Oil slips to around $63 as Iran concerns fade for now

The Philadelphia Energy Solutions oil refinery is shown following a recent fire that caused significant damage to the complex, in Philadelphia, Pennsylvania, U.S., June 26, 2019. (Reuters)
Updated 23 July 2019

Oil slips to around $63 as Iran concerns fade for now

  • US crude inventories expected to fall for 6th week
  • Goldman cuts 2019 oil demand forecast

LONDON: Oil slipped to around $63 a barrel on Tuesday as concerns faded for now that rising tensions in the Middle East would escalate and hit oil supplies, compounding the impact of a weaker demand outlook.
Iran’s capture of a British oil tanker last week sparked worries about supply disruptions in the Strait of Hormuz, through which about a fifth of the world’s oil flows, prompting crude to rally on Monday.
But oil prices have since pared some gains. Brent crude fell 31 cents to $62.95 a barrel by 1227 GMT on Tuesday. US West Texas Intermediate crude slipped 23 cents to $55.99.
“The response of oil prices to the seizure of a British oil tanker by armed Iranian forces near the Strait of Hormuz has been amazingly muted so far,” said Carsten Fritsch, analyst at Commerzbank.
“It appears that the majority of market participants are convinced that there will be no open conflict between the West and Iran,” he said.
The tensions come as the United States aims to cut off Iran’s oil exports and against the backdrop of supply cuts led by the Organization of the Petroleum Exporting Countries since the start of the year to prop up prices.
As part of US efforts, Washington has imposed sanctions on Chinese state-run energy company Zhuhai Zhenrong Co. Ltd. for allegedly violating restrictions imposed on Iran’s oil sector.
Despite lower Iranian exports and OPEC’s voluntary supply curbs, oil supply is exceeding demand due to strong growth in output from the United States and other non-OPEC producers, according to the International Energy Agency.
A weaker outlook for oil demand because of slowing economic growth has weighed on prices, which are still up by 18% in 2019 helped by the OPEC-led supply pact.
“Although prices had been driven by supply developments in the first half of the year economic considerations are making oil bulls careful this month,” said Tamas Varga of oil broker PVM.
Goldman Sachs lowered its 2019 oil demand projection on Sunday, joining other forecasters such as the IEA and OPEC in trimming its outlook for fuel use.
Oil may gain further support from expectations of another drop in US crude inventories in weekly reports due later on Tuesday and on Wednesday. Analysts expect a 3.4 million-barrel drop in crude stocks.
The American Petroleum Institute, an industry group, releases its inventory report at 2030 GMT.


No more spending excuses for Merkel as investment bottlenecks ease

German Chancellor Angela Merkel gestures at her arrival for the government’s ‘Open Door Day’ in Berlin on Sunday Sam sit fuga. Et laut ute odi cum as elit. (Reuters)
Updated 41 min 57 sec ago

No more spending excuses for Merkel as investment bottlenecks ease

  • German leader urged to boost public investment by taking on new debt Sunducim velessunt alis plabore sernatur

BERLIN: German Chancellor Angela Merkel has fended off growing calls for more fiscal stimulus by citing the slow outflow of existing federal funds — but data suggests the money is indeed being used up as local authority bottlenecks gradually clear. With Europe’s largest economy on the brink of recession and borrowing costs at record lows, Merkel has faced pressure at home and from abroad to ditch her pledge to target balanced budgets and instead boost public investment by taking on new debt.
Merkel and her conservatives say Berlin has already earmarked billions of euros in investment for schools, nurseries and hospitals but that local authorities have spent only a fraction of this windfall.
But this excuse seems no longer valid: Figures from the Finance Ministry show that towns and municipalities are now tapping the federal government’s funds more actively, suggesting that planning and labor bottlenecks are easing.
Of €3.5 billion ($3.9 billion) earmarked in a municipal infrastructure fund for investment in schools, nurseries and hospitals (KInvFG I), local authorities have applied for nearly €3.4 billion, the data showed — roughly 96 percent of the overall amount on offer.
The fund was created in 2015 and initially meant to last until 2018. Due to the slow initial take-up, it was then extended to 2020.
Of another €3.5 billion put aside by the government in 2017 for school renovations (KInvFG II), authorities so far have tapped €2.4 billion, or 69 percent.

HIGHLIGHTS

• German towns tap into federal funds more actively.

• Improved outflow raises pressure to provide more money.

• Coalition parties at odds over debt-financed stimulus.

“As you can see, the program is running very well,” a Finance Ministry spokeswoman said, adding that the take-up had jumped by nearly €2 billion over the past 12 months.
“The figures show that there is planning progress in most federal states and that financially weak municipalities welcome the financial aid from the federal government,” she added.
The improved flow of funds is important for Germany, where heavily indebted towns and municipalities historically manage a large chunk of public spending and many citizens are annoyed by run-down local infrastructure and closed public facilities.

Austerity
Years of austerity linked to the national debt brake — a constitutional amendment introduced in the wake of the global financial crisis of 2008/09 to rein in public debt — have led to pent-up public investment needs in towns and municipalities worth a combined €138 billion, data from KfW Research shows.
“Towns and municipalities have been structurally underfunded for more than 20 years. They were forced to cut staff,” Gerd Landsberg, managing director of the German Association of Towns and Municipalities, told Reuters.
“That partly explains the initial problems with the slow take-up of federal funds — it takes time to hire new staff and get the ball rolling,” Landsberg explained.
The latest figures show, however, that authorities are overcoming those staff-related planning bottlenecks, meaning most of the money should be used up soon, he said.
Landsberg called on the government to provide more funding lines and improve the design of its programs.
“Short-term investment funds alone do not provide sufficient planning and personnel security. We must secure the financial strength of towns and municipalities in the long term.”
Like Merkel and her conservatives, Finance Minister Olaf Scholz of the jointly governing, center-left Social Democrats (SPD) has shown little appetite so far to ditch the balanced budget goal and boost investments through new debt.
Eckhardt Rehberg, the chief budget lawmaker in Merkel’s conservatives, is also sticking to the line that billions of euros still sit unused in various special-purpose funds.
“The debate about debt-financed investment programs misses the point. The problem is not a lack of money, but the sluggish outflow of funds,” Rehberg said.
Authorities must hire more staff, cut red tape and speed up planning and approval procedures, he said. “In addition, the construction sector has already reached its capacity limit, which means it can hardly cope with more demand,” Rehberg added.
Nevertheless, members of both the SPD’s own left wing and of the Greens, an increasingly strong opposition party, are pushing for a fiscal U-turn. Even the influential BDI industry lobby group, traditionally close to Merkel’s conservatives, last week called for a debt-financed fiscal stimulus package.
Cansel Kiziltepe, a lower house SPD lawmaker specializing in finance, said Merkel and the conservatives should stop blaming local authorities and rethink their insistence on incurring no new debt in their budgets, a policy goal commonly known as the “black zero.”
“Especially in times of economic weakness and in light of improved outflow of funds, it’s high time to say goodbye to the fetish of the black zero,” Kiziltepe told Reuters.