WEEKLY ENERGY RECAP: Is the price right for crude?

Azerbaijan's Energy Minister Parviz Shahbazov (R) and Saudi Arabia's Energy Minister Khalid al-Falih attend a press conference at the end of the 13th meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC and non-OPEC countries in Baku on March 18, 2019. (AFP)
Updated 07 April 2019
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WEEKLY ENERGY RECAP: Is the price right for crude?

RIYADH: The big story of the week was Reuters reporting that Saudi Arabia was mulling selling its oil in currencies other than the dollar if Washington pushed ahead with legislation exposing OPEC to anti-trust prosecution.
The story, which cited unnamed sources, added further drama to a narrative that is hardly in need of any more twists and turns of plot.
Before getting too carried away, it is worth reflecting on the absolutely vital role that the Kingdom of Saudi Arabia plays in balancing global oil markets.
Saudi Arabia is one of the 20 most powerful economies in the world and that same world depends on it to ensure that the fuel that powers people’s cars and heats their homes is in steady supply.
It is hard to imagine a world without the Kingdom playing that vital role. Changing the pricing mechanism deployed to price oil is not so unusual.
After all China, which does not export crude oil but is the world’s largest crude oil importer, has launched its own oil pricing exchange as a clear direction to detach from dollar dominance in pricing crude.
The establishment of the Shanghai Energy Exchange was the first step in displacing the dollar in almost 10 percent of the global oil consumption.
Whether Saudi Arabia wishes to price crude in dollars or riyals is ultimately a matter for the government as it determines what is in the best economic interests of the country. In this there is no difference with other countries and other industries.
For example, car makers price their cars without referring to global benchmarks and without pressure from the media, speculators or money managers.
The debate around pricing should not deflect from the Kingdom’s pivotal role in balancing global oil markets. Attempts to criminalize OPEC through the US bill known as “NOPEC” threatens global energy security more than OPEC itself or indeed its largest producer.
The other big running story that has been moving global energy markets has been sanctions against Iran and the granting of import waivers. 
With Brent crude passing through the $70 mark, oil prices have gained almost 30 percent since the beginning of the year. This may encourage the administration of US President Donald Trump to grant waiver extensions for some major oil importers.
Looking at the current trajectory of prices, Brent crude may not be far off from reaching the mid-70’s mark by May amid a continuing supply deficit and further potential supply outages.
With this in mind, earlier predictions about an economic recession dampening demand for oil and refined products was completely wrong. It ignored market fundamentals and drove prices lower by failing to take account of seasonal demand, trade balances and rising refinery capacity.


India suspends Kashmir border trade with Pakistan

Updated 4 min 20 sec ago
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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.