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Thursday, March 19, 2015

Fiscal problems add to the country's woes; Oil falls back on dollar, Kuwait stance that OPEC won't slow output

Oil prices surge after Saudi air strikes in Yemen Thu, Mar 26 08:20 AM EDT image By Himanshu Ojha LONDON (Reuters) - Brent crude oil soared more than 4 percent towards $59 a barrel on Thursday after Saudi Arabia and its Gulf Arab allies began a military operation in Yemen, which sits on a key shipping passage between Europe and the Arab Gulf. The air strikes against Houthi rebels, who have driven the president from Yemen's capital Sanaa, could stoke concerns about the security of Middle East oil shipments if the conflict widens. Brent futures LCOc1 were up $2.47 at $58.93 by 0758 EDT. U.S. crude CLc1 was up $2.16 at $51.37 a barrel. Brent and U.S. crude prices spiked around 6 percent earlier in the session but pared gains in European trading. "Geopolitical risk like this has been on the back burner for a while because we've been focusing on global oversupply," said Ole Hansen, head of commodity strategy at Saxo Bank. "This news has not made the oversupply go away. The upside potential is limited unless something escalates. We need to see how this unfolds over the next couple of days," he said. Iranian officials demanded an immediate halt to Saudi-led military operations in Yemen and said Tehran would make all necessary efforts to control the crisis there, Iranian news agencies reported. In order to export to Europe, Arab producers have to ship oil past Yemen's coastlines via the Gulf of Aden to get to the Suez Canal. Four Egyptian naval vessels have passed through the Suez Canal en route to Yemen to secure the Gulf of Aden, maritime sources said. The waters between Yemen and Djibouti, known as Bab el-Mandeb, are less than 40 km (25 miles) wide. They are considered a "chokepoint" to global oil supplies by the U.S. Energy Information Administration (EIA). The EIA estimates that 3.8 million barrels a day of crude oil passed through Bab el-Mandeb in 2013, the latest year for which figures were available. The region is heavily populated with Western military forces. The United States and France operate large military bases in Djibouti. NATO's anti-piracy fleet also operates from the Gulf of Aden. While the strikes have not yet disrupted major oil facilities of key Gulf producers, such as Saudi Arabia, there are concerns that the conflict might widen. The Shi'ite Houthis have received some support from Iran, Saudi Arabia's long-time rival for dominance in the Middle East. State-run Kuwait Petroleum Corp said the OPEC member country had raised security around its oil facilities after the military operation in Yemen. Yemen shut its major seaports on Thursday, industry and local sources said. (Additional reporting by Aaron Sheldrick and Osamu Tsukimori in Tokyo, Meeyoung Cho in Seoul, Henning Gloystein and Florence Tan in Singapore; editing by Dale Hudson and Jason Neely) ======= Oil drops as Saudi output nears record, China demand worries drag By Henning Gloystein SINGAPORE Mon Mar 23, 2015 11:08pm EDT An offshore oil platform is seen in Huntington Beach, California September 28, 2014. REUTERS/Lucy Nicholson Credit: Reuters/Lucy Nicholson (Reuters) - Oil prices dropped on Tuesday after activity in China's factory sector fell to an 11-month low and as Saudi Arabia said its production was close to an all-time high. The flash HSBC/Markit Purchasing Managers' Index (PMI) dipped to 49.2 in March, below the 50-point level that separates growth in activity from a contraction on a monthly basis, stoking worries over the strength of the world's No.2 economy. Economists polled by Reuters had forecast a reading of 50.6. That followed an overnight report that Saudi Arabia, OPEC's biggest producer, was now pumping around 10 million barrels of crude oil per day, a near all-time high and some 350,000 bpd above the figure Saudi Arabia gave to OPEC for its February output. "The market was under pressure early in the trading day after comments from Saudi Arabia that it was producing almost 10 million barrels per day," ANZ bank said on Tuesday. Brent crude oil futures LCOc1 were trading down 34 cents at $55.58 a barrel at 0301 GMT. U.S. WTI crude CLc1 dropped 48 cents to $46.97 a barrel. Worries over slowing growth in China's economy as well as high production have contributed to a global surplus in oil supplies. "We expect crude prices to be pressured once again by the weight of some 2 million barrels per day of oversupply in Q2 2015," energy consultancy FGE said in a note on Tuesday. The refinery sector has benefited from cheap oil, which has improved margins for oil products such as diesel or jet fuel. "A sharp decline in crude prices over late 2014 and into January 2015, followed by an extraordinarily cold February (in the United States and parts of Europe), has meant good times for refiners," FGE said, but it added that high refinery margins were unlikely to last. "In H2 2015, we see an oversupplied products market even as crude prices begin to recover. Refinery margins will adjust downwards. (Editing by Joseph Radford) FILED UNDER: China Saudi Arabia ============================================== Oil falls back on dollar, Kuwait stance that OPEC won't slow output Thu, Mar 19 14:31 PM EDT image By Barani Krishnan NEW YORK (Reuters) - Oil prices fell on Thursday as a rebounding dollar and Kuwait's stance that OPEC had no choice but to keep producing in an oversupplied market undercut a rally from the previous day. Benchmark Brent oil and U.S. crude were down about 2 percent each, weighed by the dollar's rise against most currencies after the greenback's biggest tumble in 18 months on Wednesday. In the previous session, Brent rose nearly 5 percent and U.S. crude about 3 percent on the dollar weakness. "It's dollar play all over again today," said Phil Flynn, analyst at the Price Futures Group in Chicago. "The fact that the oil market is oversupplied is a given, so the only real variable now are currency moves and how they impact commodities demand." A stronger dollar weakens demand from holders of other currencies for commodities denominated in the greenback. The dollar rose 2 percent against the euro EUR= on Thursday, after its selloff on Wednesday on disappointment over the lack of a clear timeline for a U.S. interest rate hike. [USD/] Brent oil LCOc1 was down $1.18 to $54.73 a barrel by 11:46 a.m. EDT (1546 GMT). It rallied more than $2, or about 5 percent, on Wednesday after the U.S. Federal Reserve hinted at a slower rate hike process than previously thought. U.S. crude CLc1 fell 82 cents to $43.84. In Kuwait, oil minister Ali al-Omair said OPEC had to keep production steady, although he voiced concern about oil prices having been halved since the previous summer. [ID:nL6N0WL1AQ] "We don’t want to lose our share in the market," the minister said, reinforcing comments by OPEC kingpin Saudi Arabia of the need for members of the producer group to defend its output against rival shale oil producers in the United States and other non-OPEC nations. While oil firms have slashed exploration budgets and the number of U.S. rigs drilling for oil has fallen to four-year lows, shale output in the United States has barely slowed. Last week alone, U.S. crude stockpiles rose by 9.6 million barrels to reach above 458 million barrels, the highest in more than 80 years. [EIA/S] In Lausanne, Switzerland, nuclear talks between Iran and six major powers showed major differences remaining toward a deal, providing some support to oil prices. Iran, an OPEC member whose oil exports have been restrained by sanctions related to its nuclear program, has said it will add another million barrels to the market when the sanctions come off. [ID:nL2N0WJ061] (Additional reporting by David Sheppard in London and Jessica Jaganathan in Singapore; Editing by Susan Thomas, William Hardy and Chris Reese) ===================== An empty chest Fiscal problems add to the country’s woes Mar 21st 2015 | BAGHDAD | From the print edition ALMOST 90% of government revenue in Iraq comes from oil. Yet the price of the stuff has fallen by more than half over the past year, and the volume of Iraq’s exports has fallen by a fifth, even as the government embarks on an expensive military campaign against Islamic State (IS), the militant group that has taken over much of the north and west of the country. The country’s fiscal problems, in short, are almost as big as its political ones. In January Iraq’s parliament passed a budget of 119 trillion Iraqi dinars ($105 billion). That constitutes a 16% cut in spending: funds to every ministry were slashed. The budget also attempts to raise revenue, by introducing a sales tax on mobile and internet top-up cards, airline tickets, vehicles, alcohol and cigarettes. It nonetheless projects a deficit of 25 trillion Iraqi dinars, or about 9% of GDP. Even that seems optimistic. The budget is based on an oil price of $56 a barrel, and assumes exports of 3.3m barrels a day. In January Iraq exported 2.4m b/d, at an average price of $41 a barrel, according to the Economist Intelligence Unit, a sister company of The Economist. To fill the void the government plans to sell bonds, postpone some payments and dip into its savings. Having paid down its public debt from over 300% of GDP in 2004 to 31% of GDP today, it has some room for manoeuvre. It is discussing a $6 billion bond sale with Citigroup and Deutsche Bank. Officials say they will also borrow from the IMF and World Bank. The government of the autonomous Kurdish region in northern Iraq is borrowing from Turkey. Haider al-Abadi, Iraq’s prime minister, has talked to Egypt about converting debts into oil (although that would also cut into export revenues). Kuwait, meanwhile, has agreed to defer some of the compensation Iraq owes for its invasion in 1990. Western oil companies with contracts to boost Iraq’s oil output have agreed to cut back on investment, the cost of which is partly borne by the government. Shell alone has reportedly agreed to savings of $0.9 billion—although this, too, will eventually curtail exports. The government also plans to borrow from the central bank’s reserves, which the World Bank puts at $78 billion. It still has some assets abroad, although it appears to have exhausted a special fund in which it stashed excess oil revenue. War and austerity are taking their toll on the economy, which shrank by 2.7% last year, according to the IMF. Unemployment is thought to be over 25%; another 40% of Iraqis of working age are employed by the government. Even in 2013, before IS burst on the scene, new foreign direct investment was only $2.9 billion—a fraction of what Iraq needs to rebuild its war-torn infrastructure and revive its oil industry. In something of a vicious cycle, the shortage of cash is poisoning Iraqi politics. The budget only passed after the authorities in Baghdad and the Kurdish regional government agreed to share the income from oil, which the central government claims the sole right to export. The deal stipulates that the Kurds must provide the government with 550,000 b/d in exchange for 17% of the government’s oil revenues. Neither side is keeping to the bargain. So far the central government has paid a measly $250m to the Kurds, who, in turn, have handed over less oil than promised: only 248,000 b/d in the first seven days of March, for instance. Ashti Hawrami, the Kurds’ oil minister, says poor infrastructure prevents them from providing enough. Adil Abdul Mahdi, the national oil minister, insinuates that the Kurds are selling barrels on the side. This bickering, needless to say, is not helping the supposed allies push back IS. My feelings are that the potential suitor(s) are holding the sp at these current levels while they are in discussions. They will know what SH is really worth but if they can get it for a fraction of true value they will do all within their powers. OMO

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