Oil Prices Slide on Uncertainty over Global Economic Outlook, Rate Hikes

Pump jacks operate at sunset in Midland, Texas, US, February 11, 2019. REUTERS/Nick Oxford
Pump jacks operate at sunset in Midland, Texas, US, February 11, 2019. REUTERS/Nick Oxford
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Oil Prices Slide on Uncertainty over Global Economic Outlook, Rate Hikes

Pump jacks operate at sunset in Midland, Texas, US, February 11, 2019. REUTERS/Nick Oxford
Pump jacks operate at sunset in Midland, Texas, US, February 11, 2019. REUTERS/Nick Oxford

Oil prices fell on Monday as concerns about rising interest rates, the global economy and the outlook for fuel demand outweighed support from the prospect of tighter supplies on OPEC+ supply cuts.

Brent crude slipped 75 cents, or 0.92%, to $80.91 a barrel by 0409 GMT, while US West Texas Intermediate crude was at $77.13 a barrel, down 74 cents, 0.95% lower, Reuters reported.

Both contracts fell more than 5% last week, their first weekly drop in five, as US implied gasoline demand fell from a year ago, fueling worries of a recession at the world's top oil consumer.

Weak US economic data and disappointing corporate earnings from the tech sector sparked growth concerns and risk aversion among investors, CMC Markets analyst Tina Teng said. The stabilizing US dollar and climbing bond yields are also pressurizing commodity markets, she added.

Central banks from the United States to Britain and Europe are all expected to raise interest rates when they meet in the first week of May, seeking to tackle stubbornly high inflation.

China's bumpy economic recovery post COVID-19 also clouded its oil demand outlook, although Chinese customs data showed on Friday that the world's top crude importer brought in record volumes in March. China's imports from top suppliers Russia and Saudi Arabia topped 2 million barrels per day (bpd) each.

"I would cite recent mixed economic data and continued central bank intervention as the primary drivers behind the recent price correction," said John Driscoll, director of JTD Energy Services. However, many may view this as a dip-buying opportunity, he said.

Still, refining margins in Asia have weakened on record production from top refiners China and India, curbing the region's appetite for Middle East supplies loading in June.

Nevertheless, analysts and traders remained bullish about China's fuel demand recovery towards the second half of 2023 and as additional supply cuts planned by OPEC+ - the Organization of the Petroleum Exporting Countries and allied producers including Russia - from May could tighten markets.

China's oil demand recovery is expected to more than offset the slowdown in OECD demand in the near term, while sanctions and supply constraints add upside risk to prices, analysts at the National Australia Bank said, adding that Brent could rise to $92 a barrel by the end of the second quarter.

In the United States, energy firms last week added oil and natural gas rigs for the first time in four weeks, energy services firm Baker Hughes Co said.



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)
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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.”