Rising diesel exports to Europe

Oil traders are ramping up diesel exports from Asia and the Middle East to Europe in October to profit from a wide price gap between the regions as weeks-long strikes at French refineries have tightened stocks, although a steep backwardation may cap volumes, according to trade sources and shipping data.

The price spread between front-month Singapore 10 ppm sulphur gasoil swaps and the ICE low sulphur gasoil futures contract, also known as exchange of futures for swaps (EFS) , was close to minus US$150 a ton on Wednesday, versus minus US$29 a year ago, data on Refinitiv Eikon showed, making it attractive for traders to send oil to Europe.

"East of Suez is sending everything they can ship... it's just a question of how much China exports in November," a Europe-based trader said.

For October, around 289,000 tons of gasoil will be loaded from South Korea and China to northwest Europe, up from 137,500 tons in September, ship tracking data from Refinitiv showed.

Exports from India and the Middle East for October to northwest Europe were at around 480,000 tons and 834,000 tons respectively, as compared to 361,000 tons and 511,310 tons a month ago, the data showed.

The trader estimated that Europe may import about 3 million tons (750,000-850,000 barrels per day) from east of Suez in November, of which the Middle East could account for two-third of the volume. Traders expect the bulk of supplies to Europe to come from India and the Middle East, on shorter shipping times.

Asia's top fuel exporters in South Korea and Taiwan have issued a flurry of spot tenders this month, while China will also step up diesel exports after Beijing increased allocation.

However, outages at TotalEnergies' refineries in France caused by worker strikes since September have led prompt diesel prices to surge versus those in future months, a market structure known as backwardation, posing risks to the value of oil cargoes that travel over long distance such as from Asia to Europe.

Steep backwardation, which is already deterring traders from storing diesel globally, may prevent the much-needed heating fuel from reaching Europe this winter as the region is scaling back on imports from top supplier Russia ahead of a European Union embargo in February.

"Some end consumers were stockpiling Russian diesel but now with French strikes, the market has tightened up and we have brutal backwardation," a Europe-based trader said.

"So there is a big commercial incentive to draw stocks, which will make it worse to buy diesel."

Northwest European diesel barge profit margins rose to over US$83 a barrel on Tuesday, a record high, amid supply tightness.

Already soaring diesel prices in the United States have led traders to divert several cargoes heading from the Middle East to Europe to the New York harbour area, further constraining supplies in Europe.

"European gasoil cracks could come down even further up to US$15 a barrel once the strikes end, making it risky for Asian barrels to head over here even on a prompt loading basis given the strong backwardation, although the arbitrage is technically open on paper," said Mark Williams, a research director at Wood Mackenzie.

 

OPEC Plus endorse output cut despite US coercion accusation

OPEC Plus member states lined up to endorse the steep cut to its output target agreed this month after the White House, stepping up a war of words with Saudi Arabia, accused Riyadh of coercing some other nations into supporting the move.

The United States last week said the cut would boost Russia's foreign earnings and suggested it had been engineered for political reasons by Saudi Arabia, which denied it was supporting Moscow in its invasion of Ukraine.

Saudi King Salman bin Abdulaziz said the kingdom was working hard to support stability and balance in oil markets, including establishing and maintaining agreement of the OPEC Plus alliance.

The Saudi Defence Minister, Prince Khalid bin Salman, King Salman's son also said the October 05 decision to reduce output by 2 million barrels per day (bpd) - despite supply tightness in oil markets - was unanimous and based on economic factors.

His comments were backed by ministers of several OPEC Plus member states including the United Arab Emirates.

The UAE's Energy Minister, Suhail al-Mazrouei, wrote on Twitter,"I would like to clarify that the latest Group decision, which was unanimously approved, was a pure technical decision, with NO political intentions whatsoever."

His comment followed a statement from Iraq's state oil marketer SOMO.

"There is complete consensus among OPEC Plus countries that the best approach ...is a pre-emptive approach that supports market stability and provides the guidance needed for the future," a SOMO statement said.

Kuwait Petroleum Corporation Chief Executive Nawaf Saud al-Sabah also welcomed the decision by OPEC Plus and said the country was keen to maintain a balanced oil market, state news agency KUNA reported.

Oman and Bahrain echoed the comment in separate statements.

Algerian energy minister Mohamed Arkab, meanwhile, called the decision historic and said that he and OPEC Secretary General Haitham Al Ghais expressed full confidence in it, Algeria's Ennahar TV reported.

In a statement to Reuters on Monday, Arkab said the OPEC Plus decision, was a purely technical response based on purely economic considerations.

Oil inventories in major economies are lower than when OPEC has cut output in the past. Some analysts have said that recent volatility in crude markets could be remedied by a cut that would help attract investors.

Umer Karim, a research fellow at the University of Birmingham, said OPEC countries are attempting to project unity.

"The emphasis on the word technical also suggests that these member states are sending a message to the US that they are not a party in this row between Riyadh and Washington," Karim said.

US National Security Council spokesman John Kirby on Thursday said that more than one" OPEC member had felt coerced by Saudi Arabia into the vote, adding that the cut would also increase Russia's revenue and blunt the effectiveness of sanctions imposed over its invasion of Ukraine.

King Salman said in an address to the Kingdom's Advisory Shura Council that the country was a mediator of peace and highlighted the crown prince's initiative to release prisoners of war from Russia last month.

Khalid bin Salman said he was astonished by claims his country was standing with Russia in its war with Ukraine.

 

Darnomics or Illusion

Without mincing words, allow me to say that Pakistan’s Finance Minister, Ishaq Dar, is busy in creating illusion that with his taking rein of finance an era of prosperity has begun. His premise that Rupee has got stronger against US dollar is nothing but gimmickry.

Let me remind my readers around the world that lately US dollar was made stronger artificially by the US administration. The US also wanted to create illusion that hike in energy prices around the world has failed in denting economy of the country.

One may recall that lately when OPEC Plus decided to curtail output, Joe Biden, President, United States was most furious. He knows that hike in motor gasoline is bringing down his popularity graph, which may led to defeat of his party in the mid-term elections.

Therefore, the attempts by Dar to show that Rupee is getting stronger are ‘misplaced’. In this endeavor, Pakistan is bound to lose more of its limited foreign exchange reserves.

This is also to remind him that in Pakistan there is a huge mismatch between the inflow and outflow of dollars. IMF tranche may have provided a breather, but the quantum of debt servicing is grossly unmanageable.

The brutal fact is that the recent floods have devastated country’s agriculture, displaced millions of people and their rehabilitation requires millions of dollars. If I am right bulk of the aid has come in kind and whatever paltry amounts have come is ’peanuts’ only.

This is to also remind the Minister that higher interest rate and persistent hike in electricity and gas tariffs are rendering Pakistani manufacturers, particularly exporters of textiles and clothing, uncompetitive in the global markets.

It is writing on the wall that imports will go up and exports will come down, widening the current account deficit. Since Dar has no control over imports, Pakistan’s only savior could be exporters. However, the lust to collect more PDL to bridge budget deficit is killing golden-egg layer, textiles and clothing industry.

Although, I am not an admirer of Miftah Ismail, any attempt to portray Dar as savior is like building an empire on the dead body of another person. If the readers are unable to understand this narrative let me say, “Miftah was used to announce all the bad decisions and Dar is being projected as a Savior”.

To conclude allow me to say, “The incumbent government has no clue whatsoever regarding pulling the country out of current economic crisis, all its policies can be termed ‘firefighting’ but the fire is too big and water is too little.”

    

 

  

 

 

 

 

 

 

Cunningly US has dragged EU into Ukraine war

With no end in sight to the fighting in Ukraine, the European Union has become financially exhausted with the drawn-out conflict on its doorstep. As against this, United States, sitting across the pond, is watching on as well as making huge profits. As the war drags on, the costs for Europe are mounting.

One thing is for sure. It is certainly not the first time Washington has tricked the international community into a war. One can still recall the US sending fake intelligence, to the UN Security Council to make the case for the Iraq war.

At the time, France and Germany formed a coalition, making strong arguments and objections to prevent the Iraq war. 

This time, critics argue EU members caved in too quickly and are acting as US proxies without even being aware of it.

Before the conflict broke out on Europe’s doorstep in February, Russia regularly accused the US of deliberately creating a scenario that was designed to lure Moscow into war while ignoring Russia's security concerns over Ukraine.

The Pentagon led the mobilization of NATO troops and weapons on Russian borders and Europe quietly followed suit. The security concerns expressed by the Kremlin were ignored by Washington despite many experts describing them as legitimate.

Moscow wanted the West to respect an agreement signed in 1999 that no country can threaten its security at the expense of others. The Kremlin said this was at the heart of the crisis before the conflict broke out.  

The question must be asked, why not sending peace delegations to Russia and Ukraine instead of arms packages? The answer is the American economy crashed in the aftermath of the covid-19 pandemic and now it is growing again as a result of the war. America has a long history of making money out of waging or triggering wars across the planet.

Those paying the price on this occasion are European states with the continent slipping into a recession and ordinary households failing to make ends meet.

Reportedly, the EU has set aside fund to reimburse member states with the money they spend on sending weapons to Ukraine. However, the EU has been flooded with requests that the bloc simply cannot cover. Brussels has reportedly not even sent out the first payment.

The news outlet cites diplomats as saying the EU had estimated it could cover some 85% of the costs but so many requests were sent to the bloc’s headquarters that it revised that number down to 46%.

That is said to have angered Poland, which is one of the EU’s largest arms exporters to Ukraine and a leading seeker for reimbursements. The diminishing payback scheme and struggling attempts to reimburse risks damaging the EU’s reputation.

The argument coming out of Brussels is that at times like these, unlike the Iraq war, the Western allies must stick together with the United States.

What allies is Brussels exactly referring to? Europeans are struggling to heat their homes this winter because of the Ukraine war. France and Germany’s request for US gas supplies to alleviate the crisis in “ally” states were met with “astronomical” prices by Washington.

There is no doubt the US is making astronomical gas sale profits from the Ukraine war. The US oil giant Chevron, also a large global natural gas producer, is expected to make record exports to Europe.

"We have seen a big uptick in demand from European customers so we are adjusting to that," said Colin Parfitt, who oversees the company's shipping, pipeline, supply and trading operations. Europe will not "go back to the same flows from Russia as it did before," he said.

The US achieved its long term desire to replace Russian gas flows to Europe with its own stocks of liquefied natural gas (LNG). For years Washington has been demanding Europe to wean itself off Russian gas and the Ukraine war has met that demand, even slapping sanctions on Russia’s Nord Stream 2 gas pipeline to Germany. At the time, Berlin strongly censured the move.

American energy companies are now reaping in the profits. "What's growing in the United States is demand for exports," Parfitt said.

According to the Energy Information Administration, the US became the top LNG exporter in the first half of 2022, because of increased supplies to Europe amid the Ukraine crisis. Exports rose to average 11.2 billion cubic feet per day compared with the second half of 2021.

The fact is Europe has no choice but to purchase American energy as Washington has imposed sanctions on certain other major gas-producing countries. But why is the US selling at “astronomical” prices to its “allies”. The answer is American politicians, energy giants and arms manufacturers don’t really care about Europe.

Senior officials in France and Germany have even accused the US of overcharging for its LNG and using the war in Ukraine and the energy crisis to make profit and make Europe dependent on US gas.

French Finance Minister Bruno Le Mair recently noted the US should not be allowed to dominate the global energy market as its allies in Europe are suffering from the consequences of the Ukraine conflict.

He also said it is unacceptable for the US to sell LNG at prices four times higher than those paid by companies in America. The French Minister also called for the establishment of a more balanced relationship between the US and Europe.

The German Economy Minister Robert Habeck decried American LNG companies of charging too much for gas at a time when Europe’s biggest economy is struggling to balance its energy mix without Russian supplies.

He also recalled how the US has turned to the EU before when crude oil costs were skyrocketing, and that Europe’s national reserves were used at the time to push the prices back down.
At a time that the EU is in crisis, with friends like the US who needs enemies? Of course, American arms manufacturers are also making gigantic profits. They are shipping weapons to the warzone in Eastern Europe.

In the lead up to the war, President Putin said Russia needs to defend itself from an aggressive and hostile America. Washington is not primarily concerned with Ukraine's security, but with containing Russia, Putin said.

"In this sense, Ukraine itself is just an instrument to achieve this goal, this can be done in different ways, by drawing us into some kind of armed conflict and, with the help of their allies in Europe, forcing the introduction against us of those harsh sanctions they are talking about now in the US" he said at the time.

The consequences of the conflict have been felt by Europeans who have been staging mass protests, strikes and voting governments out of power across the continent. While the war has triggered soaring costs that the European public simply cannot afford, it has also frustrated hopes of any normalization in Europe following the covid-19 pandemic as well as European unity.

Studies show there is growing polarization in Europe as to whether supporting the US into triggering the Ukraine crisis was worth it after all?

Israeli arms shipments to Ukraine will destroy relationship with Russia

Former President of Russia, Dmitry Medvedev said on Monday afternoon, Israel seems to be going to supply weapons to the Kyiv regime, calling it a reckless move that will ruin relations with Russia.

"It will destroy all interstate relations between our countries," Medvedev, who is now Deputy Chairman of the Security Council of the Russian Federation, said. "I'm not talking about the fact that the Bandera supporters were Nazis, and remained so. Just look at the symbolism of their modern henchmen. If they are supplied with weapons, then it is time for Israel to declare Bandera and Shukhevych their heroes."

Medvedev was referring to Stepan Bandera, a Ukrainian far-right leader of the radical, terrorist wing of the Organization of Ukrainian Nationalists. He pledged to work with Germany during World War II, but as this was seen as an attempted coup, he was arrested. 

He was awarded the Hero of Ukraine award posthumously in 2010 by then-Ukrainian president Viktor Yushchenko, an action which was subsequently condemned by foreign nations and Jewish groups worldwide.

Roman-Taras Yosypovych Shukhevych, worked for Bandera in the OUN-B, murdering and expelling the Polish population of Volhynia and Eastern Galicia.

Russia's top leaders have spent a large portion of their international campaigning during the Russia-Ukraine war comparing between Ukraine and the Nazis. Russia's Foreign Ministry said just this past May that Israel supports neo-Nazis in Ukraine.

This occurred just one day after Russian Foreign Minister Sergey Lavrov claimed that Adolf Hitler had Jewish origins.

Russia-Ukraine conflict, Nazi, weapons,

Coal price in Europe jumps on strikes at South African port

The price of importing coal to Europe’s largest ports rose the most since May as a strike in South Africa curtails shipments of the fuel during the middle of an energy crisis.

“The action by Transnet SOC employees is lasting longer than anticipated and has started to take a serious toll on exports,” said Alex Claude, Chief Executive Officer of DBX Commodities in London.

Coal flows out of South Africa last week were 600,000 tons, the lowest in more than a year, he said.

South Africa’s troubles dovetail with those of European power producers, who are trying to stock up on coal ahead of winter to make up for dwindling supplies of natural gas from Russia.

Traders are relying increasingly on South Africa because European Union sanctions ban purchases from Russia, long the continent’s largest source.

Month-ahead European coal futures rose as much as 11%. They’re now trading at about US$290 per ton, rebounding from an almost seven-month low on October 10, 2022. The jump also may be driven by traders covering shorts or profit-taking after a long decline, Claude said.

The Transnet strike also is hobbling iron ore exports as staff refuse to work unless the company raises their pay. Negotiations are set to continue Wednesday.

Coal exports to Europe from a consortium that owns the Richards Bay Coal Terminal in South Africa increased to 4.1 million tons in the first half of 2022, as compared to 500,000 tons a year earlier, Thungela Resources Chief Financial Officer Deon Smith said in August.

 

How Countries Should Respond to Strong Dollar?

The US dollar is at its highest level since 2000, having appreciated 22% against yen, 13% against the euro and 6% against emerging market currencies since the start of this year. Such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries, given the dominance of the greenback in international trade and finance.

While the US share in world merchandise exports has declined to 8% from 12% since 2000, the dollar’s share in world exports has held around 40%. For many countries fighting to bring down inflation, the weakening of their currencies relative to the dollar has made the fight harder. On average, the estimated pass through of a 10% dollar appreciation into inflation is one percent. Such pressures are especially acute in emerging markets, reflecting their higher import dependency and greater share of dollar-invoiced imports compared with advanced economies.

The dollar’s appreciation also is reverberating through balance sheets around the world. Approximately half of all cross-border loan and international debt securities are denominated in US dollars. While emerging market governments have made progress in issuing debt in their own currency, their private corporate sectors have high levels of dollar-denominated debt. As world interest rates rise, financial conditions have tightened considerably for many countries. A stronger dollar only compounds these pressures, especially for some emerging market and many low-income countries that are already at a high risk of debt distress.

In these circumstances, should countries actively support their currencies? Several countries are resorting to foreign exchange interventions. Total foreign reserves held by emerging market and developing economies fell by more than 6% in the first seven months of this year.

The appropriate policy response to depreciation pressures requires a focus on the drivers of the exchange rate change and on signs of market disruptions. Specifically, foreign exchange intervention should not substitute for warranted adjustment to macroeconomic policies. There is a role for intervening on a temporary basis when currency movements substantially raise financial stability risks and/or significantly disrupt the central bank’s ability to maintain price stability.

As of now, economic fundamentals are a major factor in the appreciation of the dollar, rapidly rising US interest rates and a more favorable terms of trade a measure of prices for a country’s exports relative to its imports for the US caused by the energy crisis.

Fighting a historic increase in inflation, the Federal Reserve has embarked on a rapid tightening path for policy interest rates.

The European Central Bank, while also facing broad-based inflation, has signaled a shallower path for their policy rates, out of concern that the energy crisis will cause an economic downturn.

Meanwhile, low inflation in Japan and China has allowed their central banks to buck the global tightening trend.

The massive terms of trade shock triggered by Russia’s invasion of Ukraine is the second major driver behind the dollar’s strength. The euro area is highly reliant on energy imports, in particular natural gas from Russia. The surge in gas prices has brought its terms of trade to the lowest level in the history of the shared currency.

As for emerging markets and developing economies beyond China, many were ahead in the global monetary tightening cycle—perhaps in part out of concern about their dollar exchange rate—while commodity exporting EMDEs experienced a positive terms-of-trade shock. Consequently, exchange-rate pressures for the average emerging market economy have been less severe than for advanced economies, and some, such as Brazil and Mexico, have even appreciated.

Given the significant role of fundamental drivers, the appropriate response is to allow the exchange rate to adjust, while using monetary policy to keep inflation close to its target.

The higher price of imported goods will help bring about the necessary adjustment to the fundamental shocks as it reduces imports, which in turn helps with reducing the buildup of external debt.

Fiscal policy should be used to support the most vulnerable without jeopardizing inflation goals.

Additional steps are also needed to address several downside risks on the horizon. Importantly, we could see far greater turmoil in financial markets, including a sudden loss of appetite for emerging market assets that prompts large capital outflows, as investors retreat to safe assets.

In this fragile environment, it is prudent to enhance resilience. Although emerging market central banks have stockpiled dollar reserves in recent years, reflecting lessons learned from earlier crises, these buffers are limited and should be used prudently.

Countries must preserve vital foreign reserves to deal with potentially worse outflows and turmoil in the future. Those that are able should reinstate swap lines with advanced-economy central banks.

Countries with sound economic policies in need of addressing moderate vulnerabilities should proactively avail themselves of the IMF’s precautionary lines to meet future liquidity needs.

Those with large foreign-currency debts should reduce foreign-exchange mismatches by using capital-flow management or macro-prudential policies, in addition to debt management operations to smooth repayment profiles.

In addition to fundamentals, with financial markets tightening, some countries are seeing signs of market disruptions such as rising currency hedging premia and local currency financing premia.

Severe disruptions in shallow currency markets would trigger large changes in these premia, potentially causing macroeconomic and financial instability.

In such cases, temporary foreign exchange intervention may be appropriate. This can also help prevent adverse financial amplification if a large depreciation increases financial stability risks, such as corporate defaults, due to mismatches.

Finally, temporary intervention can also support monetary policy in the rare circumstances where a large exchange rate depreciation could de-anchor inflation expectations, and monetary policy alone cannot restore price stability.