Oil steadies as demand uncertainty tempers supply cuts

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma. Brent was flat at $35.13 a barrel, while US oil gained 10 cents on Monday. (Reuters/File)
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Updated 26 May 2020

Oil steadies as demand uncertainty tempers supply cuts

  • Rising tensions between the US and China, the world’s largest oil consumers, fuel concerns about the outlook for demand

LONDON: Oil prices, which have been driven higher for the past four weeks, were steady on Monday, with holidays in Singapore, London and New York dampening trade, as rising concerns over demand recovery offset supply cuts.

Brent was flat at $35.13 a barrel, while US oil gained 10 cents, or 0.3 percent to $33.35 a barrel. Both are down around 45 percent so farthis year.

“Uncertainty around the current travel patterns in the US is so great that the American Automobile Association did not release its Memorial Day travel forecast,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said.

Rising tensions between the US and China, the world’s largest oil consumers, over moves by Beijing to impose security legislation on Hong Kong also fueled concerns about the outlook for demand.

Relations between Washington and Beijing have soured since the coronavirus outbreak, with the two countries already at odds over Hong Kong, human rights, trade and US support for Chinese-claimed Taiwan.

Prices are finding support from global supply cuts with the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, now nearly a month into a deal to voluntarily withhold 9.7 million barrel per day of production.

And the US rig count, an early indicator of future output, fell by 21 to a record low 318 in the week to May 22, data from energy services firm Baker Hughes showed.

“The huge decline in global oil production has doubtless been the key factor in the latest surge in oil prices,” Commerzbank said.

Forex trading

Meanwhile, the euro steadied around the $1.09 level on Monday in a potentially big week for European policymakers as they debate the outlines of a recovery fund aimed at helping member nations.

Austria, the Netherlands, Denmark and Sweden want loans from a time-limited fund for nations struggling to recover from the pandemic, rather than the grants proposed by France and Germany last week for the EU’s coronavirus recovery plan.

The Franco-German plan sent the euro rallying above $1.10 last week before the much-expected counter proposal by the four countries pushed it back below $1.09.

The rival proposals come before the European Commission’s own plans for the recovery fund on Wednesday and any watered down proposals from the original plan would be perceived as
euro negative.

On the other hand, “if the Franco-German debt proposal (miraculously) passes the test during the coming week, we reckon that it would be a major euro positive event,” Nordea strategists said.

On Monday, the single currency steadied around $1.09 but remained about 5 percent below a 2020 high of near 1.15 hit in early March.

Elsewhere, the US dollar erased earlier gains and edged lower on the day. The greenback, which tends to behave like a safe haven asset at times of market turmoil and political uncertainty, was steady near a one-week high at 99.74.

The Australian dollar, by dint of its strong trade connections with China and the offshore yuan, led losers against the US dollar.

More turbulence for US-China relations is prompting some investors such as UBS Wealth Management to hold a “defensive” position in Hong Kong. “(The) larger risk for global investors is what happens if it becomes further enmeshed in broader relations,” said Mark Haefele, its chief investment officer.

With financial markets in Singapore, Britain and the US closed for public holidays on Monday, the weekend developments hit risk aversion in broader markets in early trade.

Sterling was also on the back foot against both the dollar and the euro as political pressure grew on British Prime Minister Boris Johnson to fire senior adviser Dominic Cummings.

Cummings, the architect of the 2016 campaign to leave the EU and widely considered to be Johnson’s most influential strategist, came under pressure after reports he traveled to northern England from London during a nationwide lockdown in March when his wife was ill with COVID-19 symptoms.


Saudi Arabia’s 6-point plan to jumpstart global economy

Updated 07 July 2020

Saudi Arabia’s 6-point plan to jumpstart global economy

  • Policy recommendations to G20 aim to counter effects of pandemic

DUBAI: Saudi Arabia, in its capacity as president of the G20 group of nations, has unveiled a six-point business plan to jump start the global economy out of the recession brought on by the COVID-19 pandemic.

Yousef Al-Benyan, the chairman of the B20 business group within the G20, told a webinar from Riyadh that the response to the pandemic -— including the injection of $5 trillion into the global economy — had been “reassuring.”

But he warned that the leading economies of the world had to continue to work together to mitigate the effects of global lockdowns and to address the possibility of a “second wave” of the disease.

“Cooperation and collaboration between governments, global governance institutions and businesses is vital for an effective and timely resolution of this multi-dimensional contagion transcending borders,” Al-Benyan said.

“The B20 is strongly of the view there is no alternative to global cooperation, collaboration and consensus to tide over a multi-dimensional and systemic crisis,” he added.

The six-point plan, contained in a special report to the G20 leadership with input from 750 global business leaders, sets out a series of policy recommendations to counter the effects of the disease which threaten to spark the deepest economic recession in nearly a century.

The document advocates policies to build health resilience, safeguard human capital, and prevent financial instability.

It also promotes measures to free up global supply chains, revive productive economic sectors, and digitize the world economy “responsibly and inclusively.”

In a media question-and-answer session to launch the report, Al-Benyan said that among the top priorities for business leaders were the search for a vaccine against the virus that has killed more than half-a-million people around the world, and the need to reopen global trade routes slammed shut by economic lockdowns.

He said that the G20 response had been speedy and proactive, especially in comparison with the global financial crisis of 2009, but he said that more needed to be done, especially to face the possibility that the disease might surge again. “Now is not the time to celebrate,” he warned.

“Multilateral institutions and mechanisms must be positively leveraged by governments to serve their societies and must be enhanced wherever necessary during and after the pandemic,” he said, highlighting the role of the World Health Organization, the UN and the International Monetary Fund, which have come under attack from some world leaders during the pandemic.

Al-Benyan said that policy responses to the pandemic had been “designed according to each country’s requirements.”

Separately, the governor of the Saudi Arabian Monetary Authority said that it was “too early” to say if the Kingdom’s economy would experience a sharp “V-shape” recovery from pandemic recession.