Oil Climbs Nearly 1% on Drop in Russia Exports, Red Sea Jitters

Economic

Energy

Summary:

Oil prices rose nearly 1% in early Asian trade on Monday, supported by lower exports from Russia and as attacks by the Houthis on ships in the Red Sea raised concerns of oil supply disruption.

Brent crude futuresclimbed 69 cents, or 0.9%, to $77.24 a barrel by 0037 GMT, while U.S. West Texas Intermediate crude was at $72.08 a barrel, up 65 cents, or 0.9%.

"The bad weather in Russia has played a part in the stronger open this morning as has the Houthis attack on ships close to Yemen," IG analyst Tony Sycamore said.

Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world's biggest exporters try to support global oil prices.

This comes after Moscow suspended about two-thirds of loadings of its main export grade Urals crude from ports due to a storm and scheduled maintenance on Friday.

Shipping firms, including the world's biggest container shipping lines MSC and A.P. Moller-Maersk, said over weekend that they would avoid the Suez Canal as Houthi militants in Yemen stepped up their assaults on commercial vessels in the Red Sea.

Bab al-Mandab is one of the world's most important routes for global seaborne commodity shipments, particularly crude oil and fuel from the Gulf bound westward for the Mediterranean via the Suez Canal or the nearby SUMED pipeline, as well as commodities heading eastward for Asia, including Russian oil.

Both Brent and WTI ended their longest streak of weekly declines in half a decade with a small gain last week after a U.S. Federal Reserve meeting last week raised hopes that interest rate hikes are over and cuts are on their way.

"I think just as importantly however is last week's dovish Fed meeting which removes the tail risks of a hard landing for the U.S. economy and for crude oil demand going forward," Sycamore said.

"Not to mention the technical picture in crude oil supports a recovery into the $76/78 area," he added, referring to WTI prices.

Source: CNBC

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[Quick Facts]

1. Goldman Sachs cuts Brent oil price forecast although OPEC will extend partial production cuts to 2025.

3. Fed's Bostic sees two rate cuts next year, the first in Q3.

4. Fed's Williams says it's too early to consider rate cuts next March.

5. Israel and Hamas are open to a truce.

6. Russia's December oil exports will be down by about 50,000 bpd.

[News Details]

Goldman Sachs cuts Brent oil price forecast although OPEC will extend partial production cuts to 2025

Goldman Sachs has lowered its 2024 Brent crude oil price forecast range by $10 to $70-$90 per barrel, as it expects only a modest supply shortage and a slightly lower long-term price increase. It has lowered its 36-month Brent oil price forecast by $2 to $72/bbl, which is not affected by OPEC, given the increase in idle capacity and declining cost inflation. Brent oil prices are expected to rise to $85/bbl by June 2024, and average $81/bbl and $80/bbl in 2024 and 2025, respectively. The OPEC+ is expected to extend its production cuts announced in April 2023 (by 1.7 million barrels per day) through 2025, and extend the additional cuts of 2.2 million bpd through the second quarter of 2024.

Fed's Bostic sees two rate cuts next year, first in Q3

Atlanta Fed President Raphael Bostic said in an interview on Dec.15 that he expected PCE inflation to reach 2.4% by the end of 2024. If inflation falls as expected, two 25-basis-point rate cuts are expected in 2024, with the first coming "sometime" in the third quarter, he said.

A rate cut is not imminent, and it will still take several months before policymakers get enough signals and feel confident enough about the declining inflation. Then they will lower interest rates.

However, policymakers first need to determine what level of inflation would warrant a rate cut. The data are close. Over the next few weeks... I think we will start to discuss this, said Bostic.

Bostic is cautious about cutting rates too soon and would like to make sure inflation is fully under control before a rate cut to avoid "surprises".

Although two rate cuts are not confirmed, Bostic gave the clearest path for the Fed's interest rates so far, unlike other officials' vague or even hawkish attitudes to dampen market optimism.

Fed's Williams says it's too early to consider rate cuts next March

"We aren't really talking about rate cuts right now," said New York Fed President John Williams on Dec. 15. The market's reaction may be stronger than the Fed's forecasts. If inflation progress stagnates or reverses, we need to be ready to tighten policy further. The Fed needs to focus on targets, rather than the market's views.

It is too early to consider rate cuts as early as March, although it would be appropriate as the economy balances out and inflation falls further.

Israel and Hamas are open to a truce

Two Egyptian security sources said on Sunday that Israel and Hamas are both open to a renewed ceasefire and hostage release, although disagreements remain on how it would be implemented. Hamas is insisting on setting the list of hostages to be released unilaterally, and demanding that Israeli forces withdraw behind pre-determined lines. While Israel agreed on Hamas setting the list, it demanded a timeline and to see the list before setting the time and duration of the ceasefire. Israel refuses to withdraw, the sources added.

Russia's December oil exports will be down by about 50,000 bpd

On Sunday local time, Russian Deputy Prime Minister Alexander Novak said that Russia would cut oil exports further on top of the 300,000 bpd cut it has already achieved this year. We increased the cut in oil exports in December and we will judge based on the results of December cuts to determine exactly how much will be added. It could be an increase of 50,000 bpd or even more.

Russia had promised to cut 300,000 bpd compared to oil exports in May-June and would maintain that level through the end of the year. In December, Russia agreed to expand the cut to 500,000 bpd in the first quarter of 2024, the Russian agency said.

Russia's total oil exports in 2023 will be lower than the 247 million tonnes in Russia's main macroeconomic forecast due to commitments to OPEC+, Novak said.

[Focus of the Day]

UTC+8 18:30 Bank of England Deputy Governor Broadbent Speaks

UTC+8 18:45 ECB Governing Council Member Vujcic Speaks

UTC+8 20:00 ECB Governing Council Member Wunsch Speaks

UTC+8 23:00 ECB Chief Economist Lane Speaks

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Thomas

Economic

The yen dipped slightly on Monday as the Bank of Japan (BOJ) kicked off its two-day monetary policy meeting, with traders nervously awaiting a decision on whether the dovish central bank could finally unwind its ultra-loose monetary settings.

In the broader market, currencies started the week on a cautious note after large swings last week mainly driven by a slew of central bank meetings, which included rate decisions from the Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE).

The yen fell 0.2 per cent to 142.41 per dollar in early Asian trade, reversing some of the nearly 2 per cent gain it made last week on the back of the dollar's decline.

The Japanese currency has had a volatile few weeks as markets struggle to get a grip on how soon the BOJ could phase out its negative interest rate policy, with comments from Governor Kazuo Ueda earlier this month initially sparking a huge rally in the yen.

That was later reversed on news that a policy shift was unlikely to come as early as December, and investors now await Tuesday's BOJ decision for further clarity on the bank's rate outlook.

"The meeting will be relevant and important in terms of what the BOJ does, and there are some in the market that still expect that maybe there's a surprise," said Rodrigo Catril, senior FX strategist at National Australia Bank.

"We tend to lean to the idea that they're still on wait-and-see mode... for more evidence, in particular the labour market and wages growth are rising towards the 2 per cent level, at the minimum.

"The best case scenario would be for the bank to set the stage for things to come in 2024, conditional on these economic outcomes being delivered."

Against the euro, the yen edged 0.1 per cent lower to 155.11. The Australian dollar rose 0.13 per cent to 95.45 yen.

Rate cuts loom?

Elsewhere, the dollar stood not too far from four-month lows on the British pound and nearly five-month lows on the Australian and New Zealand dollars hit last week, after Fed officials hinted at rate cuts next year.

Sterling last bought $1.2678, while the kiwi rose 0.19 per cent to $0.6219.

The greenback, which has for most of 2022 and 2023, drawn support from a slew of aggressive rate hikes from the Fed and expectations of higher-for-longer rates, tumbled roughly 1.3 per cent against a basket of currencies last week in the wake of the Fed's policy meeting.

The dollar index was last 0.05 per cent lower at 102.57.

"The Fed has officially opened the door to the next cycle of rate cuts," said Franck Dixmier, global chief investment officer for fixed income at Allianz Global Investors.

"While the Fed may have been criticised for taking too long to raise rates, it clearly has no intention of wasting any time in lowering them."

The ECB and BoE likewise kept interest rates steady at their respective policy meetings last week, though unlike the Fed, both pushed back against expectations of imminent rate cuts.

"(ECB President) Christine Lagarde has made it clear that rate cuts weren't on the table, marking a stark contrast to the Fed's approach, which remains intensely focused on the growth risks associated with maintaining higher rates for an extended period," said Monica Defend, head of Amundi Investment Institute.

"This divergence is particularly notable given the euro zone's recent weaker economic performance and more rapid disinflation compared to the U.S. Meanwhile, the (BoE) maintains a cautious stance, showing no indication of deviating from its 'higher-for-longer' policy."

The euro was last 0.07 per cent higher at $1.0900, helped by a weaker dollar, though the single currency continues to be weighed by a darkening growth outlook in the euro zone.

Data last week showed the downturn in the bloc's business activity surprisingly deepened in December, indicating its economy is almost certainly in recession.

Source: Reuters

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Thomas

Economic

As the climate conference in Dubai calls for accelerating green transformation, experts hailed the China-proposed Belt and Road Initiative as a constructive force in steering the world toward a renewable energy-fueled future.

At the 28th session of the Conference of the Parties to the UN Framework Convention on Climate Change, at least 118 countries are supporting a pledge to triple renewable energy and double energy efficiency rates by 2030.

By extending support to participating countries in developing green and low-carbon energy, the initiative has the potential to further drive investment in renewable energies to help the world achieve Paris Agreement and Sustainable Development Goals, said Angela Churie Kallhauge, executive vice-president of Impact at Environmental Defense Fund, an NGO.

A report from Fudan University's Green Finance and Development Center reveals that, in the first half of this year, China's total engagement in the energy sector within the BRI-participating countries reached $12.3 billion, with 55 percent allocated to renewable energy (solar, wind, and hydropower). This period stands out as the greenest since the BRI's inception in 2013.

On Oct 24, a document titled "Vision and Actions for High-Quality Belt and Road Cooperation: Brighter Prospects for the Next Decade" was published. It emphasized China's commitment to making green a defining feature of BRI collaboration.

Key ways

Experts highlighted two key ways through which China is facilitating the developing nations' green transition under the BRI framework.

First, China, as a leading force in utilizing green and low-carbon energy sources, has experience in renewable energy development, while most countries taking part in the BRI are rich in renewable energy resources. Collaboration between China and these countries can further promote low-carbon development, said Kallhauge.

For instance, the Cauchari region in the Jujuy province of Argentina possesses superior sunlight conditions. With an impressive annual average of over 2,500 hours of sunshine, it stands as one of the world's most optimal areas for generating photovoltaic power. However, due to the lack of funding and technology for building photovoltaic power stations, this region used to depend on purchased electricity to fulfill its energy needs.

This situation changed in 2020 when the Cauchari Solar Park, financed and built by China, was put into operation. This park efficiently addresses the power shortage problem, providing green electricity to thousands of households and reducing carbon dioxide emissions by 325,000 metric tons annually, as reported by People's Daily.

The BRI can help unlock abundant renewable energy resources in developing countries, making clean energy accessible for all, said Yang Fuqiang, a senior adviser of the Institute of Energy at Peking University.

Apart from helping other countries to build renewable energy power plants, China could enhance these countries' renewable energy capacity by helping them manufacture renewable energy power equipment domestically, he said.

Teaching a man to fish is better than giving him fish, he pointed out. "More importantly, we need to help improve the employment rates of the Belt and Road countries and develop their local economies, which are particularly important for developing countries."

This thought is echoed by Zhang Ying, a research fellow at the Research Institute for Eco-civilization with the Chinese Academy of Social Sciences. China, which is at the forefront in the field of renewable energy equipment manufacturing, can help developing nations achieve energy transformation and spread advanced technologies via capacity-building and demonstration projects, she said.

Trina Solar, a Chinese enterprise, exemplifies this approach by signing a cooperation agreement with Indonesia during the third Belt and Road Forum for International Cooperation. The agreement aims to help Indonesia establish its first photovoltaic cell and module production base.

Source: ChinaDaily

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Alex

Economic

Vladimir Putin's war in Ukraine is damaging Russia's economy, driving up domestic consumer prices and forcing Moscow to spend a third of its budget on defence, the U.S. Treasury department has said.

Rachel Lyngaas, the department's chief sanctions economist, said the combination of war, U.S. allies' sanctions and Moscow's policy response was "putting Russia's economy under considerable economic strain".

The comments appeared in a draft text, seen by the Financial Times, of one of the most comprehensive assessments of the financial consequences for Russia of the president's decision to send troops into Ukraine last year.

Russia's invasion and occupation of parts of Ukraine were now "contributing to rapidly growing expenditures, a depreciating rouble, increasing inflation, and a tight labour market reflecting a loss of workers" in its economy, Lyngaas wrote.

Russia's economy would be more than 5 per cent bigger if Putin had not launched the war in Ukraine, Lyngaas argued, adding that the country was underperforming other energy exporters, including the U.S..

Moscow was spending more than $100bn on defence, or almost a third of its total planned expenditures in 2023, according to the Treasury department. The huge outlay comes at the same time as the Kremlin has paused some planned public salary increases despite inflation running at 7.5 per cent — far above the central bank's target of 4 per cent.

The Treasury's assessment, in a blog post to be published on the department's website on Thursday, comes as the U.S. government has warned that funds for Ukraine could run out by the end of the year, after Congressional Republicans last week blocked a White House request for an additional $60bn in security assistance for Kyiv.

U.S. Says Ukraine War Putting 'Considerable Strain' on Russia's Economy_1

There is also mounting scepticism that western sanctions, including the G7 effort to cap the price at which Russia can sell its oil and petroleum products, are working as planned.

The Financial Times recently reported that Russia was circumventing the price cap and that almost all of its crude was being sold at a figure above the prescribed level.

However, the Treasury claimed that the cap, coupled with the EU embargo on purchases of seaborne crude, "helped reduce Russia's export earnings by forcing sizeable discounts on Russian exporters where the embargo lowered demand".

Western sanctions were forcing Moscow to resort to "a costly realignment of its supply chains to import lower-quality substitutes", it said.

Russian authorities have said that the country's economy continues to blossom despite sanctions and the heavy extra spending to fund its invasion of Ukraine, with Putin saying last week that gross domestic product would expand by 3.5 per cent this year.

The Russian leader also pointed to a 7 per cent increase in wages, record low unemployment, and a rise in real disposable income this year as examples of the economy's resilience.

However, the country's GDP is partly driven by the military-industrial sector, which absorbs economic resources including a labour force already overburdened by war and distorts the economy, say analysts.

The recent pay rise is mainly due to war-related social benefits and high salaries in the defence industry — but wages still remain lower than before Russia annexed Crimea in 2014, according to data from the country's higher school of economics.

The Treasury also noted that emigration had hit historic highs, with 668,000 people leaving the country in 2022.

"Russians are voting with their feet . . . This permanent loss in human capital [will] further weaken Russia's growth potential; the Russian government is acutely aware of this, offering subsidised mortgages to get skilled workers to stay," Lyngaas wrote.

The Treasury introduced fresh sanctions measures on Tuesday to coincide with a visit to Washington this week by Ukraine's president Volodymyr Zelenskyy. The measures take aim at companies in Turkey, the UAE and China, which officials believe are helping supply Russia with sensitive technologies.

"Russia is now more isolated, relying on individuals and entities willing to resupply its military and perpetuate its heinous war against Ukraine," wrote Lyngaas.

Source: FT

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Cohen

Economic

Driven by a $2 trillion decline in goods trade, global trade is set to contract by five per cent in 2023 compared to last year, the United Nations trade body said on Monday, while making an overall pessimistic forecast for 2024.

In 2023, global trade is estimated to reach $30.7 trillion, representing a contraction of about $1.5 trillion (or five per cent) compared to the 2022 record high, the UN Conference on Trade and Development (Unctad) said.

Worldwide trade in goods is set to decline eight per cent, or by $2.0 trillion, while services trade should increase by about $500 billion, or seven per cent, the Geneva-based trade body said. "Trade in services has displayed more resilience and its growth remained positive throughout the same period."

While attributing this contraction in part to underperformance of exports from developing countries, Unctad said geopolitical trends and declining interdependence between China and the United States are increasingly affecting global trade.

The UN agency forecasts world economic growth to decelerate to 2.4 per cent this year from three per cent in 2022 as "deepening inequalities, mounting debt, and an uneven post-Covid recovery take hold."

This trend, the UN body said, would spill over into 2024, with the outlook for global trade remaining "highly uncertain and generally pessimistic," with substantial disparities expected to persist among countries and regions in terms of anticipated economic forecasts.

Trade growth has remained subdued in Q4 2023, indicating persisting challenges, it said, adding that the 'outlook for 2024 is still uncertain but overall pessimistic'. "While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt, and widespread economic fragility are anticipated to exert negative influences on global trade patterns," it said.

"Exports from developing countries underperformed as South-South trade sharply decreased and East Asian trade remained below average," it said in its Global Trade Update.

"The war in Ukraine, the sanctions on the Russian Federation, and the de-risking in the US-China trade relationship are playing a significant role in shaping key bilateral trade trends," it said.

"These factors not only impact the economies directly involved but also indirectly influence the trade dynamics of other economies," it said, noting that economic activity is being hindered by high interest rates in several economies.

"While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt, and widespread economic fragility are anticipated to exert negative influences on global trade patterns," it said.

The trade body noted that volatility in commodity prices is adding to the uncertainty, with regional conflicts and lingering geopolitical tension expected to further dampen sentiment.

Global trade is also being influenced by the way supply chains respond to shifts in trade policy and geopolitical tensions, with notable impacts observed in supply linkages between China and the US, it said.

"Companies from other regions, particularly in East Asian economies and Mexico, have had opportunities to become more integrated into the supply chains affected by geopolitical concerns," Unctad said.

Source: Khaleej Times

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Thomas

Palestinian-Israeli conflict

Latest news on the Israeli-Palestinian conflict

0:12

France's CMA CGM, the world's third largest container shipping company, will cease its activities in the Red Sea and move to safer waters.

This will seriously disrupt the global economy and countries will have no choice but to blame the United States and demand a ceasefire.

The French container shipping company and Maersk Line (MSK) together account for 12.6% of the global container fleet.

Nearly 50% of the world's container fleet will avoid the Red Sea due to threats from Yemen.

1:15

A U.S.-backed Syrian armed group attacked and surrounded a group of security forces in the cultural center of the northern rural city of Daraa, prompting the Syrian Arab Army to send in military reinforcements from its 8th Brigade and surround the city.

1:47

Suddenly, the world's largest shipping company, Swiss Mediterranean Shipping Company (MSC), has decided to stop all shipping in the Red Sea.

in response to an operation by the Yemeni armed forces targeting any ship heading to the Zionist entity's port of "Eilat" in southern occupied Palestine until the siege of Gaza is lifted.

In just 24 hours, the world's three largest shipping lines (MSC, Maersk and CMA CGM) suspended operations in the Red Sea, and two weeks later the largest Zionist shipping company (ZIM) suspended operations in the region.

These four companies own a total of 2,197 ships, accounting for 49% of the global market share of container companies, and have annual revenue of approximately US$150 billion.