Crude oil prices slip on receding fears of output cut by OPEC Plus

Crude oil prices fell on Wednesday, taking a breather from a near 4% surge the previous day, on receding fears of an imminent output cut by the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC Plus.

Global benchmark Brent crude futures fell to US$99.82 a barrel by 0337 GMT, after rising 3.9% and WTI futures declined to US$93.47 a barrel, having jumped 3.7% on Tuesday.

Both contracts soared on Tuesday after Energy Minister of Saudi Arabia flagged the possibility of supply cuts to balance a market it described as "schizophrenic", with the paper and physical markets becoming increasingly disconnected.

"While Abdulaziz bin Salman's comment may have achieved more than putting a floor under crude prices, we expect it to follow the law of diminishing returns, unless it is followed up by more signals or action from OPEC Plus to restrain output," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

With OPEC Plus already delivering about 2.8 million barrels per day less than its monthly target, cutting production is going to be more complicated than usual, Hari added.

Potential OPEC Plus production cuts may not be imminent and are likely to coincide with the return of Iran to oil markets should it clinch a nuclear deal with the West, nine OPEC sources told Reuters on Tuesday.

A senior US official told Reuters on Monday that Iran had dropped some of its main demands on resurrecting a deal. 

"Tuesday's rally was overdone as many investors knew it would take several months for Iranian oil to flow into the international market even if an agreement to revive Tehran's 2015 nuclear deal was made, meaning OPEC Plus would not trim output so quickly," said Kazuhiko Saito, Chief Analyst at Fujitomi Securities.

"Still, there is not much room for the market's downside due to robust heating fuel demand for the winter," he said, citing that the recent rally in the US heating oil market and surging natural gas prices boosted expectations for stronger heating oil demand and tighter crude supply.

US gas prices shot above US$10 for the first time in about 14 years due to a surge in prices in Europe, where tight supplies persist.

Underlining tight supply, US crude stockpiles fell by about 5.6 million barrels for the week ended August 19, according to market sources citing American Petroleum Institute figures on Tuesday, against analysts' estimate of a drop by 900,000 barrels.

But gasoline inventories rose by about 268,000 barrels, while distillate stocks increased by about 1.1 million barrels.

Jerusalem belongs to all, not Jews alone

Jerusalem is the united capital of Israel, Defense Minister Benny Gantz said Monday morning as he pushed back at former Prime Minister Benjamin Netanyahu, who attacked him on social media over his previously announced stance.

“Jerusalem is the united capital of the State of Israel – so it has been, and so it will be,” Gantz told Radio 103 FM.

Netanyahu on Sunday tweeted the headline of an interview Gantz gave to a Saudi paper in 2020 in which he said there was room for a Palestinian capital in a united Jerusalem.

 “The answer is no,” Netanyahu tweeted. The issue of a united Jerusalem is one he often campaigns on and has in the past warned that his opposition would give it away to the Palestinians. He famously did so when he campaigned against former Labor Party leader Shimon Peres.

Gantz clarified in his radio interview that he had made those comments around the time former US President Donald Trump had unveiled his peace plan, which called for a Palestinian capital in Palestinian neighborhoods of Jerusalem that were on the opposite side of the security barrier. Netanyahu also supported that plan.

Trump’s plan also called for a two-state resolution to the conflict. Gantz in his public comments since then has spoken of a resolution that involves two entities.

Gantz told the radio station he did not believe it was possible “to get to a permanent agreement with the Palestinians in the coming years.”

What needs to happen instead is to reduce the points of conflict and strengthen Palestinian self-governance over their own affairs, particularly their internal security, Gantz said.

It’s important to prevent the creation of a bi-national state, “which no one wants,” he said.

With respect to a Palestinian foothold in Jerusalem, Gantz said there are people who say there are “civilian villages that Palestinians call Jerusalem, which is not in the metropolitan envelope of Jerusalem, and they can be defined as their capital.”

Gantz also clarified that he would not sit in a government in which Netanyahu was a Prime Minister or a Minister.

 

Benjamin Gantz was born in Kfar Ahim, Israel, in 1959. His mother Malka was a Holocaust survivor, originally from Hungary. His father Nahum came from Romania, and was arrested by the British authorities for trying to enter Palestine illegally, before reaching Israel. His parents were among the founders of Moshav Kfar Ahim, a cooperative agricultural community in south-central Israel. In his youth, he attended the Shafir High School in Merkaz Shapira and boarding school at the HaKfar HaYarok youth village in Ramat HaSharon.

Gantz is a graduate of the IDF Command and Staff College and the National Security College. He holds a bachelor's degree in history from Tel Aviv University, a master's degree in political science from the University of Haifa, and an additional master's degree in National Resources Management from the National Defense University in the United States. Gantz is married to Revital, with whom he has four children. He lives in Rosh HaAyin

In February 2011, following the government decision to promote Gantz to Chief of the General Staff, Attorney Avi'ad Vissuli of the Forum for the Land of Israel unsuccessfully petitioned to revoke the appointment.

In February 2019, an Israeli-American woman accused Gantz of exposing himself to her 40 years earlier, causing her traumatic disorders. Gantz denied all allegations, claiming that such an incident never took place, and that the allegations were politically motivated. Gantz has since sued the woman for defamation.

 

Turkey doubles Russian oil imports

Turkey has doubled its import of oil from of Russia this year, shows Refinitiv Eikon data. Both the countries are set for broader cooperation in business, especially energy trade despite western sanctions against Moscow.

Trade between Turkey and Russia has been booming as Turkish companies did not stop from dealing with Russian counterparts and stepped in to fill the gap created by EU businesses leaving Russia after being of war in Ukraine earlier this year. Russia calls its actions in Ukraine 'a special military operation.'

Turkey increased oil imports from Russia, including Urals and Siberian Light grades, beyond 200,000 barrels per day (bpd) this year as compared to just 98,000 bpd for the same period of 2021.

Turkey did not sanction Russia due to its actions in Ukraine, saying it remains reliant on Russian energy supplies.

Russian President Vladimir Putin and Turkish President Tayyip Erdogan met early in August and agreed to boost business cooperation.

Turkey's main refiners Tupras and Azerbaijan's SOCAR's STAR refinery significantly increased intake of Russian Urals and Siberian Light oil this year, while decreasing purchases of North Sea, Iraqi and West African grades.

Over the last few years, STAR refinery increased purchases of Norway's Johan Sverdrup and Iraqi oil grades, which are close in quality to Urals as Russian oil has been growing in price.

This year, Russian oil prices fell to historical lows against Brent benchmark, while North Sea and Iraqi oil grades prices increased.

STAR refinery is expected to purchase about 90,000 bpd of oil from Russia during January to August 2022 as compared to 48,000 bpd during the same period of the last year.

Tupras refineries will buy about 111,000 bpd of oil from Russia in January to August this year compared to just 45,000 bpd during the same period last year, according to the data.

"The choice for Turkey's refiners was obvious as they have no limits on Russian oil buying", a trader in the Mediterranean oil market said, who declined to be named as he is not authorized to speak to the press.

He added that good Urals oil refining margins supported profits of Turkish refiners.

 

State Bank of Pakistan leaves policy rate unchanged

State Bank of Pakistan (SBP) decided to leave the policy rate unchanged at 15% which was in line with market expectations. SBP had cumulatively raised the policy rate by 800bps to 15% since September 2021 to cool down overheating of economy and contain current account deficit.

Further, administrative measures for import control were also taken recently and fiscal consolidation is also planned for FY23.

Inflation in July 2022 increased to 25%YoY as against 21% in June 2022, but broadly remained in line with what SBP had anticipated earlier.

Trade deficit in July 2022 also fell sharply (halved to US$2.7 billion and global commodity prices have also started coming down which will improve our external account situation.

Pakistan also secured additional financing of US$4 billion from friendly countries over and above the available financing to Pakistan.  

After securing additional funding of US$4 billion, revival of IMF program is also in sight as its Board meeting for the approval of Pakistan’s next tranche is scheduled on August 29, 2022.

SBP keeping in view the impact of these decisions like moderation in domestic demand and improvement in external account, decided to keep the policy rate unchanged. 

SBP maintained its inflation forecast of 18% to 20% for FY23. It also anticipates it to improve to 5% to 7% by the end of FY24.

SBP expects GDP growth for FY23 to be in the range of 3% to 4% as against growth of 6% last year.

Current Account deficit is projected to be around 3% of GDP or US$10 billion) in FY23 as against US$17 billion or 4% of GDP in FY22. 

The SBP Monetary Policy Committee promises to continue to remain data driven and pay attention on inflation expectations, development on fiscal & external front, global commodity prices and interest rates decisions by major central banks.

Foreign exchange reserves are likely to increase to US$16 billion by FY23. This will be driven by additional financing that will be available to Pakistan in FY23. This will also be dependent upon Pakistan following key measures agreed with IMF and remaining on track with the program.

Pakistan’s gross financing needs would be around US$30 billion for FY23 which includes Current Account Deficit and debt repayments.

Available financing against this is estimated at US$37 billion for FY23, which has increased after Pakistan secured US$4 billion of financing from friendly countries.    

Financing of US$4 billion includes US$2 billion from Qatar, US$1 billion of deferred oil facility from Saudi Arabia, and US$1 billion investment from UAE. 

Pakistan’s short term external debt constitute around 6% of the total external debt hence maturity profile of Pakistan external debt is not an issue. However, low private sector flows like FDI and portfolio investment is a key concern. 

FY23 budget targets a primary surplus, on the back of significantly higher tax revenue. It envisages a strong fiscal consolidation of around 3% of GDP as per SBP.

 

Bangladesh Selects RSGT to Operate Patenga Container Terminal

Bangladesh has selected Red Sea Gateway Terminal (RSGT), to operate the new US$240 million Patenga Container Terminal (PCT) now nearing completion at Chittagong, the country’s main port.

RGST, which operates the largest terminal facility in Saudi Arabia at Jeddah Islamic Port, was selected by Bangladesh’s Ministry of Transport.

The Port of Chittagong, recently renamed as Chattogram, handled a record 3.2 million teu in 2021, and is the busiest port in the Bay of Bengal, serving as gateway for 90% of Bangladesh’s import and export ocean cargo. The majority of import shipments are destined for the capital, Dhaka, 265 km (165 miles) away.

"The port also serves as the main gateway for Bangladesh’s fast-growing exports including its garments trade, one of the largest globally. The new facility, being built by the Bangladeshi government, will feature a 600 meter quay and will be able to handle three vessels simultaneously, augmenting the ship handling capacity at Chattogram port," an RSGT statement said.

In 2017, the Government of Bangladesh adopted a “Policy for Implementing Private Public Partnerships (PPP) Projects through Government to Government Partnerships (G2G)”, RSGT said. In February, the Bangladeshi Ministry of Shipping proposed a plan for the development of PCT based on the PPP model to the Saudi government which in turn nominated RSGT as the Saudi investor. 

 “We are extremely pleased to have been selected for this opportunity. The rapid growth of Chittagong Port’s cargo volumes necessitates further investment in modern equipment, advanced technology and building new human capacity,” said RSGT’s director of global investments, Gagan Seksaria.

“This project fits well with Red Sea Gateway Terminal’s competencies and its expansion strategy for emerging markets. We are very confident that, through this investment, we will be able to contribute significantly to Bangladesh’s fast-growing trade and economy.”

A 2019 study by the Asian Development Bank (ADB) into loan assistance it had provided to Chittagong Port Authority's development plans found that the port’s strategic location made it an appropriate alternative to other ports in the region.

“Much work still needs to be done before the full potential of Chittagong Port’s gateway function for third-country trade... can materialize. The project’s envisaged outcome of increased container capacity was achieved,” it said.

“However, the project’s enhanced facilities were not able to accommodate the boom in international trade. Chittagong Port is still beset with lingering congestion problems and the new facilities have not been able to keep abreast with the growing demand for port services.”

In 2021, RSGT announced the sale of a 40% equity stake worth US$280 million to China’s Cosco Shipping Ports Limited (CSPL) and Saudi Arabia’s Public Investment Fund (PIF). “Working closely with PIF and CSPL, we will accelerate our shared vision, further strengthen our customer offering, and elevate our mandate to meet the increasing demand for terminal and logistics services," Jens O. Floe, CEO of RSGT, said.

Pakistan must take cue from China

State Bank of Pakistan (SBP) is scheduled to announce its policy rate today (Monday, August 22, 2022). While some of the analysts are demanding a reduction in the interest rate, others fear the central bank may increase the rate. 

If the newly appointed SBP Governor, Jameel Ahmed, is serous in accelerating Pakistan’s GDP growth rate, he must reduce interest rate. Let me reiterate once again that Pakistan suffers from cost-pushed inflation. Therefore, reduction in interest rate is a must for easing inflation.

The SBP Monetary Policy Committee must take a cue from China. It has reduced benchmark lending rates on today, adding to easing measures announced last week. This is one of the signs that Beijing is stepping up efforts to spur credit demand in an economy hobble by a property crisis and a resurgence of COVID infections.

The one-year loan prime rate (LPR) was lowered by 5 basis points to 3.65% at the central bank's monthly fixing, while the five-year LPR was slashed by a bigger margin of 15 basis points to 4.30%.

In a Reuters poll conducted last week, 25 out of 30 respondents predicted a 10-basis-point reduction to the one-year LPR. All of those in the poll also projected a cut to the five-year tenor, including 90% of them forecasting a reduction larger than 10 bps.

Most new and outstanding loans in China are based on the one-year LPR, which is now loosely pegged to the central bank's medium-term lending facility (MLF) rate, while the five-year rate influences the pricing of mortgages.

 

US fabricating excuses for not releasing frozen assets of Afghan central bank

On the first anniversary of Taliban takeover of Afghanistan, the Biden administration announced that it will not release US$3.5 billion in frozen Afghan funds.

“An American official said the United States could not guarantee that the money would not fall into terrorist hands, so it has ruled out releasing it anytime soon,” reported The New York Times.

Tom West, the State Department’s Special Representative for Afghanistan, told journalists in Washington that he did “not see recapitalization of the Afghan central bank as a near-term option”.

Taliban’s “sheltering of Ayman al Zawahiri reinforces deep concerns we have regarding diversion of funds to terrorist groups,” he added.

A National Security Council (NSC) spokesperson told CNN, “There has been no change” in efforts to get the funds to the Afghan people, but Ayman al Zawahiri’s presence in Kabul had a direct impact on how the administration deals with the Taliban.

“The recent revelations of Taliban’s flagrant violation of the Doha agreement illustrate the importance of remaining clear-eyed in our dealings with the Taliban. Our approach to the future of these assets will continue to reflect that reality,” the NSC spokesperson said.

The New York Times noted that the Biden administration outlined its position on the funds on the one-year anniversary of the takeover of Afghanistan by Tali­ban and just over two weeks after an American drone strike killed Ayman al Zawahiri

West pointed out that the American officials had engaged for months with the central bank about how to shore up Afghanistan’s economy but had not secured persuasive guarantees that the money would not fall into terrorist hands.

“We do not have confidence that the institution has the safeguards and monitoring in place to manage assets responsibly,” West said in a statement reported by The Wall Street Journal. “And needless to say, Taliban’s sheltering of Al Qaeda leader Ayman al Zawahiri reinforces deep concerns we have regarding diversion of funds to terrorist groups.”

At a State Department news briefing, spokesman Ned Price said the administration was searching for alternative ways to use the money to help Afghans at a time when millions are afflicted by a growing hunger crisis.

The Washington Post noted that a year after withdrawing US troops, “the Biden administration wields scant leverage in Afghanistan as it struggles to assist needy Afghans, evacuate US allies and protect women’s rights in a nation where it once held unparalleled sway”.

It pointed out that US officials were now working with Islamic organizations and nations including Qatar and the United Arab Emirates as they seek to employ the few tools they have to influence the Taliban government — sanctions and travel bans, and the promise of potential diplomatic recognition — in hopes of preventing terrorist attacks, helping US-linked Afghans emigrate and recovering an American hostage”.