Saudi Arabia urges OPEC to cut oil output to low end of target

Energy, Industry and Mineral Resources Minister Khalid Al-Falih.
Updated 18 November 2016

Saudi Arabia urges OPEC to cut oil output to low end of target

RIYADH/DOHA: Saudi Energy Minister Khalid Al-Falih said on Thursday he was optimistic about OPEC’s deal to limit oil output and mentioned the lower end of a previously agreed production target, helping spur a rally in the price of crude.
The Organization of the Petroleum Exporting Countries, at a meeting in Algeria in September, made a preliminary deal to limit oil output. The details are meant to be finalized when OPEC ministers gather in Vienna on Nov. 30.
Al-Falih told Al-Arabiya TV that the oil market was on a path toward becoming balanced and that “reaching (a decision) to activate that ceiling of 32.5 million barrels per day (bpd) will speed up the (market) recovery and will benefit producers and consumers.”
OPEC agreed on Sept. 28 to limit supply to between 32.5 million and 33 million bpd, with special conditions given to Libya, Nigeria and Iran, whose output has been hit by wars or sanctions.
Al-Falih and other ministers have said previously that OPEC would reduce output to that range, without specifying the higher or lower end.
Oil prices climbed above $47 a barrel on Thursday as comments from Al-Falih and other ministers boosted expectations that OPEC would complete the deal.
“I’m still optimistic that the consensus reached in Algeria for capping production will translate, God willing, into caps on states’ levels and fair and balanced cuts among countries,” he said.
A number of OPEC energy ministers, including Al-Falih, are expected to meet informally in Doha on the sidelines of a gas exporters’ conference to try to build consensus.
Algeria’s Energy Minister Nouredine Bouterfa said the issue of Iran’s production would not undermine a deal.
“There is strong consensus among OPEC producers for a freeze,” he told Reuters.
“Iran is not a problem. Iran is a particular situation and needs particular treatment. They will not have the same rule for the reduction. We will study what the best solution is for Iran.”
Qatar’s Energy Minister Mohammed Al-Sada said Iran and Iraq — which has also sought special treatment in any supply cut — were being asked to freeze output at current levels.
“We are discussing with both countries on that and we are looking at various ways and means of coming to a mutual understanding,” Sada told reporters.
Non-OPEC exporter Russia is ready to support OPEC’s decision on an output freeze and sees a good chance that it can agree terms by Nov. 30, Russian Energy Minister Alexander Novak said on Wednesday.
Al-Falih told Al-Arabiya that he hoped an agreement with Russia to cooperate on market stability would correspond with OPEC’s meeting on Nov. 30.


Gold rush at Turkish bazaar a test of trust for lowly lira

Updated 15 August 2020

Gold rush at Turkish bazaar a test of trust for lowly lira

  • As precious metal prices soar, Turks rush to buy amid economic uncertainty and a volatile currency

ISTANBUL: Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight.

With memories of a currency crisis which rocked Turkey’s economy only two years ago fresh in his mind, the retired police officer was among those playing it safe as he queued in the city’s sprawling market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.

“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said. “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”

The day after Ayhan bought his gold on Aug. 6, the lira hit a historic low and remains skittish, laying bare concerns that Turkey’s reserves have been badly depleted by market interventions, which are showing signs of fizzling out.

Turks traditionally use gold for savings and there may be 5,000 tons of it “under mattresses,” with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.

Although bullion has never been more expensive, vendors at the Grand Bazaar said almost no one was selling their gold jewelry. There are only buyers.

HIGHLIGHTS

  • Currency touched record lows in three volatile weeks.
  • Local holdings of hard currencies at all-time high.
  • All are buyers at Grand Bazaar, despite expensive gold.

“I’ve been chatting with hundreds of people who are thinking about selling their cars or houses to invest in gold,” vendor Gunay Gunes said.

In the last three weeks, as selling gripped the lira, local holdings of hard assets such as dollars and gold jumped $15 billion to a record of nearly $220 billion.

There is no evidence suggesting people are about to pull savings from banks, and this week the lira has hovered around 7.3 versus the dollar, although it remains among the worst emerging-market performers this year.

Demand has eased since Turks withdrew some $2 billion in hard foreign cash from their banks during a March-May period in which a lockdown was imposed and the lira hit its last low. Analysts say that if Ankara cannot boost confidence in the currency, which has fallen almost 20 percent this year, import-heavy Turkey risks inflation and even a balance of payments crisis that will worsen fallout from the coronavirus crisis.

Given foreign investors now have only a small stake in Turkish assets, they say the key for President Recep Tayyip Erdogan’s government is convincing Turks to stop turning to the perceived stability of dollars and gold.

The central bank and treasury did not immediately comment on the dollarization trend or any policy response.

Finance Minister Berat Albayrak, Erdogan’s son-in-law, said on Wednesday the lira’s competitiveness was more important than exchange rate volatility.

The central bank has effectively borrowed on local dollar liquidity to fuel foreign exchange market interventions, which are meant to stabilize the lira.

Through Turkish state banks, which together are “short” foreign exchange by $12 billion, the central bank has sold over $110 billion since last year. In turn, the bank’s gross FX buffer has fallen by nearly half this year to below $47 billion, its lowest in years.

The central bank has said its reserves naturally fluctuate in stressful periods, and the treasury says the bank intervenes at times to stabilize the currency.

But ratings agencies say Ankara should take decisive steps, such as an interest rate hike, to rebuild reserves and restore confidence. Otherwise, rising current account deficits and possible debt defaults could tarnish a solid reputation for meeting foreign obligations.

“Locals don’t want to keep Turkish lira, they’ve been dollarizing and buying gold. Turks have hardly ever done that,” said Shamaila Khan, New York-based head of EM debt strategy at AllianceBernstein, which manages $600 billion. “That is why you need proactive policies because if you get to that stage where locals are unwilling to keep their money in the bank then you’re heading to a balance of payments crisis. That’s when the alarm bells will start ringing.” 

Some banks imposed fees on withdrawals this week, while the central bank has curbed cheap credit channels it opened to ease the coronavirus fallout. Yet while lira deposits now earn more than the 8.25 percent policy rate, their real return is negative with inflation at 11.8 percent.

Traders say such backdoor tightening needs to reach 11.25 percent to stabilize the lira, which has nearly halved in value since early 2018.

Market expectations have risen for a formal rate hike that economists say would reinforce central bank independence, even while it could slow economic recovery.

Politics may stand in the way.Erdogan, whose popularity has dipped this year, holds the view that high rates cause inflation, and sacked the last central bank governor for disobedience.

He said on Monday he hoped market rates would fall further.

But firms such as System Denim, which imports materials and makes clothes for companies like Zara and Diesel, are feeling the pinch from rising costs. Owner Seref Fayat said he converted his 4 percent euro-denominated loans to lira at 10 percent. “No need to take on additional FX risk,” he said. “I pay a higher rate, but at least I can see ahead.”