Oil prices collapse on storage fears, Asia equities mixed

In this file photo taken on March 12, 2019 a pump jack operates at an oil extraction site in Cotulla, Texas. (AFP / Loren Elliott)
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Updated 20 April 2020

Oil prices collapse on storage fears, Asia equities mixed

HONG KONG: Oil prices collapsed to more than two-decade lows Monday as traders grow concerned that storage facilities are reaching their limits, while equities were mixed, with some support coming from signs that the coronavirus may have peaked in Europe and the United States.
US crude benchmark West Texas Intermediate briefly plunged almost 20 percent to below $15 — its lowest since 1999 — as stockpiles continue to build owing to a crash in demand caused by the COVID-19 pandemic.
Analysts said this month’s agreement between top producers to slash output by 10 million barrels a day was having little impact on the oil crisis because of lockdowns and travel restrictions that are keeping billions of people at home.
WTI was hit particularly hard as its main US storage facilities in Cushing, Oklahoma, were filling up.
ANZ said “crude oil prices remained under pressure, as projections of weaker demand weigh on sentiment.”
“Despite the OPEC+ alliance agreeing to an unprecedented cut in output, the physical market is awash with oil,” it said, referring to the Organization of the Petroleum Exporting Countries and non-OPEC partners.
And AxiCorp’s Stephen Innes added: “It’s a dump at all cost as no one... wants delivery of oil, with Cushing storage facilities filling by the minute.
“It hasn’t taken long for the market to recognize that the OPEC+ deal will not, in its present form, be enough to balance oil markets.”
Stock traders were in slightly more buoyant mood as governments start to consider how and when to ease lockdowns that have crippled the global economy.
Italy, Spain, France and Britain reported drops in daily death tolls and slowing infection rates.

Not out yet
“We are scoring points against the epidemic,” said Prime Minister Edouard Philippe, while insisting “we are not out of the health crisis yet.”
Meanwhile, in the US, Andrew Cuomo, governor of badly hit New York state, said the disease was “on the descent,” though he cautioned it was “no time to get cocky.”
Mounting evidence suggests that the lockdowns and social distancing are slowing the spread of the virus. That has intensified planning in many countries to begin loosening curbs on movement and easing the crushing pressure on national economies.
Adding to the sense of hope was a report indicating promising research on a drug to treat coronavirus.
Hong Kong, Shanghai and Seoul were each up 0.1 percent, while Wellington added 0.4 percent.
However, Tokyo went into the break 0.9 percent lower, while Sydney and Manila dropped one percent apiece. There were also losses in Taipei, Singapore and Jakarta.
“The longer investors have to contemplate future economic issues while they wait for more countries to be on the downward slope of the pandemic curve, the more scope there is of risk assets pricing in a difficult future,” Chris Iggo, of AXA Investment Managers UK, said.
Investors are keeping an eye on Washington, where Congress and the White House are working toward a $450 billion economic relief plan for small business to add to the trillions already pledged to support the economy.
Big-name companies including IBM, Netflix and Coca-Cola are due to deliver their earnings reports.


Oman’s bond market return a key test for reform path

Updated 21 October 2020

Oman’s bond market return a key test for reform path

  • After becoming ruler in January, Sultan Haitham made shaking up and modernising state finances a top priority

DUBAI: Oman’s return to the international bond market this week will be a test of its ability to convince investors that long-awaited fiscal reforms have started to put it on a sustainable financial footing.

Oman, rated below investment grade by all the major credit agencies, announced on Monday plans to issue bonds with maturities of three, seven and 12 years, in what would be its first global debt sale this year.

Sultan Haitham, who became Oman’s ruler in January, has made shaking up state finances one of his priorities.

But investors would like to see more concrete steps being taken and, after a further sovereign downgrade last week, may require the new bonds to offer a significant premium over the country’s existing debt.

“The new sultan has done some good things — rationalizing the number of ministries, the implementation of VAT, plans to generate additional tax revenues, and they still have sovereign assets,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

“There is positive momentum but it will take time for that credibility to build.”

According to a bond prospectus, Oman has begun talks with some Gulf countries for financial support.

“I don’t think this will actually be taken into consideration by investors unless there is a tangible announcement from Gulf countries with a tangible support package,” said Zeina Rizk, executive fixed income director at Arqaam Capital.

Oman will likely price the new three-year bonds in the high 4 percent area, the seven-year tranche in the high 6 percent and the 12-year in the mid-to-high 7 percent area, implying a premium of at least 50 basis points (bps) over its existing curve, she said.

Two other investors, who did not wish to be named, said the paper could carry a 25 bps premium over existing secondary trading levels.

Sources have previously told Reuters Oman would target over $3 billion with the new deal.

“If they take $3 to 3.5 billion, you will have a market indigestion for Oman, and I’m sure people will ask to be compensated for this risk,” Rizk said.