“The Oil War Between Russia And Saudi Arabia…”

The Oil War Between Russia And Saudi Arabia

Global oil prices have fallen by roughly two-thirds this year as the coronavirus pandemic slammed global economies and major producers Saudi Arabia and Russia started to flood the market with oil. The price of Brent oil on Monday dropped to $21.65 the lowest since 2002 while the US West Texas Intermediate crude was down 1.3 percent at $ 20.21.   On Wednesday oil slid to $25 a barrel due to a report showing a big rise in US inventories.  A negative mood was also fuelled by the rift within the OPEC, Saudi Arabia and other OPEC members after failing to agree to hold a technical meeting in April to discuss sliding prices.  Meanwhile the biggest oil and gas companies are cutting spending this year following the collapse in oil prices as demand plunged amid the coronavirus crisis and the price war between the top exporters Saudi Arabia and Russia.  Eight major oil companies already announced their cut including Saudi Aramco, Royal Dutch Shell to a combined $28 billion, a drop of 20 percent from their initial spending plans of $142 billion.  BP also cut its 2020 spending by 25 percent and Exxon Mobil Corp said it would cut its capital expenditure, but no specific figures have been given.  On Tuesday Trump said that he would join Saudi Arabia and Russia, if need be, for talks about the fall in oil prices, which at current levels will squeeze out higher cost production, in particular US shale output which surged in recent years.  Russian President Vladimir Putin called on Wednesday for global oil producers and consumers to address “challenging” oil markets while US President Donald Trump complained that oil is cheaper “than water” and is hurting the industry.  Putin said that even the United States is worried about the state of the oil market as shale oil producers need a price around $40 per barrel to turn a profit.   US President Donald Trump said he has invited US oil executives to the White House to discuss ways to help the industry.  Oil prices jumped on Thursday as US president Donald Trump said he expected Saudi and Russia to reach an agreement to cope with the plunging demand.  On Thursday Trump spoke to Saudi Crown Prince Mohammed bin Salman, and expects Riyadh and Moscow to cut oil output by as much as 10 million to 15 million barrels. However, on Friday oil prices shed some of their massive gains taking stocks lower in Asia, amid doubts over the oil price deal between Saudi Arabia and Russia.  US West Texas Intermediate (WTI) crude lost $1.18 or 4.7 percent to $24.14 a barrel, after having surged a record 24.7 percent on Thursday.  Brent futures dropped $1.37 or 4.6 percent to $28.55.

Market Wrap

European stock indexes fell, and currencies eased on Monday as the support packages aimed to support the economies effected by the coronavirus failed to ease the pain. After Donald Trump’s media briefing late on Tuesday where he warned Americans of a painful two weeks ahead as measures are being stepped up to fight the corona virus, markets were shaken.  European shares fell on Wednesday in their first trading session of the quarter amid dismal data from Asia that marks the ongoing damage from the pandemic.  The pan-European index was down 2.4 percent in the morning, after ending Tuesday with its worst quarter in 18 years as lockdown measures to control the virus halted business activity, increasing the possibility of corporate defaults and mass layoffs.  Meanwhile Wall Street fell 4 percent, with the Dow and the S&P deepening losses from their worst quarter in a decade as more US companies cut production with risks of corporate defaults.  Since the mid-February record high, the S&P has lost about $8 trillion in market value as the outbreak spread in the US and Trump warned of more economic pain as more stringent measures will affect business activity.  Longer-term US Treasury yields fell on Wednesday as investors grew more cautious about the economic impact of the coronavirus and expected more equity declines.  The benchmark 10-year yield was down 11.3 basis points in the morning trading at 0.5863 percent. Meanwhile, the Shorter-term yields were little changed.    Eurozone government bond yields rose on Thursday as some investors moved back into riskier assets, with demand for new bonds issued by Spain and France expected to offer a gauge of current market sentiment.  The 10-year German government bond yield rose 3 basis points to -.44 percent rising from the lows of -.55 percent touched on Monday.  On Thursday US Stock Index Futures bounced as oil prices recovered on hopes of a deal between Russia and Saudi to cut output.  Investment sentiment however remains dull amid another surge in US jobless claims arising from the pandemic.

Currency Round Up

Sterling rose on Tuesday as investors adjusted their portfolios at the end of the first quarter of 2020.  Earlier it fell against the dollar as the US currency which is considered as safe haven gained strength amid the spread of the coronavirus.  Sterling traded up at $1.2449 and rose 0.6 percent against the Euro to 88.35 pence.  Pressure on the sterling came about after a survey published on Tuesday showed that confidence among British companies dropped in the second week of March amid the coronavirus.   The dollar on Tuesday fell against a basket of major currencies as the FED allowed foreign central banks to exchange their holdings of US Treasury securities for overnight dollar loans. It is a measure the FED has taken to address liquidity problems caused by the economic fallout from the coronavirus pandemic.  This has increased the supply of the Dollar. The china’s yuan eased further on Wednesday following its worst monthly performance in seven as investors favoured the safe-haven dollar.  Against the dollar in March, the yuan lost 1.3 percent.   Whilst the Dollar was the biggest gainer for the quarter, increasing by 2.8 percent, the Norwegian crown was the biggest loser falling 18 percent against the dollar.  The dollar has also weakened after data showed U.S. consumer confidence dropped to a near three-year low in March as households worried about the economy’s near-term outlook amid the coronavirus pandemic. The euro, meanwhile, was down 0.2% against the dollar at $1.1007, falling 1.8% in the first quarter.   The US Dollar firmed on Thursday but paused its strong rally of recent weeks after the measures taken by the Federal Reserve to make it easier for central banks to exchange their currencies to dollars.

US – Initial Claims Unemployment Benefits

Initial claims for unemployment benefits rose to 6.65 million in the latest week from an unrevised 3.3 million in the previous week, said the US Labour Department on Thursday.  The government’s weekly report, which gives the timely data on the health of the economy, clearly indicates that the longest employment boom in the US history ended in March.  As more than 80 percent of Americans are under some form of lockdown, many Americans are seeking government assistance.  Self-employed and gig-workers who previously were unable to claim unemployment benefits are now eligible.  Furthermore, the unemployed will get up to $600 per week for up to four months.

US – ADP National Employment Report

The ADP National Employment Report on Wednesday showed that private payrolls fell by 27,000 jobs last month, the first decline since September 2017, after advancing by an unrevised 183,000 in February.  The payrolls drop in March was concentrated among small businesses, while larger companies added workers.

US Manufacturing Activity And More

US manufacturing activity contracted less than expected in March, but disruptions caused by the coronavirus pandemic pushed new orders received by factories to an 11-year low.  The economy’s outlook was further dimmed by other data on Wednesday showing that private payrolls dropped last month for the first time in 2 ½ years as businesses shut down in compliance with strict measures to contain the highly contagious virus.  The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 49.1 last month from 50.1 in February.  A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11 percent of the US economy.

Japan

Japan’s factory activity contracted at the fastest pace in about a decade in March amid severe downturn in overseas and domestic demand due to the pandemic.  The final au Jibun Bank Japan Manufacturing Purchasing Manager’s Index (PMI) fell to a seasonally adjusted 44.8 from a final 47.8 in February, its lowest since April 2009.  The PMI survey showed output and new orders fell to levels not seen since April 2011.  Also, new export orders dropped sharply as reports of severe economic distress from key trading partners in China and other parts of Asia.  Japan’s economy contracted at the fastest rate in 5 ½ years in the December quarter amid a hit from sales tax hike and the US-China trade war.  As the virus hits the global economy, Japan’s economy could be moving into recession after two straight quarters of contraction.

China’s Factory Activity

Factory activity in China unexpectedly recovered in March from a collapse in February.  China’s official Purchasing Managers’ Index (PMI) rose to 52 in March from a record February low of 35.7, said the National Bureau of Statistics (NBS) on Tuesday.  This is above the 50 mark that separates monthly growth from contraction.  According to NBS the rebound in the PMI is attributed to a record low base in February and cautioned that the readings do not signal a stabilisation in economic activity.  Markets reacted positively to the PMI survey with Asian stocks rising as investors seemed relieved by the rare good news as the pandemic shows little sign of lessening.  The Chinese yuan barely moved reflecting the view of analysts’ views that a sustainable bounce in manufacturing seemed way off. The impact on production was underlined in two of Asia’s export engines, Japan and South Korea.  In Japan industrial output rose at a slower pace in February and factories expect a drop this month.  Meanwhile production in South Korea contracted the most in 11 years.  Economists are expecting a sharp contraction in China’s first quarter gross domestic product.  In a separate NBS report, the service sector which accounts for 60 percent of China’s GDP also saw an expansion in activity with the official non-manufacturing PMI rising to 52.3 from 29.6 in February.  Meanwhile, China’s urban jobless rate hit 6.2 percent in February up one percentage point from the end of 2019 and analysts estimate about 5 million jobs lost in January-February period.

United Kingdom

Britain’s current account deficit has narrowed by more than expected in the last three months of 2019 however, much of the improvement was due to the volatility in gold trade, official data showed on Tuesday.  The deficit amounted to 5.6 billion pounds in the fourth quarter, down from nearly 20 billion pounds in the previous three months.  The deficit is 1 percent of gross domestic product, which is Britain’s smallest current account deficit since the second quarter of 2011.  The overall current account deficit narrowed to 3.8 percent of gross domestic product from 3.9 percent in 2018, said the office for National Statistics.   The household savings ratio rose to 6.2 percent from 5 percent in the third quarter, indicating caution on the part of consumers during a period that included a national election.

Eurozone Business Activity

Eurozone business activity collapsed last month amid attempts to contain the coronavirus pandemic with governments taking strict measures including shutdowns, shows a survey on Friday.  The HIS Markit’s final Composite Purchasing Managers’ Index plummeted to a record low of 29.7 in March from February’s 51.6 lower than the flash reading of 31.4 and marking by far its biggest one-month drop since the survey began in July 1998.  The 50-mark separates growth from contraction.  According to Chris Williamson, chief business economist at IHS Markit said, “The data indicates that the eurozone economy is already contracting at an annualised rate approaching 10 percent, with worse inevitably to come in the near future.”  Similarly, the activity in the eurozone’s dominant service industry also almost grounded to a halt, as its PMI dropped to a survey-low of 26.4 from February’s 52.6.  Williamson further added that “The service sector is currently seeing an especially severe impact from the COVID-19 outbreak with travel, tourism, restaurants and other leisure activities all hit hard by the virus containment measures.  Meanwhile, the services business expectations index almost halved to a survey low of 33.5 from 61.3 more than 8 points below the previous record low set in November 2008.

Malta:   Unemployment Rate – February 2020

The seasonally adjusted monthly unemployment rate for February 2020 reached 3.3 percent a drop of 0.4 percentage points over the same month in 2019.   The seasonally adjusted rate for males was 3.2 percent while the rate for females stood at 3.5 percent.  Meanwhile, the seasonally adjusted unemployment rate for the month of February 2020 stood at 3.3 percent down by 0.1 percent from the previous month and down 3.7 percent when compared to February 2019.  During February 2020 the seasonally adjusted number of unemployed persons was 8,905 with the unemployed males and the 25 to 74 age group being the major contributors to the overall level of unemployment.

 

 

Antonella Mercieca

Client Relationship Manager

Source:

Reuters, https://nso.gov.mt

Date:

April 3rd, 2020


‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’

Timberland Finance,
Aragon House Business Centre,
Dragonara Road,
St Julian’s, STJ 3140,
Malta