Oil up on weak dollar though US-China tensions weigh

A rancher walks past a pump jack in Loving County, Texas. Brent is on track for a fourth straight monthly gain in July and WTI is set to rise for a third month. (Reuters/File)
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Updated 28 July 2020

Oil up on weak dollar though US-China tensions weigh

  • Hurt by domestic economic concerns, dollar index reaches its lowest since Sept. 2018

SINGAPORE: Oil prices edged higher on Monday helped by a weak dollar and expected US stimulus measures but gains were capped by rising global coronavirus cases and tensions between the United States and China.

Brent crude rose 32 cents, or 0.7 percent, to $43.66 a barrel, while US West Texas Intermediate (WTI) crude was up to $41.62 a barrel or 33 cents.

The US dollar index reached its lowest since September 2018, hurt by deteriorating US-China relations and domestic economic concerns as coronavirus infections showed no sign of slowing.

“Massive monetary stimulus has bullish implications for oil,” analysts from Raymond James said in a note, adding that oil prices have historically moved upwards with inflation spikes and that the current US money supply increase is unprecedented.

Oil price gains were capped by escalating China-US tensions following the closures of consulates in Houston and Chengdu. Global coronavirus cases, meanwhile, exceeded 16 million.

In Asia, fresh lockdowns were imposed and in Europe, Britain imposed a quarantine on travelers returning from Spain.

Brent is on track for a fourth straight monthly gain in July and WTI is set to rise for a third month. Helping are unprecedented supply cuts from the Organization of the Petroleum Exporting Countries and others including Russia.

Output has also fallen sharply in the United States although the US oil rig count rose last week for the first week since March.

Oil demand has improved from the deep trough of the second quarter, although the recovery path is uneven as resumption of lockdowns in the United States and other parts of the world is capping consumption.

“Oil appears to be caught between opposing forces, crushing price volatility and ranges,” said Jeffrey Halley, senior market analyst for the Asia Pacific at OANDA.


Saudi Arabia looks to cut spending in bid to shrink deficit

Updated 01 October 2020

Saudi Arabia looks to cut spending in bid to shrink deficit

  • Saudi Arabia has issued about SR84 billion in sukuk in the year to date

LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as it seeks to reduce its deficit. This compares to spending of SR1.07 trillion this year, it said in a preliminary budget statement.

The Kingdom anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year.

Saudi Arabia released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness.

The unemployment rate among Saudis increased to 15.4 percent in the second quarter compared with 11.8 percent in the first quarter of the year.

The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending.

Saudi Arabia has already issued about SR84 billion in sukuk in the year to date.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. 

“This, in turn, has helped diversify its funding sources compared with what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year,” the ratings agency added.