Focus: Oil, WTI’S moment of truth

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Updated 21 April 2020
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Focus: Oil, WTI’S moment of truth

What happened:

Monday was a historic day for oil. The May contract for WTI fell below zero for the first time in history. It reached -$37.63 per barrel at the end of the US trading session. The June contract closed at 20.43 per barrel. Brent closed at a very low $25.60 and stood at 23.80 in early afternoon trade in London, at which time WTI traded at minus $6.3 per barrel.

The price range is an indication of the fact that the world is running out of storage space, particularly in the US.

Markets turned negative on the news flow in the oil sector, which was exacerbated in Asia on reports that North Korean leader Kim Jong Un was critically ill, inserting a whiff of geopolitical risk.

President Donald Trump tweeted that he would suspend immigration temporarily, reflecting the huge increase in jobless claims of 22 million over the span of four weeks, which is again unprecedented.

Virgin Atlantic Australia went into administration, asking for commercial loans from the government.

As the earnings season continued it became clear that more and more companies were asking to have their guidance disregarded, and that other metrics would take precedence. This is because there is very little visibility on how the economy evolves going forward.

Background:

We should not forget that the WTI benchmark is set at Cushing, which has essentially run out of storage in as much as it is either full or spoken for. In other words, WTI crude for the May contract has nowhere to go.

Brent, which is a seaborne benchmark, trades globally and is therefore in a better position than WTI which is essentially landlocked and has nowhere to go -- notwithstanding that in real terms the commodity has not traded at such low levels since 1971.

According to the International Energy Agency, oil demand will decline by 29 million barrels per day (bpd) in April and 23 million bpd for the second quarter. The OPEC+ production cut of 9.7 million bpd pales in light of this unprecedented demand destruction. In other words, the current deterioration in the oil market and the resulting dislocation is beyond anybody’s control.

The ripple effects of this price deterioration will go beyond the oil sector. Many shale oil producers are being eased out because they have a relatively high cost base and also high leverage. They cannot service their debt at current oil prices. This will in turn have an impact on the loan portfolio of several lenders with high exposure to the shale space. Banks with outstanding hedges at higher prices will similarly be affected.

The sector has lost 51,000 jobs since the outbreak, leaving a dent on the unemployment numbers.

Where we go from here:

The May contract expires on Tuesday at 14:30 EDST. Negative sentiment has already rolled to the June contract, which stood at around $11 late morning CEST.

This can easily be explained by the fact that investors who felt that the market had bottomed out poured huge sums into exchange-traded funds on longer-dated contracts -- $4.3 billion since the beginning of the crisis and $1.6 billion last week alone. These contracts will now need to be rolled over.

A lot will depend on how the storage situation evolves, which in turn depends on how quickly the US and other advanced emerging economies will come out of the crisis, as well as on the shape and pace of any recovery.

The current developments will have ramifications on major oil-producing countries, like Saudi Arabia, the UAE or Russia. Low oil prices will impose a limitation on spending and reform programs. It is also reflected in the currencies of major crude oil exporters, which do not have a dollar peg – which again is different in the Gulf Cooperation Council. 

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.

Twitter: @MeyerResources


EU sanctions Rwandan officials ahead of Congo peace talks

Updated 21 min 30 sec ago
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EU sanctions Rwandan officials ahead of Congo peace talks

KIGALI: The EU sanctioned nine people and a gold refinery on Monday in connection with a Rwanda-backed rebellion in eastern Democratic Republic of Congo, a day before peace talks scheduled in Angola between M23 rebels and the Congolese government.

The sanctions targeted M23 political leader Bertrand Bisimwa and Rwandan army commanders. 

They were also applied to the CEO of Rwanda Mines, Petroleum and Gas Board, and Gasabo Gold Refinery in Kigali, which the EU accused of illicitly exporting natural resources from Congo.

Amid a flurry of diplomatic activity, a rebel alliance that includes M23 confirmed it would send a five-member delegation to Tuesday’s talks in Luanda, which could mark M23’s first direct negotiations with the Congolese government.

Congo President Felix Tshisekedi’s office said on Sunday that Kinshasa would send representatives to Luanda, reversing the government’s long-standing vow not to negotiate with the group, which it has dismissed as a mere front for the Rwandan government.

Pressure has been growing on Tshisekedi to negotiate with M23 after a series of battlefield setbacks since January. 

The rebels have seized eastern Congo’s two biggest cities and several smaller localities.

The fighting has killed at least 7,000 people this year, according to the Congolese government, and hundreds of thousands have been displaced.

The conflict is rooted in the spillover into Congo of Rwanda’s 1994 genocide and the struggle for control of Congo’s vast mineral resources, many of which are used in batteries used for electric vehicles and other electronic products.

The UN and international powers accuse Rwanda of providing arms and sending soldiers to fight with the ethnic Tutsi-led M23. 

Rwanda says its forces are acting in self-defense against Congo’s army and militias that are hostile to Kigali.

A Rwandan government spokesperson did not immediately respond to a request for comment on the EU sanctions.

Western countries have taken measures against Rwanda over the conflict, including the withholding of development aid by Britain and Germany, but Kigali has been defiant.

On Monday, it announced it was severing diplomatic relations with Belgium, the former colonial power in Rwanda and Congo, and giving Belgian diplomats 48 hours to leave.

Rwanda’s Foreign Ministry accused Belgium, which has called for strong EU action against Kigali, of “using lies and manipulation to secure an unjustified hostile opinion of Rwanda.”

Belgium’s Foreign Affairs Minister Maxime Prevot said Brussels would reciprocate by declaring Rwandan diplomats persona non grata, calling Kigali’s move “disproportionate.”

Previous rounds of EU sanctions have targeted M23 commanders and Rwandan army officers.

Zobel Behalal, a senior expert at the Global Initiative against Transnational Organized Crime, said the latest sanctions were notable in going after Rwanda Mines, Petroleum and Gas Board, and the Gasabo Gold Refinery.

“The EU sanctions ... are a recognition that profits from natural resources are one of the main motivations for Rwanda’s involvement in this conflict,” said Behalal.

The mines board and the gold refinery did not immediately respond to requests for comment.


UN experts slam US arrests of pro-Palestinian students

Updated 2 min 40 sec ago
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UN experts slam US arrests of pro-Palestinian students

  • “These actions are disproportionate, unnecessary, and discriminatory and will only lead to more trauma and polarization negatively impacting the learning environment within university campuses,” the UN experts said in a statement
  • The Trump administration cut $400 million in federal funding for Columbia University, accusing it of not sufficiently addressing anti-Semitism

GENEVA: UN-appointed experts on Monday branded US authorities’ arrests of foreign students for pro-Palestinian protests on campus “disproportionate” and called for their rights to be respected.
US campuses including Columbia University in New York were rocked by student protests against Israel’s war in Gaza following the October 7, 2023 attack by Palestinian militant group Hamas, drawing accusations of anti-Semitism.
Immigration officers arrested Mahmoud Khalil, a leader of protests at Columbia, on the weekend of March 9-10 after US President Donald Trump vowed to deport foreign pro-Palestinian student demonstrators.
The White House later said authorities had supplied a list of other Columbia students that officers were seeking to deport over their alleged participation in protests.
“These actions are disproportionate, unnecessary, and discriminatory and will only lead to more trauma and polarization negatively impacting the learning environment within university campuses,” the UN experts said in a statement.
“These actions create a chilling effect on the rights to freedom of expression, assembly and of association,” they added.
The Trump administration has moved to revoke Khalil’s residency permit, accusing him of leading “activities aligned with Hamas.”
Khalil’s lawyer later told a court that he had been taken to Louisiana and denied legal advice.
The independent experts, appointed by the UN to report on rights issues, urged US authorities “to cease repression and retaliation, including in the form of arbitrary detention of US lawful permanent residents, and removal of international students who have participated in university protests.”
The Trump administration cut $400 million in federal funding for Columbia University, accusing it of not sufficiently addressing anti-Semitism.
Columbia administrators later said they had suspended and expelled a number of students who had occupied a campus building last year.
 

 


Kenya urged to investigate mutilated bodies dumped in quarry

Updated 25 min 10 sec ago
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Kenya urged to investigate mutilated bodies dumped in quarry

NAIROBI: Human Rights Watch has urged Kenya to conclude an investigation into mutilated bodies found in a quarry last year and address claims that police blocked recovery efforts.

There was shock and disgust last July in the East African country when 10 butchered female corpses and other unidentified body parts were recovered, mostly by volunteers, from an abandoned quarry in the Mukuru slum in the capital, Nairobi.

The discovery came as Kenya was gripped by deadly government protests, with rights groups alleging police brutality and the abduction of prominent protesters.

Authorities promised swift action and quickly arrested a man who they said had confessed to murdering and dismembering 42 women.

But around a month later, the suspect escaped police custody and disappeared without a trace.

“No prosecution has been initiated either for the bodies or this escape,” HRW and the Mukuru Community Center for Social Justice said in a joint statement.

HRW said volunteers at the quarry alleged that police officers had forced them to stop retrieving body parts.


Sudan army inches closer to retaking Khartoum

Updated 29 min 22 sec ago
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Sudan army inches closer to retaking Khartoum

  • Shelling by Rapid Support Forces kills six civilians, including two children

OMDURMAN: Shelling by Sudan’s paramilitary Rapid Support Forces killed six civilians, including two children, in Khartoum’s twin city of Omdurman, a doctor said Monday, as the army inched closer to the capital’s presidential palace.

Sunday’s attack also wounded 36 civilians, half of them children, the doctor at Al-Nao Hospital said.

The bombardment struck residential areas in northern Omdurman, hitting civilians inside their homes and children playing on a football field, the Khartoum regional government’s media office said.

The war between the RSF and the army, which began in April of 2023, has escalated recently, with army forces seeking to reclaim territory lost to the RSF early in the conflict in the capital, Khartoum, and beyond.

The army says its units are now less than a kilometer from the presidential palace, which the RSF seized at the war’s outset. In a video address shared on Telegram on Saturday, RSF commander Gen. Mohammed Hamdan Dagalo vowed his troops “will not leave the Republican Palace.”

AFP journalists saw thick plumes of smoke rising over central Khartoum as fighting raged across the capital, with gunfire and explosions heard in several areas.

Nationwide, the conflict has killed tens of thousands, uprooted more than 12 million, and created the world’s largest hunger and displacement crises.

In Khartoum alone, at least 3.5 million people have been forced from their homes due to the violence, according to the UN.

Further southwest, in the North Kordofan state capital of El-Obeid — roughly 400 km from Khartoum — two civilians were killed and 15 others wounded after RSF forces shelled residential neighborhoods on Monday morning, a medical source at the city’s main hospital said.

Last month, the military broke through a nearly two-year RSF siege of the southern city, a key crossroads linking Khartoum to the vast Darfur region, which is under near-total RSF control.

Across North Kordofan, more than 200,000 people are currently displaced, while nearly a million are facing acute food insecurity, according to UN figures.

Clashes have also erupted in Blue Nile state, which borders South Sudan and Ethiopia, and where the RSF claimed Sunday to have destroyed military vehicles and taken prisoners from the army and allied forces.

In almost two years, the war has nearly torn Sudan into two, with the RSF in control of almost all of Darfur in the west and parts of the south, while the army holds the country’s north and east.

The army has made gains in central Sudan and Khartoum in recent months and appears to be on the verge of reclaiming the entire capital.


Doctor deported to Lebanon had photos ‘sympathetic’ to Hezbollah on phone, US says

Updated 35 min 1 sec ago
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Doctor deported to Lebanon had photos ‘sympathetic’ to Hezbollah on phone, US says

BOSTON: US authorities on Monday said they deported a Rhode Island doctor to Lebanon last week after discovering “sympathetic photos and videos” of the former longtime leader of Hezbollah and militants in her cell phone’s deleted items folder.

Alawieh had also told agents that while in Lebanon, she attended the funeral last month of Hezbollah’s slain leader Hassan Nasrallah, whom she supported from a “religious perspective.”

The US Department of Justice provided those details as it sought to assure a federal judge in Boston that US Customs and Border Protection did not willfully disobey an order he issued on Friday that should have halted Dr. Rasha Alawieh’s immediate removal.

The 34-year-old Lebanese citizen, who held an H-1B visa, was detained on Thursday at Logan International Airport in Boston after returning from a trip to Lebanon to see family. 

Her cousin then filed a lawsuit seeking to halt her deportation.

In its first public explanation for her removal, the Justice Department said Alawieh, a kidney specialist and assistant professor at Brown University, was denied re-entry to the US based on what CBP found on her phone and statements she made during an airport interview.

“It’s a purely religious thing,” she said about the funeral, according to a transcript of that interview reviewed by Reuters. 

“He’s a very big figure in our community. For me it’s not political.”

Western governments including the US designate Hezbollah a terrorist group.