in January and would expand again in February.

Canada’s labor force has also remained strong, and the average size of planned wage increases remains above its historical average, the survey showed. But the survey also said the labor shortage intensity indicator in negative territory for the first time in two years.

The latest survey was conducted before the failures of U.S. lenders Silicon Valley Bank and Signature Bank, followed by Credit Suisse’s rescue, which created concern that banking stress could trigger a credit crunch.

But a separate online business survey also released on Monday suggests “business sentiment has not changed much” since the bank failures, the Bank of Canada said.

Around 37.7% of consumers also expect “a moderate decline” in the economy and 20.3% expect a “significant decline”, according to a separate quarterly survey.

Consumer expectations for inflation eased. They see 6.03% average over next year, compared with the previous survey that foresaw 7.18% annual inflation.

(Reporting by Steve Scherer and David LjunggrenEditing by Marguerita Choy)

By Ari Rabinovitch and Maytaal Angel

JERUSALEM (Reuters) -The Bank of Israel on Monday raised its benchmark interest rate by another quarter of a percentage point, the ninth straight meeting it has increased rates amid a battle against inflation that remains above 5%.

Bank governor Amir Yaron said he hoped the cycle of rate hikes, which began a year ago, was coming to an end.

He also urged the government to reach a broad consensus regarding a planned overhaul of Israel’s judiciary, a highly-contested move that he said has already impacted the economy.

The central bank lifted its key rate to 4.5% – its highest level since 2007 – from 4.25%, in line with a Reuters poll of economists. Last April policymakers began raising the rate from 0.1% and have been aggressive during a front-loading process that analysts believe is close to over.

“Economic activity in Israel is at a high level, and is accompanied by a tight labour market, although there is some moderation in a number of indicators,” the bank said in its decision.

Policymakers remained determined to bring inflation back within the government’s 1%-3% annual target range, Yaron said. The annual inflation rate stood at 5.2% in February, slightly lower than a 14-year high of 5.4% in January.

Israel’s economy grew a faster than expected 6.4% in 2022, although growth is expected to slow to below 3% this year amid the steep rate hikes.

The Bank of Israel’s research department forecast that GDP was expected to increase by 2.5% in 2023, down from a previous estimate of 2.8%, and kept its forecast of 3.5% growth in 2024.

It forecast inflation for the coming year to be 3.4%, compared with a previous forecast of 3%, and the interest rate for one year from now reaching 4.75%, versus a previously estimated 4%.

Liam Peach, an economist at Capital Economics, said the central bank sounded “slightly less hawkish than at its previous meeting.”

“Inflation pressures are likely to remain strong this year, but the door for further tightening appears to be closing and we think there will be just one more 25bp interest rate hike in this cycle,” he said.

JUDICIAL OVERHAUL

Yaron concluded his speech at a news conference by weighing in on Prime Minister Benjamin Netanyahu’s plan to enact sweeping changes to the Israeli judiciary.

The proposal to limit the Supreme Court’s power to strike down government decisions while according coalition lawmakers more power in appointing judges has ignited months of massive protests nationwide.

“The uncertainty and the events we witnessed in recent weeks have naturally also had an impact on the Israeli economy,” Yaron said. “I am of the opinion that to the extent a decision will be reached that reflects a broad agreement through dialogue and collaboration, the economy will also be better off for it.”

He said it was “more complicated than ever” to compile an economic forecast given the uncertainty in Israel.

However, one possible scenario he cited from the bank’s researchers on potential fallout from the government’s plans showed a negative impact of 0.8% to 2.8% of GDP annually for three years.

“Most of the decline in GDP, in this case, derives from a marked adverse impact on investment in the economy, due to an increase in uncertainty and the risk premium,” he said.

(Reporting by Maytaal Angel, Henriette Chacar and Ari Rabinovitch;Editing by Andrew Cawthorne)

By Muyu Xu, Joyce Lee and Ahmad Ghaddar

SINGAPORE/SEOUL/LONDON (Reuters) – Surprise new cuts to the OPEC+ group’s output targets could push oil prices towards $100 a barrel, setting the scene for another clash with the West grappling with higher interest rates, analysts and traders said on Monday.

The decision signals unity within OPEC+ despite Washington’s pressure on its Gulf allies to weaken their ties with Moscow, while also undermining the West’s efforts to limit Russia’s oil income.

Oil prices jumped over 6% on Monday after the Organization of the Petroleum Ex porting Countries and their allies including Russia announced on Sunday further production target cuts of about 1.16 million barrels per day (bpd) from May through the rest of the year.

GRAPHIC – Surprise production cuts

https://www.reuters.com/graphics/GLOBAL-OIL/egpbyjrylvq/chart.jpg

The pledges will bring the total volume of cuts by the group known as OPEC+ since November to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand.

OPEC+ had been expected to hold output steady this year, having already cut by 2 million bpd in November 2022.

Saudi Arabia said its voluntary output cut was a precautionary measure aimed at supporting market stability.

Russian Deputy Prime Minister Alexander Novak said interference with market dynamics was one of the reasons behind the cuts.

The International Energy Agency said the cuts risk exacerbating a strained market and pushing up oil prices amid inflationary pressures.

“The new cuts are underpinning that the OPEC+ group is intact and that Russia is still an integral and important part of the group,” SEB analyst Bjarne Schieldrop said.

Rystad Energy said it believed the cuts will add to tightness in the oil market and lift prices above $100 a barrel for the rest of year, possibly taking Brent as high as $110 this summer.

UBS also expects Brent to reach $100 by June, while Goldman Sachs raised its December forecast by $5 to $95.

Goldman said strategic petroleum reserve (SPR) releases in the United States and in France, due to ongoing strikes, as well as Washington’s refusal to refill its SPR in the 2023 fiscal year, may have prompted the OPEC+ action.

Higher prices will likely spell more income for Moscow to fund its expensive war in Ukraine, upsetting Saudi-U.S. relations further, Schieldrop said.

“The U.S. administration may also argue that higher oil prices will counter its efforts to put out the inflation fire,” he added.

While the higher oil prices will spell bad news for the European Central Bank as it tries to bring down inflation, it is unlikely to fundamentally alter the policy outlook for now.

An official at a South Korean refiner said the cut was “bad news” for oil buyers and OPEC was seeking to “protect their profit” against concerns of a global economic slowdown.

The supply cut would drive up prices just as weakening economies depress fuel demand and prices, squeezing refiners’ profits, the South Korean refining official and a Chinese trader said.

Both declined to be identified as they were not authorised to speak to media.

Tighter OPEC+ supply will also be negative for Japan as it may further boost inflation and weaken its economy, said Takayuki Honma, chief economist at Sumitomo Corporation Global Research.

“Producing countries apparently want to see oil prices rise to $90-$100/bbl, but higher oil prices also mean higher risk of economic downturn and sluggish demand,” he added.

Purchases by China, the world’s top crude importer, are however expected to hit a record in 2023 as it recovers from the COVID-19 pandemic, while consumption from No.3 importer India remains robust, traders said.

With higher prices and less supply of Middle East sour crude, China and India may be pushed to buy more Russian oil, boosting revenue for Moscow, said the Indian refining official, who declined to be named as he was not authorised to speak to media.

The rise in Brent prices could push Urals and other Russian oil products to levels above the caps set by the Group of Seven Nations (G7) aimed at curbing Moscow’s oil revenue, he said.

GRAPHIC – OPEC+ production cut effect on oil price

https://www.reuters.com/graphics/GLOBAL-OIL/byprlmgxlpe/chart.png

ALTERNATIVES

Refiners in Japan and South Korea said they are not considering taking Russian barrels due to geopolitical concerns and may look for alternative supply from Africa and Latin America.

“Japan could seek more supply from the United States, but bringing the U.S. oil through the Panama Canal is expensive,” Sumitomo’s Honma said.

Traders are also watching for a response from the U.S., which called OPEC+’s move inadvisable.

“In essence, the purpose of this massive surprise production cut is mainly to regain market pricing power,” the Chinese trader said.

(Reporting by Muyu Xu and Florence Tan in Singapore, Joyce Lee in Seoul, Andrew Hayley in Beijing, Mohi Narayan in New Delhi, Yuka Obayashi in Tokyo and Ahmad Ghaddar in London; editing by Sonali Paul, Kirsten Donovan and Marguerita Choy)

By Chijioke Ohuocha

ABUJA (Reuters) – Nigeria’s naira dropped to a record low of 465 per dollar on the official market on Monday, Refinitiv data showed, as traders await the outcome of Friday’s central bank foreign exchange auction.

The naira, which trades within a range on the official market, has fallen to successive lows due to dollar scarcity, coupled with central bank’s adjustments to manage a backlog demand for foreign exchange.

It later recovered to trade at 461 to the dollar.

The central bank on Friday held a bi-weekly retail auction for people or businesses who need dollars to settle offshore trade-related obligations. The result of the sale are expected this Friday.

The naira weakened to 750 against the dollar on the black market as traders expect unsuccessful bidders at Friday’s auction to channel their demand to informal sources.

“In this quarter, the (central bank) may be willing to raise levels at which they want to intervene on the market,” one trader said, referring to the rate hike.

Nigeria’s central bank is battling to manage liquidity on the interbank market while at the same time intervene on the foreign exchange market to prop up the currency.

It has been adjusting rates to manage demand against its level of foreign reserves.

Nigeria’s president-elect Bola Tinubu and his administration – due to be sworn in in May – will be faced with soaring inflation and an unstable currency which has hampered Africa’s biggest economy as it tries to recover from the COVID-19 pandemic.

(Reporting by Chijioke Ohuocha; Editing by James Macharia Chege)