Strong demand keeps oil prices rising

Offshore oil drilling platform ‘Gail’ operated by Venoco, Inc., is shown off the coast of Santa Barbara, California (File photo / AP)
Updated 29 September 2018
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Strong demand keeps oil prices rising

RIYADH: Oil prices continued their upward momentum and the price of Brent crude rose to $82.72 per barrel. This was the first weekly closing above $80 since October 2014. West Texan Intermediate hit $73.25 per barrel. The Brent/Dubai spread widened to $9.47 per barrel by the week’s closing on Friday. The recovery in oil prices owes much to the strength of global oil demand.
When OPEC met in November 2014 and decided to change its market strategy, global oil demand was about 92 million barrels per day (bpd). It has now grown to nearly 100 million bpd, with crude inventories down below the five-year average.
For the first time since August 2014, predictions have begun on the return of oil to $100 per barrel. This is happening in an atmosphere of uncertainty as further output increases from OPEC are yet to materialize. At present, the market is not in need of any production hikes to compensate for the US sanctions on Iran’s oil exports.
Revising oil price forecasts higher could be rational, but the fundamental bullishness might be tempered by theoretical concerns over demand that have no strong argument of support. Inventory drawdowns continue and global oil demand has risen 7.5 million bpd since the end of 2014.
The fall in Iran’s oil output has yet to result in growth in OPEC’s output because the market supply/demand balance is still not in a supply deficit. This is why OPEC’s decision for an output increase will follow Iran’s output decline inversely for the rest of 2018. OPEC’s output is likely to rise in 2019 as needed.
Should output be increased now or is it still premature to ramp up production?
This is the question that every market analyst is considering. There are arguments that the oil market cannot be tight and yet well supplied at the same time. This is true. But although the market is tight, supply deficits haven’t materialized. For instance, all Saudi Aramco crude oil customers have been allocated their requested monthly crude oil shipments in their entirety. This is a strong sign that there is not a supply deficit in the market.
Additionally, the US has decided to sell 11 million barrels of oil from its Strategic Petroleum Reserve (SPR). Deliveries are to take place in October and November. The US SPR currently stores 660 million barrels of oil in massive underground salt caverns. It is the world’s largest supply of emergency crude oil. March 2014 was the last time oil was released from the SPR on a test basis. That happened when oil prices were almost $30 per barrel higher than their current level. It is possible for the US President to decide to tap the US SPR to try to modulate oil prices for the first time, but many analysts believe such a move would be largely symbolic.
The release of 11 million barrels isn’t enough to make up Iran’s entire production but that might not be necessary. This week India confirmed that it will continue to import oil from Iran, albeit at a reduced rate. China has also reduced Iranian oil imports but continues to defend its energy trade with Tehran.
US President Trump could attempt to pressure India into a zero import position for Iranian oil, for without it his sanctions lack impact. However, efforts are under way by the EU, China and Russia to implement a barter system with Iran that will allow it to exchange oil for the imports it needs. OPEC is surely waiting to see just how much production is required before ramping up output.
Tapping the US SPR might not reduce oil prices amid the oil market tightness but instead further widen the Brent/WTI spread as a result of the difficulties facing shale oil producers in exporting their oil. This comes simultaneously with Cushing, Oklahoma inventories that are now close to tank bottoms.
Rebuilding of these inventories has begun though, with the usual rise off the seasonal lows likely to be assisted by a return to normal output from the Canadian oil sands in Alberta.


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.”