Oil Prices Slide as Tepid Chinese Demand Counters US Output Concerns

This photoraph shows an oil well in the Azerbaijani capital of Baku on July 23, 2024. (Photo by VANO SHLAMOV / AFP)
This photoraph shows an oil well in the Azerbaijani capital of Baku on July 23, 2024. (Photo by VANO SHLAMOV / AFP)
TT

Oil Prices Slide as Tepid Chinese Demand Counters US Output Concerns

This photoraph shows an oil well in the Azerbaijani capital of Baku on July 23, 2024. (Photo by VANO SHLAMOV / AFP)
This photoraph shows an oil well in the Azerbaijani capital of Baku on July 23, 2024. (Photo by VANO SHLAMOV / AFP)

Oil prices edged lower on Tuesday, as fears of weaker demand in China weighed on market sentiment, while focus turned to the US Federal Reserve's policy meeting that concludes on Wednesday.

Providing a floor to prices were prospects of lower US crude stockpiles and concerns over US production in the aftermath of Hurricane Francine.

Brent crude futures for November were down 48 cents, or 0.66% to $72.27 a barrel, as of 1002 GMT. US crude futures for October slipped 37 cents, or 0.53%, to $69.72 a barrel, Reuters reported.

"Oil prices have been in recovery mode since Wednesday, perhaps on supply concerns after Hurricane Francine in the US Gulf of Mexico, as well as expectations of lower US crude stockpiles," said Charalampos Pissouros, senior investment analyst at brokerage XM.

"That said, prices are pulling back today, perhaps as participants considered the aforementioned developments as temporary variables in the oil equation, remaining worried about weakening global demand, especially in China."

In China, oil refinery output fell for a fifth month in August amid declining fuel demand and weak export margins, government data showed on Saturday.

Both contracts settled higher in the previous session as output remained constrained. More than 12% of crude production and 16% of natural gas output in the US Gulf of Mexico remained offline due to Hurricane Francine, according to the US Bureau of Safety and Environmental Enforcement (BSEE) on Monday.

The Fed is expected to start its easing cycle on Wednesday, with Fed funds futures showing markets are now pricing in a 69% chance that the US central bank will cut rates by 50 basis points.

"The Fed is expected to lower interest rates for the first time in more than four years this week ... but recent weak economic data and hawkish comments by members of the Fed have led investors to believe the move could be more aggressive," Panmure Liberum analyst Ashley Kelty said.

A lower interest rate will reduce the cost of borrowing and can potentially lift oil demand by supporting economic growth.
Investors were also watching out for an expected drop in US crude inventories, which likely fell by about 200,000 barrels in the week ended Sept. 13, based on a Reuters poll. 



Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
TT

Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”