Oil rises as US drilling stalls, Washington sanctions on Iran loom

Violence in Iraq, including a rocket attack on Basra airport on Saturday, also sparked fears of supply disruptions, although so far there have been no interruptions to oil exports. (File/Shutterstock)
Updated 10 September 2018
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Oil rises as US drilling stalls, Washington sanctions on Iran loom

  • US energy companies cut two oil rigs last week, bringing the total count to 860
  • New US sanctions against Iran’s crude exports from November were helping push up prices

SINGAPORE: Oil prices rose on Monday as US drilling for new production stalled and as the market eyed tighter conditions once Washington’s sanctions against Iran’s crude exports kick in from November.
US West Texas Intermediate (WTI) crude futures were at $68.23 per barrel at 0640 GMT, up 48 cents, or 0.7 percent, from their last settlement.
Brent crude futures climbed 64 cents, or 0.8 percent, to $77.46 a barrel.
US energy companies cut two oil rigs last week, bringing the total count to 860, energy services firm Baker Hughes said on Friday.
The US rig count has stagnated since May, after staging a recovery since 2016, which followed a steep slump the previous year amid plummeting crude prices.
Outside the United States, new US sanctions against Iran’s crude exports from November were helping push up prices.
Energy consultancy FGE said several major Iran customers like India, Japan and South Korea were already cutting back on Iran crude.
“Governments can talk tough. They can say they are going to stand up to Trump and/or push for waivers. But generally the companies we speak to ... say they won’t risk it,” FGE said.
“US financial penalties and the loss of shipping insurance scares everyone,” it said in a note to clients.
Violence in Iraq, including a rocket attack on Basra airport on Saturday, also sparked fears of supply disruptions, although so far there have been no interruptions to oil exports.
Tighter outlook?
With US rig activity stalling and Iran sanctions looming, the oil market outlook is tightening.
“Investors have largely turned positive again ... likely welcoming the return of backwardation,” said Edward Bell, commodity analyst at Emirates NBD bank.
Backwardation describes a market in which prices for immediate delivery are higher than those for later dispatch. It is considered a sign of tight conditions giving traders an incentive to sell oil immediately instead of storing it.
The Brent backwardation between October this year and mid-2019 is currently around $2.20 per barrel.
While Washington exerts pressure on other countries to fall into line and also cut imports from Iran, it is also urging other major producers to raise their output in order not to create too strong a price spike.
US Energy Secretary Rick Perry will meet counterparts from Saudi Arabia and Russia on Monday and Thursday, respectively, as the Trump administration seeks the world’s biggest exporter and producer to keep output up.
One key question going forward is how demand develops amid the trade dispute between the United States and China, as well as general emerging market weakness.
Asian shares on Monday were on track for their eighth straight session of declines, while China’s yuan and India’s rupee also came under renewed pressure as US President Donald Trump threatened yet more import tariffs on Chinese goods.
Consultancy FGE warned that “trade wars, and especially rising interest rates, can spell trouble for the emerging markets that drive (oil) demand growth.”
Despite this, FGE said the likelihood of significantly weaker oil prices was relatively low as the Organization of the Petroleum Exporting Countries (OPEC) would withhold output to prevent prices from plunging.
“We see $65 per barrel as a trigger for cuts,” FGE said.


Ex-Nissan chief Ghosn charged, may face new allegations

Updated 35 min 54 sec ago
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Ex-Nissan chief Ghosn charged, may face new allegations

  • Authorities are also widely expected to re-arrest him later Monday over separate allegations that he also under-reported his income by a further four billion over the past three years
  • Under Japanese law, suspects can be re-arrested several times for different allegations, allowing prosecutors to question them for prolonged periods

TOKYO: Japanese prosecutors have formally charged Carlos Ghosn with financial misconduct for under-reporting his salary, local media reported on Monday, three weeks after the auto tycoon’s arrest stunned the business world.
Former Nissan chairman Ghosn, 64, has been in detention since his November 19 arrest on suspicion of under-declaring his income by some five billion yen ($44 million) between 2010 and 2015.
Authorities are also widely expected to re-arrest him later Monday over separate allegations that he also under-reported his income by a further four billion over the past three years.
Under Japanese law, suspects can be re-arrested several times for different allegations, allowing prosecutors to question them for prolonged periods — a system that has drawn criticism internationally.
Monday was the final day prosecutors can hold Ghosn and close aide Greg Kelly before either charging or re-arresting them, and a further arrest would allow them another 22 days of questioning.
In addition to charges against Ghosn, prosecutors also indicted Kelly and Nissan itself, according to local media, as the company submitted the official documents that under-reported the income.
Ghosn denies the charges and is in a “combative” frame of mind, according to sources at Renault, the company he still formally leads — even if the French car giant has appointed an interim chairman.
The Japanese firms in the three-way alliance with Renault — Nissan and Mitsubishi Motors — have both sacked the Franco-Lebanese-Brazilian as chairman.
The millionaire auto sector star, who attracted some criticism for a perceived lavish lifestyle, is now alone in a spartan cell in a Tokyo detention center, in a tiny room measuring just three tatami mats — around five square meters.
He has reportedly told embassy visitors he is being well treated but has complained of the cold, with Monday’s temperature in the Japanese capital hovering around five degrees Celsius.
He spends his time reading books and news reports and is said to be unhappy about the rice-based food.
According to local news agency Kyodo, he has admitted signing documents to defer part of his salary until after retirement but said this amount did not need to be declared as it has not yet been definitively fixed.
A source close to the investigation has said Ghosn and Kelly allegedly put the system in place after a new law came in obliging the highest-paid members of the firm to declare their salary.
Ghosn is suspected of deferring part of his pay to avoid criticism from staff and shareholders that his salary was too generous.
Nissan is appealing to a court in Rio de Janeiro to block access by Ghosn’s representatives to a luxury apartment on Copacabana Beach
“We are closely watching if he is actually indicted and then found guilty,” said Satoru Takada, an analyst at TIW, a Tokyo-based research and consulting firm.
“If he is exempted from prosecution or found innocent, it is going to create huge confusion in Nissan’s management,” Takada told AFP.
It is unclear if Ghosn can be bailed before a potential trial.
In Japan, prosecutors and defendants begin a trial at a district court and can appeal to a high court and the Supreme Court. It may take several years before reaching a final judgment.
If found guilty, Ghosn could face a 10-year prison sentence.
The affair represents a staggering turnaround for a figure celebrated for saving Nissan from the brink of bankruptcy and rebuilding it as a money-making subsidiary of Renault.
Nissan has begun a process of choosing Ghosn’s successor, with the final decision expected on December 17.
His arrest has sparked incredulity at Renault, which owns 43 percent of Nissan and says it has not seen a detailed account of the charges against Ghosn.
It has also fueled anger in Lebanon, with digital billboards around Beirut proclaiming “We are all Carlos Ghosn” under a picture of the magnate.
“A Lebanese phoenix will not be scorched by a Japanese sun,” Interior Minister Nohad Machnouk has declared.