Oman’s $9bn Refinery Could Benefit as Red Sea Disruption Affects Global Competition

Commodity

Economic

Summary:

Duqm refinery may increase capacity while exploring the creation of new products.

A refinery on Oman's eastern coast, which required $9 billion investment to build, has been resilient against recent disruption in the Red Sea and may even benefit from the situation as global competition is affected.

The Duqm refinery, also known as OQ8, is a joint venture between Kuwait Petroleum International and Oman's state-run energy company OQ.

The refinery, which opened this month, has a production capacity of 230,000 barrels per day, serving markets in East Africa and the Indian subcontinent.

Duqm is "well positioned" to capitalise on the unrest in the Red Sea, said chief executive David Bird, as shipments of refined products from competitive sources in West Africa and Europe grapple with longer travel times around Africa.

"We have been resilient to it as a result of our unique location and the markets we're serving," Mr. Bird said.

Many of the refinery's products are shipped to markets in India, Pakistan and Sri Lanka, while also drawing high demand in Kenya and Tanzania.

Major shippers and operators have suspended operations in the Red Sea – a vital maritime route – following attacks on commercial shipping lines by Yemen's Houthi rebels. About 12 per cent of seaborne oil trade and 8 per cent of liquefied natural gas passes through the Bab Al Mandeb.

However, OQ8 is not "immune" to the effects it has had on global shipping markets, the company's chief said.

"It impacts every aspect of our business … our trade is not bilateral. There are insurers, charter parties [and] ship owners, so it impacts our business," Mr. Bird said.

"No matter where you are in the world, insurance rates go up."

Wood Mackenzie data shows 8.5 million bpd of crude oil and refined products use the Red Sea.

However, violence at Bab Al Mandeb is leading to more than 20 per cent of oil tanker trade diverting via the Cape of Good Hope, the energy consultancy said in a research note this month.

"With more than two weeks added to voyage times, freight rates have naturally increased, along with European refined product cracks," Wood Mackenzie said.

"The domino effect of this change to trade flows is likely to affect the global refining sector for some time to come."

Duqm, which recently completed its 100th delivery of refined products, produces liquefied petroleum gas (LPG), naphtha, diesel, kerosene jet fuel, petroleum coke and sulphur.

The second phase of the project involves the production of petrochemicals, a key area of focus for Gulf oil producers in recent years.

In 2022, Saudi Basic Industries Corporation, better known as Sabic, signed an agreement with OQ and Kuwait Petroleum International to set up a petrochemical complex in the sultanate.

The project, which includes a steam cracker and a natural gas liquids extraction plant, will use feedstock from the Duqm refinery.

Saudi Arabia, Oman and Kuwait have conducted a new feasibility study on a petrochemical opportunity that is "slightly different" from what was planned initially and would be "much more resilient", Mr. Bird said.

Duqm may gradually increase its capacity, while exploring the creation of new products such as bitumen bunkering fuel, military fuels, reformate and gasoline, Mr. Bird said.

"We are deep in feasibility of some options but before we go and ask for more investor cash, we have to show that we're competitive and a safe custodian of those funds," he said.

"We have to earn our right to grow."

The refinery is "re-evaluating" initial strategic decisions, including the possibility of refining different grades of crude oil apart from those supplied by its shareholders, Mr. Bird said. "We're a marginal business so any option is on the table to enhance our financial resilience."

However, he added such a decision would not be made "right now".

Mr. Bird's remarks come as ageing plants are being shut down in the US, the country with the world's largest oil refinery capacity.

The costs associated with maintenance, regulatory compliance and fuel-specification upgrades are making these assets increasingly expensive to run, Mr. Bird said.

As a result, many of the ageing refineries are up for sale at "pennies on the dollar", he added.

"I think there will be another wave of supply destruction in developed markets and that will be positive news [for Duqm] … independent of whatever outlook we have on demand," Mr. Bird said.

Source: The National News

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Remarks of Officials

On February 29, local time, Cleveland Fed President Loretta J. Mester said in an interview that the latest Fed preferred inflation metric (PCE) has risen on a month-to-month basis, which doesn't actually change my view on inflation. That is, inflation will continue to decline toward the 2% target over time.

I think we are currently in a very favorable position in terms of the balance between monetary policy and the economy.

Inflation is unlikely to fall back as quickly as it did last year when supply chain improvements and labor force growth curbed price increases.

If inflation expectations continue to fall over the next year, then I think we are in a favorable position to consider easing the current restrictive levels. If the economy develops as I expect it to, I think three rate cuts would be appropriate.

Looking ahead, monetary policy remains restrictive, demand is expected to cool, and economic growth will not be as strong this year as it was last year. Employment growth is also expected to slow, which is something we need to see to assess whether the economy is developing as expected.

Given the current solid economic growth and the health of the labor market, the Fed will continue to be patient on the issue of rate cuts.

Risk Warnings and Disclaimers

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Daily News

[Quick Facts]

1. BOJ's Takata calls for overhaul of ultra-loose monetary policy.

2. Ueda Kazuo says price target not yet in sight, eyeing wage data.

3. Fed's Mester: Latest inflation shows the Fed has more work to do.

4. Fed's Daly says there is no rush to cut interest rates.

5. Fed's Bostic repeats rate cuts will likely be appropriate this summer.

6. German inflation data show ECB faces worrisome price pressures.

7. U.S. January pending home sales fall by most since last August.

8. Canada's economy may continue to grow slowly, with no rate-cut signal.

9. No surprise in U.S. inflation, leaving room for the Fed to cut rates in June.

[News Details]

BOJ's Takata calls for overhaul of ultra-loose monetary policy

Bank of Japan board member Hajime Takata said on Thursday that the central bank must consider overhauling its ultra-loose monetary policy, including an exit from the yield curve control (YCC), negative interest rates, and a tweak to the Bank of Japan's (BOJ) commitment to keep expanding its money base until inflation stably exceeds 2%.

While there are some economic uncertainties, I feel that we're finally seeing prospects for achieving our 2% inflation target, Takata said. There are growing signs of change in companies' long-held practice of forgoing wage and price hikes.

However, Takata later revised his remarks at a news conference. He said no decision had been made when asked if negative interest rates should be ended in March. Even if negative rates were to be ended, it is not yet ready to consider successive rate hikes. This statement is in line with the official stance given by Bank of Japan Deputy Governor Shinichi Uchida.

Takata's comment was made in a step towards exiting monetary stimulus. Although he did not specify the details of the Bank of Japan's exit strategy, but it still indicates that policy normalization is approaching. The market now expects the BOJ may end negative interest rates in April.

Ueda Kazuo says price target not yet in sight, eyeing wage data

Bank of Japan Governor Kazuo Ueda said yesterday that price targets are not yet in sight. His comments could dampen speculation that the central bank may raise rates as early as March.

We are not yet in a position to foresee the achievement of a sustainable and stable inflation target and will continue to seek confirmation that the virtuous cycle between wages and prices is beginning to work. The wage negotiations, expected to culminate in March, will be key to confirming whether the economy is in a virtuous circle. There's reason to expect positive results from the wage talks.

Kazuo Ueda's comments may dampen expectations for a rate hike as early as March because his words mean that once there is enough evidence, the Bank of Japan will raise interest rates.

Fed's Mester: Latest inflation shows the Fed has more work to do

The latest inflation data doesn't change my view that inflation is falling toward the Fed's 2% target over time, Cleveland Fed President Loretta Mester said in a speech on Thursday. But it does suggest that the Fed has more work to do to make sure that inflation gets back to the 2% target.

We need to see some moderation in employment, and that's a condition we need to see to assess whether the economy is moving the way we want it to. If inflation expectations continue to fall over the next year, then I think we're in a good position to consider easing the current restrictive levels. I think three rate cuts would be appropriate if the economy is going the way I expect it to.

Fed's Daly says there is no rush to cut interest rates

San Francisco Fed President Mary Daly said on Thursday that Fed officials are ready to lower interest rates as needed. Given the current overall economic situation, including the labor market, consumer spending and economic growth, rate cuts are not urgent. Fed officials need not wait for inflation to drop to 2% before cutting rates, as putting policy very tight could lead to an unnecessary recession. It would be appropriate as inflation comes down to bring the nominal rate of interest down to make sure we're not holding on even tighter.

Daly is looking for "a range of evidence" that inflation is persistently coming down, both from published economic data and from conversations with business contacts. The Fed's reliance on data means there will be less forward guidance on policy. It takes such an approach because officials want to have a methodical mind in making judgments. What we are trying to do is hold on just right, and make those adjustments and not be pre-committed, she said.

Fed's Bostic repeats rate cuts will likely be appropriate this summer

Atlanta Fed President Raphael Bostic said the recent data shows the road back to the central bank's 2% inflation goal will be "bumpy. Inflation has not yet reached its target, so it is too early to declare victory. But overall, inflation is declining. It may be appropriate for the Fed to start lowering rates in the summer.

Wages are growing faster than inflation, which is likely to persist. Supercore inflation may not be driven by wages.

German inflation data show ECB faces worrisome price pressures

Germany's February CPI published yesterday grew at a rate of 2.5% year-on-year (vs. the previous 2.9%) and 0.4% month-on-month (vs. the previous 0.2%). Behind the positive signals of declining headline inflation, there are worrisome price pressures that should prevent the European Central Bank (ECB) from cutting interest rates prematurely.

Favorable base effects in energy and food prices masked a more worrisome trend of monthly price increases, especially in the services sector. The opposite trend is likely to emerge in the future, with weaker demand leading to more disinflation, but new pressures may come from fading base effects, supply chain frictions, and tightening measures. This sends mixed signals to the ECB. Although it would welcome a drop in German inflation it needs to be aware of the underlying pressures indicating how difficult the last mile of bringing inflation down to target levels will be.

U.S. January pending home sales fall by most since last August

A gauge of the U.S. pending home sales from the National Association of Realtors (NAR) unexpectedly fell by 4.9% to 74.3 in January, the biggest drop in five months, after it had surged to an eight-month high last December.

Current economic conditions are favorable for home buying. However, consumers are showing additional sensitivity to changes in mortgage rates in the current cycle, which is having an impact on home sales. Mortgage rates briefly fell back below 7%, boosting new home sales and used home transactions last month. But the Fed is in no hurry to cut rates. Expectations that interest rates will stay high have pushed up the cost of home financing in recent weeks. Earlier this week, a gauge of U.S. applications for home purchases dropped for a fifth straight week to near its lowest level since 1995.

Canada's economy may continue to grow slowly, with no rate-cut signal

Canada's GDP grew by 1% year-over-year in the fourth quarter, beating both the previous reading and expectations. Two consecutive quarterly declines were avoided, but the economy just managed modest growth. The situation is likely to continue into the first quarter, essentially close to the Bank of Canada's expectations. The data was mixed overall, but they sent a signal that a rate cut is not urgent. It does not indicate that the economy is in recession. The economy is just growing very slowly but surely moving forward.

No surprise in U.S. inflation, leaving room for the Fed to cut rates in June

The U.S. January PCE rose by 2.4% year-on-year, up 0.3% from a month earlier; core PCE increased by 2.8% year-on-year, up 0.4% from a month earlier (the largest increase in nearly a year), both in line with market expectations. Compared with the more-than-expected growth in January CPI and PPI data announced two weeks ago, this PCE data, though also higher than the Fed's 2% inflation target, did not show that inflation rose more than expected again. It not only proves that the Fed's wait-and-see attitude is reasonable but also eases investors' concerns that the Federal Reserve will maintain interest rates high for longer and may even raise rates again. A rate cut in June is still possible.

[Focus of the Day]

UTC+8 18:00 Eurozone HICP (Feb)

UTC+8 23:00 U.S. ISM Manufacturing PMI (Feb)

UTC+8 21:30 Richmond Fed President Barkin Gives an Interview with CNBC

UTC+8 23:15 Fed Governor Waller Speaks on U.S. Monetary Policy

UTC+8 01:15 Atlanta Fed President Bostic Speaks

UTC+8 02:30 San Francisco Fed President Daly Speaks

Risk Warnings and Disclaimers

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Thomas

Economic

Asia's major manufacturing economies struggled to claw their way out of decline in February with Japan particularly squeezed by a steeper fall in demand while an uneven recovery in China overshadowed some signs of improvement elsewhere in the region.

A raft of business surveys released on Friday highlighted a patchy performance across Asia with Japan's manufacturing purchasing managers' index (PMI) showing factory activity falling at the fastest pace in more than three years.

There were more mixed signals out of China with the government's official PMI showing factory activity continuing to fall, a contrast to a slight pick up seen in the private-sector Caixin PMI.

"February PMI data indicated another month of deteriorating operating conditions in the Japanese manufacturing sector," said Usamah Bhatti at S&P Global Market Intelligence. "Depressed demand in domestic and international markets continued to weigh on sector performance, as both production and new orders fell at the strongest rate for a year."

Worryingly, recent data suggests the weakness seen in Japan in the second half of last year has extended into the first quarter of 2024, complicating the Bank of Japan's task as it looks to exit ultra-easy monetary policy.

Japan unexpectedly slipped into recession in the fourth quarter and lost its title as the world's third-largest economy to Germany as consumer and business spending weakened.

Its PMI followed official Japanese data this week that showed factory output falling at the fastest pace since May 2020, weighed by a downturn in motor vehicle production.

China's patchy performance comes amid signs the world's second-largest economy is tentatively finding its footing after a deep slump caused by its property sector woes.

Investors are looking ahead to China's annual meeting of parliament this month where policymakers will face pressure to do more to get the economy back on track.

Elsewhere in Asia, semiconductor powerhouse Taiwan also saw the pace of activity declines speed up.

There were some signs that conditions were continuing to improve in other parts of the region.

South Korean export growth exceeded market forecasts in February, expanding for a fifth successive month as a surge in semiconductor demand made up for a decline in vehicle sales.

Elsewhere, Southeast Asia's key factory economies mostly saw growth with PMIs in Vietnam, Indonesia and the Philippines all pointing to expansion in activity although Malaysian and Thai PMIs both showed continued activity declines.

Source: The Edga Malaysia

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Risk Warnings and Disclaimers

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Westpac

Economic

Ripple effects from the pandemic are not over and underlying trends are not fixed. It would be a mistake to assume otherwise.

Whenever one reads commentary about what policymakers should do, rather than what they will do, one should always consider the author’s unstated assumptions. Two such assumptions seem especially pervasive currently.

The first is the belief that pandemic-related effects have already washed through and are no longer affecting outcomes. Increased working from home is usually acknowledged as an exception.

The second assumption is that the post-pandemic economy will fluctuate around the same average levels of key metrics as prevailed before the pandemic.

Neither can be assumed. The first is demonstrably false and the second cannot be justified by the evidence.

Statements that rest on these unstated assumptions include the idea that most of Australia’s current high inflation is demand driven. According to this view, monetary policy is still not tight enough and unemployment is too low. Yet the ripple effects of supply constraints unwinding are still evident. Attributing all, or even most, of the current high inflation to strong demand ignores this.

It also ignores the signs that growth in domestic demand was soft in the second half of 2023, particularly in the household sector. As Westpac Economics Senior Economists Andrew Hanlan and Jarek Kowcza flagged this week and the Treasurer has also indicated, we expect the December quarter GDP result to be soft – most likely flat in the quarter. The momentum in domestic demand is only barely positive.

Domestically, these ripple effects include the surge in population early last year, as Australia and China reopened borders. Because so much migration to Australia is by students, population flows are seasonal, spiking at the start of each university semester. This makes it hard to know the underlying trend in real time. We will only see this post-pandemic effect unwinding in the data over the course of this year. Rent inflation should ease in line with this, but it will take a while.

Related to this, the decline in average household size in Australia’s largest cities is also yet to unwind fully. Some of the decline was probably a response to lower rents during the height of the pandemic, as well as lockdowns and a desire for more living space when other options were curtailed. Some, however, could be a more lasting response to increased working from home. Because it is more pleasant to spread out than to crowd back in again, the reversal of the temporary part of the response is likely to be more drawn out than the original shift.

Together with the population surge, smaller households mean upward pressure on rents and housing prices for at least a while yet. But we can be confident that at least some of that pressure will unwind over time, regardless of what policy does. Historical norms are therefore not yet the right benchmark to use when assessing the current stance of policy.

The lingering ripple effects of the pandemic are not limited to the demand for housing. The supply side of this sector is also still constrained. The result is a backlog of partly built homes that is being worked down only slowly. The pandemic-era HomeBuilder program contributed to this by bringing forward some demand. Supply capacity in the industry is also constricted. This is partly because non-residential construction activity is competing for many of the same resources. In addition, bankruptcies and other exits from the industry have disrupted the networks of suppliers and subcontractors. These networks take a while to stitch themselves back together. In this way, temporary shocks can have lingering effects.

Pandemic ripple effects go beyond the housing market. Supply chains may have largely healed globally, but in some areas domestically things are still far from normal. For example, industry sources suggest that wait times for delivery of some makes of car are still well above pre-pandemic levels. Multiple disruptions at domestic ports have also degraded supply chain functioning.

The faults in our stars

Even once the ripple effects from the pandemic have faded completely, there is no guarantee that economic behaviour reverts to previous norms. Past experience is not worthless, but it would be a mistake to assume a static world where key economic metrics and relationships never change. Identifying shifts in these relationships – especially changes in trends – is one of the key challenges of forecasting.

Some of these trend shifts are more or less permanent, such as the invention and adoption of new technologies, the adoption of inflation targets at low rates, or financial deregulation. Step changes in one factor can also instigate ‘waves’: drawn-out responses in other factors. The step change to low inflation targets and financial deregulation induced a permanent increase in the sustainable ratio of household debt to income in Australia and other industrialised economies. This transition to higher actual debt took more than a decade to complete. The green transition will likewise induce a wave of investment for years.

Integration with the European Union induced rapid increases in income in Ireland and Spain, and so a wave of home-building to replace existing housing stock with higher-quality homes more suitable to current income levels. China is coming to the end of a similar secular ‘wave’ of high demand for new construction, in addition to the authorities’ policy actions to slow this sector. I have never seen that transition to a smaller construction sector end well, but perhaps the Chinese authorities can ensure theirs is the exception.

And some trends are a continuous evolution not a one-off shift. One example of this kind of wave is the increase in longevity, which has no obvious end point although it could revert under certain conditions.

So it is with the structure of interest rates and the feasible level of unemployment. These are not external factors handed down from the heavens: they are outcomes of the system. They evolve continuously.

There are reasons to believe that the structure of real and nominal interest rates will be a bit higher in the period ahead than it was in the years leading up to the pandemic. Shifting fiscal policy stances matter here, along with risk appetite (in part influenced by regulation) and technological change.

There are also reasons to believe that periods of low unemployment drag the feasible rate of unemployment down, as both new workers and employers gain experience in working with each other during tight labour markets. The RBA seems to understand this, even though the standard models they use are not well-placed to capture this particular dynamic.

The key point here is that these underlying trends – the ‘star’ variables – are not fixed. Both policymakers and policy-watchers would do well to continually test their views about these factors against the broadest possible range of data. Forecasters who do not allow for these potential changes risk being blindsided by them.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Cohen

Commodity

The dynamics of agricultural commodities are in constant flux, influenced by a myriad of factors ranging from weather patterns to geopolitical tensions. Recently, the markets have witnessed notable movements in corn, wheat, and soybean prices, each responding to its unique set of drivers.

Speculative Moves and Harvest Pressures

Corn futures have experienced a surge, marking a fourth consecutive session of gains, largely attributed to speculative short-covering. The wheat market followed suit, buoyed by similar factors. The end of the month brought a reduction in farmer selling and fund liquidation, further supporting the rally. Despite this uptick, experts like Arlan Suderman of StoneX question the sustainability of the corn rally, citing a lack of a bullish narrative in the current market landscape.

Conversely, soybeans have faced downward pressure, primarily due to heavy deliveries and disappointing weekly exports. The continuation of Brazil's soybean harvest has introduced a significant volume of produce into the market, exacerbating the decline and pushing prices to new contract lows. This development hints at a potentially extended bearish period for soybeans, with Brazil's harvest progress being a critical factor to watch.

Impact on Livestock Markets

The ripple effects of these commodity price movements have also been felt in the livestock sector. Cattle futures have dipped, influenced by a combination of fund long liquidation, profit-taking at the month's end, and some hedge pressure. The higher corn prices, along with steady cash prices at mostly $183, have contributed to this trend. Despite the downturn, there is optimism that this could represent a healthy correction within a broader bull market, suggesting resilience in the livestock sector.

Looking Ahead: Market Implications

The interplay between grain and livestock markets underscores the complex and interconnected nature of agricultural commodities. As Brazil continues to harvest its soybeans, the global market will keenly observe the impact on soybean prices and the potential for further downside risks. Corn and wheat markets, meanwhile, have shown resilience, but the sustainability of their rallies remains in question. The upcoming months will be crucial in determining the direction of these commodities, with weather patterns, geopolitical developments, and global demand playing pivotal roles.

The agricultural market's current state presents a mixed bag of opportunities and challenges. For investors and stakeholders, staying informed and agile will be key to navigating the volatile landscape. As the season progresses, the balance between supply and demand, both domestically and internationally, will continue to shape the fortunes of corn, soybeans, and wheat, along with the broader agricultural sector.

Source：bnn

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Samantha Luan

Stocks

After the inflation indicators were published in some European countries such as Germany, France or Spain and the United States, the main European stock markets closed this Thursday with a mixed signal, in which they were navigating aimlessly between gains and losses.

Ending the session with losses were Parks Madrid, which fell 0.67%; Paris, 0.34% and Milan, 0.11%. In contrast, Frankfurt gained 0.44% and London gained 0.07%.

The Eurostoxx 50, an index listing companies with the euro zone's largest capitalization, fell 0.12%.

This Thursday the CPI (Consumer Price Index) of several European countries was published for February. All of them, including France, Germany, Spain and Portugal, remained at moderate levels compared to the previous month.

In the case of Germany, this figure (2.5%) represents the lowest value since June 2021, while in Spain (2.8%) it is the lowest rate since August 2023.

In Asia, the Nikkei fell 0.11% in Tokyo; Hong Kong's Hang Seng, up 0.15% and Seoul's Kospi, up 0.37%. In contrast, the CSI 300 – which lists the largest-cap companies listed on the Shanghai and Shenzhen indices – advanced 1.91%.

In the US, Wall Street started the session with gains and at the close of European stock markets, the S&P 500 was up 0.28% and the Nasdaq was up 0.29%; While Dow Jones declined by 0.06%.

During the day it was revealed that the private consumption deflator in the United States, one of the indicators that the Federal Reserve takes into account to set its monetary policy, was 2.4% year-on-year in January, up from the previous Was two tenths less. Shape.

New applications for unemployment benefits were also published, an increase of 14,000 applications compared to the previous week.

In the crude market, a barrel of Brent, the benchmark oil in Europe, rose 0.13% and was priced at $83.79 at the close of European markets.

A troy ounce of gold rose 0.52% to $2,045.

The euro fell 0.24% and traded around $1.081.

Bitcoin rose 3.15% to $62,457.

In the debt market, German bond yields fell 4.8 basis points to 2.408%.