Brent oil rises to 4-year high ahead of Iran sanctions, traders eye more hikes

Approximately 1.5 million barrels per day of Iranian oil will effectively be out of the market on November 4 once the US sanctions kick in. (AFP)
Updated 01 October 2018

Brent oil rises to 4-year high ahead of Iran sanctions, traders eye more hikes

  • Brent was pushed up by looming sanctions against Iran, which will start targeting its oil sector from November 4
  • With oil prices soaring, there are concerns over their inflationary effect on demand growth

SINGAPORE: Brent crude oil prices rose to their highest since November 2014 on Monday ahead of US sanctions against Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), that kick in next month.
Benchmark Brent crude oil futures rose to as much as $83.27 a barrel and were at $83.21 at 0339 GMT, up 48 cents, or 0.6 percent from their last close.
US West Texas Intermediate (WTI) crude futures were up 32 cents, or 0.4 percent, at $73.57 a barrel.
WTI prices were supported by a report on Friday of a stagnant rig count in the United States, which points to a slowdown in US crude production, which now rivals top producers Russia and Saudi Arabia.
Brent was pushed up by looming sanctions against Iran, which will start targeting its oil sector from November 4.
ANZ bank said on Monday that “the market is eyeing oil prices at $100 per barrel.”
In a sign that the financial market is positioning itself for further price rises, hedge funds increased their bullish wagers on US crude in the week to Sept. 25, data from the US Commodity Futures Trading Commission (CFTC) showed on Friday, increasing futures and options positions in New York and London by 3,728 contracts to 346,566 during the period.
In a further sign of the impact that the US sanctions on Iran will have on the market, China’s Sinopec said it is halving loadings of Iranian crude oil this month. China is the biggest buyer of Iranian oil.
“If Chinese refiners do comply with US sanctions more fully than expected, then the market balance is likely to tighten even more aggressively,” Edward Bell, commodity analyst at Emirates NBD bank wrote in a note published on Sunday.
“We’re going to find out very soon as approximately 1.5 million barrels (per day) of Iranian oil is effectively going offline on Nov. 4. If the market senses that Saudi Arabia capacity is tapped out at 10.5 million bpd ... oil prices will rocket higher with the flashy $100 per barrel price tag indeed a reasonable sounding target,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore..
With oil prices soaring, there are concerns over their inflationary effect on demand growth, especially in Asia’s emerging markets where weakening currencies are further adding to high fuel import costs.
Add the trade disputes between the US and other major powers, especially China, and economic growth into 2019 could be eroded.
Growth in China’s manufacturing sector already sputtered in September as both external and domestic demand weakened, two surveys showed on Sunday.
In Japan, business confidence among big manufacturers declined in the last quarter its lowest in nearly a year, as firms felt the pinch from rising raw material costs and as global trade conditions worsened.


German businesses do not expect quick return to normal

Updated 28 May 2020

German businesses do not expect quick return to normal

  • Germany’s economy is likely to shrink by 6.6 percent this year
  • That would be Germany’s worst economic performance since reunification in 1990

BERLIN: Germany’s economy is likely to shrink by 6.6 percent this year as businesses expect it will take nine months on average before operations return to normal after the coronavirus, the Ifo Institute said on Thursday.
That would be Germany’s worst economic performance since reunification in 1990.
As the outlook improves next year, Ifo predicts Europe’s biggest economy will grow 10.2 percent in 2021.
Recent surveys suggest Germany is slowly recovering after economic life was restricted in late March to contain the coronavirus pandemic.
Ifo, however, said some businesses are braced for longer and more painful recoveries.
Travel, hospitality and car manufacturing expected lengthier recoveries, while aviation expects normalization to take 16 months, Ifo’s survey showed.
Ifo expects the economy to shrink 12.4 percent in the second quarter of 2020 from a year earlier due to the nationwide lockdown.
The forecasts are for Ifo’s most likely scenario.
In its worst-case scenario, in which a return to normal took 16 months, the economy would shrink 9.3 percent this year and grow 9.5 percent in 2021. In the best case, companies would recover in five months, the economy would shrink just 3.9 percent in 2020 and expand 7.4 percent next year.
All three scenarios, based on business sentiment as well as production, turnover and foreign trade data, assumed a gradual relaxation of restrictions from the end of April. Smaller shops reopened on April 20.
Construction, until recently resilient in the face of the downturn, will also suffer this year, its industry association said. It forecast turnover will stagnate at $149 billion, the same level as last year but a decline of 3 percent in real terms.
Even in the health care sector, which might have been expected to be a beneficiary of the crisis, 72 percent of companies expect revenues to fall thanks to the impact of the crisis on operations and severed supply chains, a German Chambers of Commerce survey showed.
Only 6 percent were profiting from increased demand for products like protective clothing, ventilators and diagnostic tests, the survey showed.
Germany was already teetering on the edge of recession before the coronavirus outbreak. Its economy grew 0.6 percent in 2019, its slowest rate since 2013.