Investors flee amid fears of market glut after world’s ‘big three’ producers reveal near-record output

A gas station worker pumps fuel into a car at a gas station of the Venezuelan state-owned oil company PDVSA in Caracas. (Reuters)
Updated 05 November 2018
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Investors flee amid fears of market glut after world’s ‘big three’ producers reveal near-record output

Reuters NY: The oil market’s two-year bull run is running into one of its biggest tests in months, facing a tidal wave of supply and growing worries about economic weakness sapping demand worldwide.
After topping out at more than $75 and $85 a barrel just a month ago, both US crude and Brent benchmark futures have grappled with near-relentless selling. For a time, prices had some support on hopes that renewed US sanctions on Iran would force barrels off the market.
That changed in the last week. The world’s three largest producers — Russia, Saudi Arabia and the US — all indicated they were pumping at record or near-record levels, while the US said it would allow waivers that could allow buyers to keep importing Iranian oil, lessening the threat of a supply crunch.
Those factors, along with a spate of recent weak economic reports out of China and other emerging markets, have shifted the conversation back toward worries about oversupply, and pushed US futures to lows not seen since April, interrupting an upward move that had consistently found support during the rally’s modest pullbacks.
The structure of the US crude futures curve had for several months indicated expectations for tighter supply, but future-dated contracts now suggest investors think markets could be awash in oil over the coming months.
“The magnitude of recent selling is strongly suggesting that global oil demand is weaker than expected as a result of tariff issues, especially between the US and China,” said Jim Ritterbusch, president of Ritterbusch & Associates.
There has been an exodus among speculators as well. In the last two weeks, net bullish bets on oil have declined to the lowest level in over a year. Selling notably accelerated on Thursday after US West Texas Intermediate crude futures fell below $65 a barrel, a level that had stood firm in previous selloffs during the summer and fall.
The oil market ran higher in anticipation of this week’s formal re-imposition of sanctions against Iran by the US, and on concerns that supply from producers like Saudi Arabia would not be able to make up the difference.
However, the US government said on Friday it will temporarily allow several countries, including South Korea and Turkey, to keep importing Iranian oil when US sanctions come back into force, sparing them for now from the threat of US economic penalties.
Still, some analysts believe the current selloff has come too far, too quickly. Major OPEC producers won’t be able to add more supply should it become necessary, particularly with production in Iran, Venezuela and Libya still at risk.
“A loss of 1 million bpd (barrels per day) from Iran, further declines in Venezuela, coupled together with geopolitical disruption in Libya and Nigeria could easily wipe out what little spare capacity we have left,” Bernstein analysts said this week.
Output from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, rose to levels not seen in two years. US production hit a record 11.3 million bpd in August, and Russia’s output rose to 11.4 million bpd, a post-Soviet era peak.
For US crude, the key area to watch is between $64.45 and $64.80, where prices had found support in the past, said Fawad Razaqzada, analyst at futures brokerage Forex.com. If oil dips below this point, “the path of least resistance would be to the downside,” he said.
For Brent, Razaqzada is watching the range between $69.50 and $69.60 a barrel, and if it were to slip below that, we could see a much larger correction, he said.


India suspends Kashmir border trade with Pakistan

Updated 19 April 2019
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India suspends Kashmir border trade with Pakistan

  • Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries
  • India said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency”

NEW DELHI: India has suspended trade across its disputed Kashmir border with Pakistan, alleging that weapons and drugs are being smuggled across the route, as tensions simmer between the nuclear-armed neighbors.
Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries and brought the two countries to the brink of war with cross-border air strikes.
On Thursday, India’s government, which is in the middle of a tough national election, said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency.”
It also said many of those trading across the Line of Control, which divides Kashmir into zones under Indian and Pakistani control, had links to militant organizations.
The home ministry said trade would be suspended until a stricter inspection mechanism is in place.
The cross-border trade is based on a barter system, with traders exchanging goods including chillies, cumin, mango and dried fruit.
It began in 2008 as a way to improve strained relations between New Delhi and Islamabad, who have fought two of their three wars over the disputed region.
The Indian Express newspaper said Friday that 35 trucks carrying fruit traveling from the Indian side of the border had been stopped after the government order.
Trade on the border has been suspended before, including in 2015, when India accused a Pakistani driver of drug trafficking.
The latest move comes after India withdrew “Most Favoured Nation Status” — covering trade links — from Pakistan after the February attack, which was claimed by the Pakistan-based Jaish-e-Mohammed Islamist group.
Islamabad has denied any involvement in the attack.
India’s Hindu nationalist Prime Minister Narendra Modi has made national security a key plank of his re-election campaign, pointing to the recent flare-up of violence as he battles the center-left opposition Congress party.
He is seeking a second term from the country’s 900 million voters in the mammoth election which kicked off on April 11 and runs till May 19. The results will be out on May 23.