Oil hits $80 a barrel on concerns about Iran supply

US bank Morgan Stanley said it had raised its Brent price forecast to $90 per barrel by 2020, due to a steady increase in demand. (Reuters)
Updated 17 May 2018
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Oil hits $80 a barrel on concerns about Iran supply

  • As a result of its surging production, US crude is increasingly appearing on global markets
  • Commodity brokerage Marex Spectron said that the surge in US supplies was a “strongly price-bearish development”

LONDON: Oil prices hit $80 a barrel on Thursday for the first time since November 2014 on concerns Iranian exports could fall, reducing supply in an already tightening market.
Brent crude futures hit $80 and stood up 57 cents at$79.85 per barrel at 0955 GMT.
US West Texas Intermediate (WTI) crude futures were up 64 cents at $72.13 a barrel, also their highest since November 2014.
The prospects of a sharp drop in Iranian oil exports in the coming months due to renewed US sanctions following President Donald Trump’s decision to withdraw from an international nuclear deal with Tehran has lifted oil prices in recent weeks.
France’s Total on Wednesday warned it might abandon a multi-billion-dollar gas project in Iran if it could not secure a waiver from US sanctions, casting further doubt on European-led efforts to salvage the nuclear deal.
“The geo-political noise and escalation fears are here to stay,” said Norbert Rücker, Head of Macro & Commodity Research, at Swiss bank Julius Baer. “Supply concerns are top of mind after the United States left the Iran nuclear deal.”
Global inventories of crude oil and refined products dropped sharply in recent months due to robust demand and production cuts by the world’s top producing countries.
Oil stocks were expected to drop further as peak summer driving season nears, offsetting increases in US shale output, said analysts at Bernstein.
“While the sharp rise in US production and rig count has raised questions on the sustainability of inventory draws through 2018, we believe that inventories will continue to draw as we enter the summer driving season in 2018,” they said.
Several banks have in recent days raised their oil price forecasts, citing tighter supplies and strong demand.
But high oil prices could hit consumption, the International Energy Agency warned on Wednesday, lowering its global oil demand growth forecast for 2018 to 1.4 million from 1.5 million barrels per day (bpd).
Asia’s demand is at record highs and with rising prices its crude could cost $1 trillion this year, about twice what it paid during the market lull of 2015/2016.
The IEA said global oil demand would average 99.2 million bpd in 2018, although US bank Goldman Sachs said consumption would cross 100 million bpd “this summer.”
Leading production increases is the United States, where crude output has soared by 27 percent in the last two years, to a record 10.72 million bpd, putting the United States within reach of top producer Russia’s 11 million bpd.
Goldman Sachs, though, said even with a slowdown in demand and soaring US output, global oil markets would remain tight.
“US shale cannot solve the current oil supply problems,” it said, arguing that US oil would not be sufficient to offset production losses from Iran, Venezuela and Angola.
Goldman also said the tight market left “room for OPEC to exit (its production cuts) without significant price impact.”


Foreign investors hope India dials back policy shocks after Modi win

Updated 24 May 2019
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Foreign investors hope India dials back policy shocks after Modi win

  • Modi’s pro-business image and India’s youthful population have lured foreign investors
  • After Modi’s win, about a dozen officials of foreign companies in India and their advisers said they hoped he would ease his stance and dilute some of the policies

NEW DELHI: Foreign companies in India have welcomed Prime Minister Narendra Modi’s election victory for the political stability it brings, but now they need to see him soften a protectionist stance adopted in the past year.
Modi’s pro-business image and India’s youthful population have lured foreign investors, with US firms such as Amazon.com , Walmart and Mastercard committing billions of dollars in investments and ramping up hiring.
India is also the biggest market by users for firms such as Facebook Inc, and its subsidiary, WhatsApp.
But from around 2017, critics say, the Hindu nationalist leader took a harder, protectionist line on sectors such as e-commerce and technology, crafting some policies that appeared to aim at whipping up patriotic fervor ahead of elections.

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“I hope he’s now back to wooing businesses,” said Prasanto Roy, a technology policy analyst based in New Delhi, who advises global tech firms.
“Global firms remain deeply concerned about the lack of policy stability or predictability, this has sent a worrying message to global investors.”
India stuck to its policies despite protests and aggressive lobbying by the United States government, US-India trade bodies and companies themselves.
Small hurdles
Modi was set to hold talks on Friday to form a new cabinet after election panel data showed his Bharatiya Janata Party had won 302 of the 542 seats at stake and was leading in one more, up from the 282 it won in 2014.
After Modi’s win, about a dozen officials of foreign companies in India and their advisers told Reuters they hoped he would ease his stance and dilute some of the policies.
Other investors hope the government will avoid sudden policy changes on investment and regulation that catch them off guard and prove very costly, urging instead industry-wide consultation that permits time to prepare.
Protectionism concerns “are small hurdles you have to go through,” however, said Prem Watsa, the chairman of Canadian diversified investment firm Fairfax Financial, which has investments of $5 billion in India.
“There will be more business-friendly policies and more private enterprise coming into India,” he told Reuters in an interview.
Tech, healthcare and beyond
Among the firms looking for more friendly steps are global payments companies that had benefited since 2016 from Modi’s push for electronic payments instead of cash.
Last year, however, firms such as Mastercard and Visa were asked to store more of their data in India, to allow “unfettered supervisory access,” a change that prompted WhatsApp to delay plans for a payments service.
Modi’s government has also drafted a law to clamp similar stringent data norms on the entire sector.
But abrupt changes to rules on foreign investment in e-commerce stoked alarm at firms such as Amazon, which saw India operations disrupted briefly in February, and Walmart, just months after it invested $16 billion in India’s Flipkart.
Policy changes also hurt foreign players in the $5-billion medical device industry, such as Abbott Laboratories, Boston Scientific and Johnson & Johnson, following 2017 price caps on products such as heart stents and knee implants.
Modi’s government said the move aimed to help poor patients and curb profiteering, but the US government and lobby groups said it harmed innovation, profits and investment plans.
“If foreign companies see their future in this country on a long-term basis...they will have to look at the interests of the people,” Ashwani MaHajjan, an official of a nationalist group that pushed for some of the measures, told Reuters.
That view was echoed this week by two policymakers who said government policies will focus on strengthening India’s own companies, while providing foreign players with adequate opportunities for growth.
Such comments worry foreign executives who fear Modi is not about to change his protectionist stance in a hurry, with one offical of a US tech firm saying, “I’d rather be more worried than be optimistic.”