Tanker owners await OPEC Plus announcement

OPEC Plus is scheduled to hold its next meeting on Sunday and its decisions on production strategy will have far reaching implications for the tanker owners.

According to Seatrade Maritime News, sector analysts say the picture in far from clear. In its weekly report, Gibson suggests that there could be three possible outcomes.

1- OPEC Plus members could decide to continue with the production cuts in place today.

2- They could implement further cuts, allowing oil producers outside the cartel to boost their market share.

3- They could decide to ease voluntary production cuts to meet the wishes of members hoping to boost oil revenue streams. 

OPEC Plus member states account for more than 40% of global crude tanker trade where rising oil demand in China is likely to underpin crude oil growth of 2.2 million barrels per day this year, according to the projections.

Crude demand is also climbing in other non-OECD countries, notably India, and other countries in Asia, Middle East, and Latin America, Gibson said.

However, the broker notes that few analysts are as bullish about oil demand prospects.

The International Energy Agency (IEA), for example, reckons that likely growth could reach 1.1 million barrels per day, just half the OPEC Plus estimate. The IEA reckons that demand will grow more slowly now that the post-Covid surge has come to an end.

Meanwhile, declining oil demand in Europe is likely to reduce OECD demand which, the IEA suggests, could fall by 140,000 bpd this year. This is the result of the industrial downturn and a mild winter.

Gasoil demand in all three OECD regions over the first quarter fell by 330,000 bpd year-on-year.

Gibson points to lower oil prices, with Brent crude now trading at around US$81-83 a barrel, down from an average of US $89 in April.

These lower prices may suggest a current oversupply, a factor supported by weaker demand growth. These prevailing market fundamentals may deter OPEC Plus from loosening their production cuts too soon, Gibson said.  

Does Brexit mean anything to Pakistan?

As part of my daily chores, I read a lot of content pertaining to commodities, currencies and stock markets. I often wonder if this flood of information makes decision making by Pakistani investors easier or force them to make investment decisions that ultimately become loss yielding for most of them.

At present a lot of being talked about Britain’s exit from the European Union (Brexit). Whatever may be the outcome of the referendum scheduled for 23^rd June, it will be of little consequence for Pakistan. This may sound a sweeping statement but if one keeps various factors in mind affecting trade between the two countries, understanding the likely implications will become much easier.

Britain may be a major buyer of ‘Made in Pakistan’ products but most of the trade is USD denominated. Therefore,the involvement of three currencies i.e. GBP, EUR and USD often nullify the benefit emerging from the movement of one or more than one currencies.

Most of the investors prefer to convert their saving into USD, which they consider more trustworthy, simply because PKR value depreciates regularly. Many of the exporters try to without their payments outside Pakistan in anticipation of erosion in PKR value.

Movement of international gold price is also of little consequence. Pakistan consumes around 250 tons of precious metal per annum. Out of this, 50 percent demand is met through ‘recycling’ and remaining quantity is ‘smuggled’ into the country. Official import is around half a ton for 10 months of the current financial year. On top of this price in the local bullion market is driven by domestic demand rather than international price.

There are two global benchmarks of oil, Brent and WTI, these carry hardly any relevance for Pakistan because the country buys ‘Middle East Crude’ where price is driven by ‘geopolitical’ considerations rather than prevailing international prices of Brent and WTI.

There is also a lot of hype about Pakistan’s inclusion in MSCI Emerging Markets and the overall perception is that up to USD1.5 trillion can make inroads into Pakistan. The statement sounds highly exaggerated keeping in view the inflow/outflow of foreign funds. Overseas investors already hold 30 percent shares of the blue-chip companies. According to some estimates, often monthly outflow comprising of dividend/capital gains exceeds inflow. Therefore, one of the possible fallouts could be outflow surpassing inflow.

Last but not least the hype about the US Fed increasing interest rate sounds like ‘exchange rate maneuvering’. On one or the other pretext the Fed has been deferring interest rate hike for more than a decade and hoping any hike in near future is hoping against hopes.

Pakistani’s should pay more attention to factors affecting its economy and ruling junta should try to remove the impediments affect GDP growth and exports rather than introducing news tax measures. It has been reported in media that the incumbent government has already exceeded its expenditures by more than PKR250 billion against the target, exports have nosedived and there is a visible deceleration in remittances. Many experts warn that debt servicing has become unsustainable and the government is borrowing more and more to pay off the debts.