Brent rises above $112 on supply fears; debt sales support

SINGAPORE: Brent crude rose above $112 a barrel on Friday, boosted by worries over supply disruption from Nigeria, while easing fears on the euro zone debt crisis after positive demand in Spanish and Italian debt sales supported sentiment.

But gains were capped by a report that a proposed European Union embargo on imports of Iranian crude would be phased in over six months.

Brent crude rose 89 cents to $112.15 a barrel by 0725 GMT after rising more than a $1 to hit an intra-day high of $112.50. Prices were on track for a 1 percent drop this week.

US oil was up 87 cents at $99.97 per barrel, after touching a high of $100.19 earlier in the session, but was headed for a 1.5 per cent drop this week.

“Iran is perhaps a longer-term issue, meaning that it is not going to cause an immediate supply disruption,” said Victor Shum of energy consulting firm Purvin & Gertz.

“The more immediate concern is the oil workers’ strike in Nigeria, as that is more likely to result in real supply disruption.”

One of Nigeria’s main trade unions said talks with President Goodluck Jonathan over the government’s removal of publicly popular fuel subsidies were ‘fruitful’ and ongoing, but strikes would continue until an agreement was reached.

Nigeria produces more than two million barrels of crude oil per day and is a key supplier to the United States, Europe and Asia.

“There are more upside risks due to geopolitical issues,” said Shum who projected that US oil prices would hover around $100-$105 a barrel range for most of the month, with Brent having a $10 premium over US oil.

IRAN EYED
Oil prices have been on the rise for weeks due to Iran’s threat to shut down the key Strait of Hormuz oil shipping lane, in response to sanctions over its nuclear program.

US allies in Asia and Europe said they would support Washington’s campaign to cut Iran’s oil exports, but fear of self-inflicted economic pain is tempering enthusiasm for such an embargo.

The United States also slapped sanctions on China’s state-run Zhuhai Zhenrong Corp — said to be Iran’s top supplier of refined petroleum products — as it sought to impress on Beijing and Tehran its resolve to increase economic pressure over Iran’s nuclear program.

But India will keep doing business with Tehran, a senior Indian cabinet minister said on Thursday.

In other markets, Asian shares rose to a one-month high and the euro clung near its strongest in a week as strong demand in Spanish and Italian debt sales tempered risk aversion ahead of another auction from Rome later in the day.

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Exports dip 11pc on falling demand

ISLAMABAD: The commodities exports plunged for the third consecutive month in December 2011 as the continuing global recession shaved off demand from key markers like Europe and United States.

As a result, the country’s exports fell by 11.46 per cent in December to $1.854 billion as against $2.094 billion in the same month last year, suggested data of Pakistan Bureau of Statistics issued here on Wednesday.

Experts say the slowdown in exports will continue in the coming months because the demand from the key markets like European Union and United States is unlikely to revive.

The decline in exports is also witnessed in terms of rupee despite the fact that the massive depreciation of the rupee against the US dollar in the past few months up to December 31. This shows that the depreciation did not support Pakistani commodities to penetrate in the international markets.

However, the country’s overall exports registered a paltry growth of 3.90 per cent at $11.237 billion in the first half of this fiscal year against $10.815 billion in the same period last year.

Last year, the global price hike of commodities, especially of cotton based textile group pushed up the overall exports volume from the country by the end of June 2011.

The government has projected an export target of $25.618 billion for 2011-12. Going by the export performance in the past three months, Pakistan is unlikely to meet the export target.

As a result, trade deficit, the difference between merchandise exports and imports, now stands at $2.407 billion in December as against $1.657 billion in the same month last year because of declining exports and rising import bill.

The overall trade deficit reached to $11.476 billion in the first half (July-December) of this fiscal year as against $8.287 billion over the corresponding period last year, showing an increase of 38.48 per cent.

The slowdown in exports also exerting pressure on the balance of payments, as the pace of imports have also risen with the rising import bill of oil and eatables. The current account deficit in the first five months (July-November) surged to $2.104 billion compared to $589 million deficit recorded in the same period last year.

Even the rising flow of remittances failed to contain the ballooning current account deficit because of decline in export proceeds during the period under review.

On the other hand, import bill went up by 13.60 per cent to $4.261 billion in December as against $3.751 billion over the same month last year. And overall import bill now reached to $22.713 billion in the first half of 2011-12 as against $19.102 billion in the corresponding period last year, showing an increase of 18.90 per cent.

The government has projected import target at $42.910 billion in 2011-12.

Since January 2011, the trade deficit was improving against the corresponding months last year owing to buoyancy in monthly export growth combined with slowdown in imports until June 30, 2011.

But since then, a surge in demand has been witnessed for import of raw materials for the manufacturing sector. Main stimulus behind this industrial demand was the government’s recent decision to lower interest rates, which improved availability of credit to private sector.

For the current year, the government forecast a trade deficit at $17.292 billion as its rebounding economy raises demand for manufacturing and oil imports. The oil and eatable imports bill also expected to swell in the year 2011-12.

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Brent slips below $113 as Europe overshadows Mideast woes

SINGAPORE: Brent crude slipped below $113 on Wednesday as Europe’s debt crisis and expectations of a rise in oil inventories in the United States for the third straight week overshadowed concerns of supply disruption from Iran and Nigeria.

Worries over Greece’s finances, which is racing to conclude a deal and secure continued funding without which it will default in March, made oil pare some of the previous session’s gains made on optimism about US economic growth.

Base metals also fell, while gold held steady just below a key resistance.

Brent slipped 33 cents to $112.95 a barrel by 0559 GMT, after settling 83 cents higher in the previous session.

US crude fell 45 cents to $101.79 a barrel.

“People are focusing on the greater economy as there are no headlines on Iran this morning,” said Tony Nunan, a risk manager at Mitsubishi Corp.

“But the greater economy, especially the euro zone, is weak.”

While Greece races to secure funds, Fitch Ratings could downgrade by one or two notches countries under review such as Italy or Spain, even though it doesn’t expect to cut France’s triple-A credit rating this year, the agency’s EMEA ratings head said on Tuesday.

Higher crude inventories in the United States and a stronger dollar, up about 0.3 per cent against a basket of currencies, could have also pressured oil prices.

US crude stockpiles were up 397,000 barrels in the week to Jan. 6, according to data from the industry group the American Petroleum Institute. A clearer picture on inventories will emerge with numbers from the US Energy Information Agency later in the day.

A Reuters poll of 10 analysts forecast an 800,000-barrel rise in domestic oil inventories, with all but two analysts expecting a build in stocks.

Brent is neutral in a range of $111.80-$114.64 per barrel, but is biased to fall, while US oil will fall to $101.16 per barrel, according to Reuters technical analyst Wang Tao.

SUPPORTING PRICES
Growing tensions over Iran’s nuclear programme are putting a floor under prices, but volatility is to expected to stay as investors constantly weigh supply threats against weaker demand.

“I think the geopolitical risk factors will keep the market supported. Prices are falling but I don’t think this is going to be a long-term downtrend,” said Nunan. “We still have the Jan. 23 meeting coming up and the Nigerian unrest.”

The European Union (EU) is meeting on Jan. 23 to decide on an oil embargo on Iran as it refuses to abandon its nuclear program.

US Secretary of State Hillary Clinton said on Tuesday Iran’s decision to enrich uranium near the city of Qom was “especially troubling” and urged Tehran to return to serious talks with Western powers over its atomic program.

Nunan expects the uncertainty to keep US oil supported above $95 with Brent being about $10 a barrel higher.

As sanctions squeeze, Iran has threatened to shut the Strait of Hormuz, the outlet for 40 per cent of the world’s traded oil.

Asian buyers of Iranian crude are looking for alternatives.

China’s Premier Wen Jiabao will visit three key Middle Eastern oil and gas suppliers — Saudi Arabia, the United Arab Emirates and Qatar — from the weekend.

Japan had asked Saudi Arabia and the United Arab Emirates (UAE) to supply it with more oil, Japanese Foreign Minister Koichiro Gemba said on Tuesday.

Over in Nigeria, what started out as nationwide protests against the scrapping of a fuel subsidy that has nearly doubled petrol prices has escalated into religious conflicts where a mob killed five people in a mosque in Benin City in the south while Islamist militants shot dead eight people in a bar in the north.

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Posted in: BUSINESS

As temperature falls, prices of poultry products go high

ISLAMABAD: While the prices of farm products have slightly eased after the first winter rain, the following cold wave has caused a surge in the prices of poultry products.

As a result of rain and cloudy weather in the region for the past two days and the temperature dropping two degrees below the Celsius in the federal capital, the demand for chicken and eggs has surged significantly.

The farm eggs have already reached their highest level of last year which was Rs116 a dozen, and the distributors have started indicating the short supply due to heavy demand.

“The eggs have already attained last year’s highest price level and the real cold is starting now,” said Mohammad Usman, a bakery owner in Rawalpindi. He said that the demand was increasing from the customers whereas they were facing problems maintaining the stocks.

The domestic consumption has increased while the demand from the commercial side has also jacked up.

“People establish soup stalls and we see young boys selling boiled eggs at various places mainly at the bus stands and tourist areas and all this actually double the demand for the eggs,” Dr Muhammad Aslam, Chairman Pakistan Poultry Association, said and added: “The main problem is that the egg production drops in cold weather.”

The traders estimate that the egg prices could reach Rs120 per dozen in the coming days as they were facing tight supply position.

Similarly, the live chicken has reached Rs150 and Rs160 per kilogram at various markets in the twin cities with an average increase of around Rs20 per kilogram. The market players have attributed this rise in poultry prices to the supply and demand imbalance.

“Pakistan produces 15 million poultry chickens a week but several mortalities have been reported due to cold in Potohar, Khyber-Pakhtunkhwa, whereas the demand has surged,” Dr Aslam said.

The poultry market news is not welcoming for the consumers however the situation is different for the buyers of green groceries.

The recent rain and cold has significantly improved the quality of the vegetables including spinach, mustard, turnip, carrots, radish, and beet root while their supply position has also got better. The lovers of fresh fruit and vegetables of twin cities thronged the Sunday bazaars of Rawalpindi and federal capital not only to enjoy the warm sunny day but also to hit the best bargain.

The supply and quality of farm products are expected to improve further if the rains continue with adequate intervals.

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Posted in: BUSINESS

Steps being taken to curb smuggling of fertiliser

ISLAMABAD: A plan prepared by the interior ministry to stop smuggling of ammonium nitrate, a fertiliser, to Afghanistan and impose restrictions on its sale within the country has created hopes for Pakistan to meet the US conditions for release of $700 million in aid.

Ammonium nitrate, when mixed with fuels, makes a powerful explosive. The US administration alleges that ammonium nitrate made in Pakistan is used in Afghanistan to make improvised explosive devices (IEDs) which are used against Nato troops.

President Barack Obama recently signed a law that linked curbs on smuggling of ammonium nitrate to Afghanistan with the release of $700 million aid. According to sources, export of the commodity to Afghanistan has been restricted and Frontier Constabulary and Rangers have been asked to ensure that ammonium nitrate arriving in the border region is used only as fertiliser and is not smuggled to Afghanistan. “They have been asked to keep a watch on a 50km area along the border,” an official said.

Officials said the Pak-Arab fertilizer factory and the distributors had been asked to maintain record of all transactions and that identity of the buyers should be verified.

The factory has to get no-objection certificates from the health ministry to supply ammonium nitrate crystals to anesthesia gas manufacturers.

“We appreciate all steps Pakistan is taking to curb this menace which is not only killing our soldiers in Afghanistan but Pakistanis also,” US embassy spokesperson Mark Stroh said.

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Brent steady at about $113 as growth concerns counter Iran

SINGAPORE: Brent crude was flat at about $113 a barrel on Friday as unabated euro zone debt woes and a surprise build in US oil stockpiles tempered gains from supply disruption fears on mounting tensions between Iran and the West.

Investors are treading cautiously as unresolved debt issues in the euro zone may worsen and drag down major economies, slowing down growth and oil demand. An unexpected 2.2 million barrels rise in US crude stockpiles in the week to December 30 also weighed on sentiment.

Yet, Brent is set to rise more than four per cent in the first week of 2012 as Iran threatened to shut the Strait of Hormuz, the world’s most important oil route, in retaliation against tighter sanctions from the United States and a possible ban on its crude exports to Europe.

February Brent crude rose three cents to $112.77 a barrel by 0727 GMT while US crude was down 2 cents to $101.79.

“Oil could see-saw as the US and Iran play brinkmanship,” said Tony Nunan, a risk manager at Mitsubishi Corp, adding that the global oil demand outlook was murky as the euro zone crisis dragged on.

A risk premium has been built into oil in case of a sudden supply disruption if the Strait of Hormuz is shut although the probability is low, he said.

Iran faced the prospect of cutbacks in its oil sales to China and Japan as new measures to block Tehran’s crude exports over its nuclear programme appeared to be driving its economy to the wall.

The European Union could make a final decision on a proposal to ban Iranian oil exports and freeze Iranian central bank assets by the end of January.

“This may force Iran to issue another statement again,” Nunan said.

GROWTH CONCERNS
Investors are worried the Euro zone situation could worsen, snuff out burgeoning growth in the United States and slow down China’s economy, the world’s top oil consumers.

“If the world GDP growth remains above three per cent we believe that pricing in the energy markets will be firm,” Deutsche Bank analysts said in its 2012 commodities outlook report.

“The euro zone remains the epicenter of this story, and we expect a fairly severe recession in the bloc in the near term.”

The bank expects global growth to slow to 3.2 per cent in 2012 from 3.6 per cent this year.

“Consensus forecasts for an oil demand gain of 1.2 million barrels per day in 2012 could come under further downside pressure if GDP estimates are shaved,” Deutsche Bank said.

The United States will release non-farm payrolls data later on Friday which could be bullish for crude demand if it shows a recovery, Nunan said.

Oil could also draw more funds from investors exiting from European investments as the region’s debt crisis persists, traders said.

“Plenty of cash reserves have been pulled out from the euro zone and they could move into commodities, especially energy,” said Ryoma Furumi, a commodity sales manager at Newedge Japan.

Brent’s trading volume rose 34 per cent on Thursday against its 30-day average, according to Reuters data. US crude volume was up 11.7 per cent from its 30-day average.

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Rupee trades at new record low vs dollar

KARACHI: The Pakistani rupee traded at a record low of 90.42 on Thursday for the second consecutive trading session amid increased import payments, especially of oil, and because of a negative outlook on the country’s economy, dealers said.

“There are some oil import payments but there are few inflows of dollars and generally there is rising concern about the direction of Pakistan’s economy,” said a bank dealer.

The rupee traded at its previous record low of 90.35 to the dollar on Wednesday and dealers said it traded at 90.48 in the TOM (one-day forward) market.

The rupee ended at 90.40/45 to the dollar, compared with Wednesday’s close of 90.27/31.

There are concerns on the economic front as the country’s current account deficit stood at $2.104 billion in July-Nov compared with $589 million in the same period a year earlier.

The deficit is likely to widen further in the coming months because of debt repayments and a lack of external aid.

Islamabad has to start paying back an $8 billion International Monetary Fund loan in early 2012. Without additional sources of revenue, analysts said, its foreign exchange reserves may come under pressure.

More than $1.1 billion is due in the second half of the 2011/12 fiscal year.

Foreign exchange reserves were at $16.77 billion in the week ending Dec 23, compared with a record $18.31 billion as of July 30.

The rupee weakened 4.82 per cent in 2011, after losing 1.53 per cent in 2010.

There are also concerns about rising international oil prices as it was trading around $113.40 a barrel but the risk remained to the upside given geopolitical tensions around Iran and Syria, and calls for strikes in Africa’s biggest producer Nigeria.

Pakistan stocks fell on foreign selling. The Karachi Stock Exchange’s (KSE) benchmark 100-share index ended 1.53 per cent, or 174.09 points, lower at 11,187.88 on turnover of just 29.64 million shares.

In the money market, overnight rates ended at their lowest level of 9.10 per cent, unchanged from Wednesday’s close amid increased liquidity in the interbank market.

Dealers said there were scheduled outflows of 174 billion Pakistani rupees ($1.93 billion) due on Friday.

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Posted in: BUSINESS