Sep
7
Early fixing of wheat support price sought: Rs1,000 per 40 kg bag
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The federal food ministry has sought prime minister’s intervention for timely fixing of wheat support price for 2008-09 crop and for checking unbridled smuggling of wheat and urea to neighbouring countries.
Faced with a threat of steep decline in wheat sowing area this year, the ministry has requested the prime minister to fix a minimum of Rs1,000 per 40 kg support price for the coming wheat crop later this month or in the first week of October, a top official of the food ministry told Dawn on Saturday.
The prime minister heads the Economic Coordination Committee (ECC) of the cabinet which fixes the support and issue price of wheat.
Wheat sowing would start from October in arid areas of the country and the food ministry believes that only a justified wheat support price, that should not be less than the market price, could attract farmers to wheat sowing and enable Pakistan to achieve, or at least reach close to, the 24 million tons wheat production target for the next crop.
The ministry has also made it clear that last year’s support price of Rs625 per 40 kg may not be acceptable to farmers, and they may not be tempted or forced to sell their crop to the government at half of the market rate by imposing Section 144 or resorting to other legal and administrative measures.
The food ministry also informed the prime minister about reasons behind smuggling of wheat to Afghanistan, Iran, India and some central Asian states and how smuggling of food items from Pakistan has turned out to be a most lucrative business over the last one year.
The food ministry has also informed the prime minister about the growing trend of smuggling of Pakistan’s urea to neighbouring countries and even beyond that over the last few months.
The official said that paramilitary forces have miserably failed to prevent smuggling of wheat to Afghanistan and some other neighbouring countries due to around 43 per cent difference in the price of the commodity.
Urea price in Pakistan hovers around $180, while in the neighbouring countries the rate of the fertiliser has touched the figure of $800 per ton.
Pakistan produces 4.8 million tons of urea, while the country’s requirement is around 5.6 million, leaving a gap of 0.8 million tons in supply and demand which is met through imports.
The landed cost of imported wheat is between Rs1200 to Rs1400 per 40 kg, and if local farmers are not given support price according to market rates, they may switch over to rice and sun-flower sowing.
The ministry has also recommended that prices of agriculture inputs, including fertiliser and pesticides, should not be increased from the existing level.
Source
Sep
7
Saudi oil move seen crucial to price outlook
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The next Saudi Arabia’s move on its crude output strategy is eagerly awaited. With prices under pressure and calls from within Opec to have a close look at its current output practices, the Saudi stance on the issue remains crucial. The guessing game is hence on.
Riyadh meanwhile has kept its cards close to chest tactically avoiding any public position on the issue. The global energy fraternity thus remains on tenterhooks.
There is a growing feeling now that at Opec’s September 9 meeting in Vienna, Saudi Arabia may increasingly come under some pressure from within the Opec ranks to curtail its output so as to prevent any steep fall in crude prices.
Saudi Arabia has been underlining at the highest level its commitment, will and the ability to meet the growing needs of the market. At the Jeddah energy summit on June 22, the kingdom announced increasing output to 9.7 million barrels per day. The Saudi output was indeed considerably higher than its Opec quota.
As per Platts, the Organisation of the Petroleum Exporting Countries’ 13 members boosted their collective crude oil production by 300,000 barrels per day (b/d) in July to average 32.77 million b/d over the month.
And as was anticipated, in the meantime, the global crude markets started to respond to the rising output, softening the markets considerably. Tropical Storm Gustav notwithstanding, and despite blips here and there, the markets have been comparatively softer.
The extra Saudi and the Opec oil and the visible demand contraction in some of the major global economies in the West have helped prices go down. As per recent reports, the demand in the US, the world’s largest consumer, fell 800,000 barrels per day (bpd) on the year in the first half of 2008, the steepest fall in 26 years.
Similarly, in the world’s third largest consuming country Japan, the domestic oil product demand fell to its lowest in 19 years for the month of July. Oil product sales fell 3.5 per cent from a year earlier to 16.17 million kilolitres (kl), or about 3.28 million barrels per day (bpd), the second month of year-on-year decline, the Japanese Ministry of Economy, Trade and Industry said late last week.
The drop has prompted Opec price hawks Iran and Venezuela to suggest a cut in supplies. However, not every one seems to be toeing the line. Although there are some within the cartel, who may be eager to maximise their return from black gold, there are others too within the cartel looking at things in a broader perspective.
However, there is an interesting twist to this argument. Even if no formal output cut is announced, there is some possibility that some of the leading Opec members, currently producing beyond their quotas, could stifle some of the increased output. That in itself would have some sobering impact on the current market trends, one cannot deny.
Opec’s current production remains much higher than its target, industry estimates say, leaving plenty of surpluses that could be quietly removed should prices or demand fall sharply.
In August, Opec was pumping almost 1 million bpd more than its target of 29.67 million bpd, according to Petrologistics, a consultant which tracks Opec supply.
However, this very debate about the optimal Opec output is closely tied to the issue of the price level that Opec would like to defend. Opec has officially never indicated what price level it would like to defend. There are some indications though that oil has yet to approach a level that would worry Opec.
There are indications that the cartel may not react to lower prices until they fell below $80. In an interview in July, the Saudi King Abdullah was quoted as saying he wanted to see lower prices, though at that stage he did not specify the desired level.
Yet he emphasised that the kingdom was “already unhappy” with the rising price when it was around $100.
And for sure, the price right now is still above $100. Hence there should be no warning bells in Opec capitals at the current levels. And if the above line of argument is to be believed, then the Opec may well refrain from making any formal cut in output. Let’s keep guessing. Opec too enjoys the scenario!
Source
Aug
30
Stocks at the Karachi share bazaar slid a further 2.4 per cent on Friday, recording a sharp plunge of 30 per cent in equity values over the eight months since January this year.
The KSE-100 index clinging to four figures of 9,994 points just four months down the road from its record high at 15,750 on April 18, looked especially gory.
Many stock brokers shook their heads when asked if they were on the sell side. But foreign investors were clearly the panic prone herd.
“Net foreign selling since January stands at $350 million with sell orders flying across trading rooms of brokerages aggregating to a huge $20 million in the past two days”, says Mohammad Sohail at JS Capital.
The sinking value of the rupee which hit the pit at Rs77.15 to a dollar on Friday, weak economic numbers including depletion in foreign exchange reserves and the political wrangling among coalition partners were believed to have prompted Moody’s to issue a note of caution on Wednesday, which foreign funds took as a signal to take to a flight.
Foreigners who had entered the equity market in droves to grab advantage of the previous seven years of the country’s outperformance as one of the best markets in the world, still hold $3 billion worth of stocks and 25 per cent of the free float.
But over the past four months, value of Pakistani equity market has sunk to $41 billion, from $75 billion, reflecting a loss of $34 billion. Converted at the current currency value that worked out to a drain of staggering Rs2.6 trillion! Market capitalisation at close of trading on Friday stood at Rs3.1 trillion.
Tariq Iqbal Khan, chairman and MD of NIT, the country’s largest mutual fund and the manager of the recently constituted “Equity Market Opportunity Fund” of the size of Rs20 billion says, he never sells in a falling market.
He reiterated that the Opportunity Fund had been created to capture value buying for its contributors, which in turn could stabilise the market. He said that the ‘concept paper’ of the Opportunity Fund clearly laid down that approvals had to be sought from the federal government and the SECP and that the Fund could sell “only if it is satisfied that such sale would not in any manner destabilise the market and that it is not detrimental to the basic objective of never acting against public interest”.
Nadeem Naqvi, who recently stepped down as the CEO of AKD Securities to venture into more challenging tasks, asks for a look at the global picture. “Stock markets”, he says “are taking the blow everywhere because both the US and Europe are experiencing sharp economic slowdown; Japan posted negative GDP growth in the last quarter and Indian economy growth has slid from 9 to 7 per cent”.
China is expected to face a meltdown after the glowing economics of Olympics are over. “Due to the global slowdown, inflation is rising and interest rates are likely to edge higher in the future, pushing down asset values including that of stocks all across the world”, says Nadeem.
But for the KSE, he has something cheerful to say. “Historically over the 10 to 15 years, the Pakistani stocks have traded at the forward price-to-earnings (p/e) ratio of 8.5 to 9 times and the equities are now down to a multiple of 6.7 times, which means the downside is limited”.
He, however, adds that the upside too is capped at the index level of 11,000 points, given the political uncertainty, high interest rates, economic worries and the erosion in the value of rupee”.
Several market pundits agreed that the KSE might continue to trade in the range of 9,000 to 11,000 points until the winter this year.
Aug
30
Prices stay firm on cotton market
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Cotton prices on Friday remained stable at the previous levels amid an actively traded session for third session in a row as spinners are not inclined to take even a technical breather.
The interesting feature was that spinners major buying thrust was again on the central Sindh lint owing to its better quality, while its Punjab counterpart was available at slightly lower rates, floor brokers said.
Some of the Punjab types were traded as lower as Rs4,075 but Sindh variety was not available below Rs4,125, sustaining a premium over its Punjab counterpart, they said.
They said price differential of Rs75 per maund between the two reflects very badly on the central Punjab lint, which in normal seasons is sold at a premium over the former.
Cotton analysts failed to pinpoint the reasons behind this phenomenon but some others said late rain and the current pest attack in the entire cotton belt may have damaged its fibre content.
Meanwhile, reports trickling in from the cotton belt indicate that second picking of phutti in the early growing areas is well in progress and should have pushed prices lower but strong mill support keep them on the higher side.
News from the export front were a bit bearish as local prices are higher than the foreign ones and that is perhaps why exporters are out of the market for the last couple of sessions.
Official spot rates were remained firm at the previous level of Rs4,125 per maund and bulk of the ready business was done around them.
New York cotton futures, on the other hand, failed to sustain the overnight run-up as both the contracts fell by 1.29 and 1.27 cents per lb at 67.16 and 69.36 for the ruling October and the distant December.
Mill intake was on the higher side as another 20,000 bales changed hands as under:
SINDH TYPE: 3,000 bales, Shahdadpur at Rs4,125 to 4,150, 2,000 bales, Tando Adam at Rs4,125 to 4,135, 1,000 bales, each Khipro, Hyderabad and Sanghar, 600 bales, Shahpur Chakkar,400 bales, each Jhoke and Nawabshah at Rs4,125,and 1,000 bales, Mirpurkhas at Rs4,100 to 4,125.
PUNJAB VARIETY: 1,000 bales each, Chichawatni and Burewala at Rs4,100 to 4,125, 1,000 bales, Mian Channu, 400 bales, Gojra and 200 bales, Muridwala at Rs4,100, 600 bales, Pak Pattan, at Rs4,075 to 4,100, 600 bales and 400 bales, Bahawalnagar and Arifwala at 4,075.
Source
Aug
29
Plan to slash PSDP by Rs100bn
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The government has decided to cut the federal Public Sector Development Programme (PSDP) by Rs100 billion to contain fiscal deficit at 4.7 per cent level and allow a ‘hefty increase’ in electricity tariff to achieve macro-economic stability, says Minister for Finance and Privatisation Naveed Qamar.
“One of the most serious issues is our depleting foreign exchange reserves, which have come down to about $10 billion because of exchange rate pressure, and, therefore, urgently needed to be enhanced through more privatisation and by attracting new foreign inflows,” he said at a press conference in his parliament chambers here on Friday.
The government, he said, had decided to take a number of steps to contain the fiscal deficit target during 2007-08 and for this purpose “we will have to slow down the economic activity.”
He, however, said that oil prices, which had gone down to $112 a barrel after peaking $148 barrel in the international market and then again rose to nearly $120 a barrel, would not be brought down “unless the government achieves an equalization.”"We will pass on the benefit of reduced oil prices when the government starts buying and selling oil at the same price.”
He said all supplementary grants to the ministries and divisions had been stopped along with a directive to cut back on foreign tours and stop buying physical assets.
He said that funds would be withdrawn from development projects which do not have any economic impact.
Terming it unfortunate, he said that the government would have to slash its development budget from Rs550 billion to Rs450 billion to avoid piling up problems.
He said that the International Monetary Fund (IMF), which was insisting on keeping fiscal deficit pegged at 4.3 per cent target, had been told that it was not possible, but it had been assured that the deficit would not exceed 4.7 per cent target which had been fixed in the budget.
The National Electric Power Regulatory Authority (Nepra) is believed to have recommended a 61 per cent increase in electricity tariff, which the government was anxious to pass on to consumers.
Without hinting about the exact amount of the power tariff increase, the finance minister said: “It will be a fairly hefty increase to help remove Wapda’s growing financial difficulties.”
He said that Wapda needed to make payments to Independent Power Producers (IPPs), which had threatened to shut down their plants because of non-payment.
He said the government could not offer sovereign guarantees to the IPPs but that they would be made their due payments by allowing Wapda to go for substantial power increases.
“Pakistan has to survive as a normal country. It also favours the IPPs.”
He said that all government subsidies, including on oil and electricity, would be eliminated by June 2009, and consumers would have to share the burden of increase in prices of all commodities.
“Wapda’s circular debt is increasing, which will have to be cut by allowing the increase in electricity charges.”
The finance minister said that Wapda and Pepco had been ordered to eliminate line losses.
The minister said that the government had decided to control expenditure by reducing unnecessary borrowing from the State Bank, which had earlier tightened its monetary policy.
Instead, he said, the government would borrow from the National Savings Directorate and a target of Rs150 billion had been set which would be achieved by launching new schemes.
Mr Qamar also said that the government would impose more taxes on import of luxury goods and non-essential items, adding that the rate of duty on such items would be increased from 35 per cent shortly after the federal cabinet’s approval.
He said the government would launch a new commercial instrument to mop up Rs300 billion deposits of ministries and other public sector corporations, adding that they had been ordered to withdraw their funds from various savings accounts which would be used for launching the instrument.
Initially, he said, that Rs40 billion would be used for launching the instrument next month.
He said the cabinet was considering approving a five-day work week.
Referring to petroleum export, he said, the export of oil to Afghanistan would be controlled by imposing a regulatory duty on subsidised petroleum products.
“Oil is being bought at a subsidised rate and then exported to Afghanistan and in the process, people are earning considerable profits. This practice will be discouraged by imposing a regulatory duty,” he added.
He, however, clarified that the regulatory duty would only be applied on the subsidy for oil export.
The finance minister also said that the government had worked out a plan for privatisation which would be unveiled on Tuesday next and is aimed at achieving over $2 billion.
“The government will raise Rs52 billion from the privatisation other than big ticketing items.”
He said there would be more foreign inflows, including $26 million coming from privatisation of the PTCL and $750-800 million through the launching of a new bond scheme.
“These new bonds will be securitised against workers’ remittances,” the finance minister said.
He said that the CNG prices are expected to be fixed at Rs49 a kilogramme for which OGRA is finalising details.
In reply to a question, he said that the government was in touch with the government of Saudi Arabia to import 120,000 barrels of oil on deferred payment.
He, however, said that unless the issue was finalised, he could not reveal the cost in dollar terms.
He also disclosed that the US and Canada had offered to give wheat on deferred payment.
“All subsequent wheat imports will be made on deferred payment and this will be in addition to the wheat to be received from the US under the PL-480 programme.”
He said that the IMF had issued a ‘letter of comfort’ on the basis of which the World Bank and the Asian Development Bank would soon start disbursing funds to Pakistan.
But he made it clear that the government did not seek any new IMF programme.
Source
Aug
29
Stocks at the Karachi share bazaar slid a further 2.4 per cent on Friday, recording a sharp plunge of 30 per cent in equity values over the eight months since January this year.
The KSE-100 index clinging to four figures of 9,994 points just four months down the road from its record high at 15,750 on April 18, looked especially gory.
Many stock brokers shook their heads when asked if they were on the sell side. But foreign investors were clearly the panic prone herd.
“Net foreign selling since January stands at $350 million with sell orders flying across trading rooms of brokerages aggregating to a huge $20 million in the past two days”, says Mohammad Sohail at JS Capital.
The sinking value of the rupee which hit the pit at Rs77.15 to a dollar on Friday, weak economic numbers including depletion in foreign exchange reserves and the political wrangling among coalition partners were believed to have prompted Moody’s to issue a note of caution on Wednesday, which foreign funds took as a signal to take to a flight.
Foreigners who had entered the equity market in droves to grab advantage of the previous seven years of the country’s outperformance as one of the best markets in the world, still hold $3 billion worth of stocks and 25 per cent of the free float.
But over the past four months, value of Pakistani equity market has sunk to $41 billion, from $75 billion, reflecting a loss of $34 billion. Converted at the current currency value that worked out to a drain of staggering Rs2.6 trillion! Market capitalisation at close of trading on Friday stood at Rs3.1 trillion.
Tariq Iqbal Khan, chairman and MD of NIT, the country’s largest mutual fund and the manager of the recently constituted “Equity Market Opportunity Fund” of the size of Rs20 billion says, he never sells in a falling market.
He reiterated that the Opportunity Fund had been created to capture value buying for its contributors, which in turn could stabilise the market. He said that the ‘concept paper’ of the Opportunity Fund clearly laid down that approvals had to be sought from the federal government and the SECP and that the Fund could sell “only if it is satisfied that such sale would not in any manner destabilise the market and that it is not detrimental to the basic objective of never acting against public interest”.
Nadeem Naqvi, who recently stepped down as the CEO of AKD Securities to venture into more challenging tasks, asks for a look at the global picture. “Stock markets”, he says “are taking the blow everywhere because both the US and Europe are experiencing sharp economic slowdown; Japan posted negative GDP growth in the last quarter and Indian economy growth has slid from 9 to 7 per cent”.
China is expected to face a meltdown after the glowing economics of Olympics are over. “Due to the global slowdown, inflation is rising and interest rates are likely to edge higher in the future, pushing down asset values including that of stocks all across the world”, says Nadeem.
But for the KSE, he has something cheerful to say. “Historically over the 10 to 15 years, the Pakistani stocks have traded at the forward price-to-earnings (p/e) ratio of 8.5 to 9 times and the equities are now down to a multiple of 6.7 times, which means the downside is limited”.
He, however, adds that the upside too is capped at the index level of 11,000 points, given the political uncertainty, high interest rates, economic worries and the erosion in the value of rupee”.
Several market pundits agreed that the KSE might continue to trade in the range of 9,000 to 11,000 points until the winter this year.
Aug
29
Cotton maintains bullish outlook
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Cotton market on Thursday maintained a bullish trend as spinners and mills continued to build up long positions at an average selling price of Rs4,150 per maund.
In physical trading bulk of the business was done higher by Rs25 to Rs50 per maund depending on the quality of lint, but the Sindh type was again sold at a premium as compared to its central Punjab counterpart, floor brokers said.
Both ginners and spinners appear to be a bit happy as mounting ready buying offers from the latter in line with their asking prices have saved them from high incident of backlog.
“All the partners in cotton trade are in haste as no one among them is inclined to awaiting further decline or rise in prices and is more than satisfied at the day’s tally,” market sources said.
According to them current prices suit to every one as was reflected by heavy ready mill intake amounting to about 30,000 bales daily.
They said the current rebound staged by the New York cotton futures was another aiding factor behind the accelerated mill buying on the perception that imports were getting expensive each day.
After several lean sessions, New York cotton futures on Thursday rebounded by 1.18 and 1.17 cents per lb at 68.45 and 70.63 cents for both the ruling October and the distant December contracts respectively.
Official spot rates were also quoted further higher by Rs50 per maund at Rs4,125, but some of the deals in the ready section were done above them.
The following notable deals were finalised in the ready section on Thursday.
SINDH TYPE: 3,000 bales, each Shahdadpur and Tando Adam at Rs4,125 to Rs4,175, 2,000 bales, Sanghar 600 bales, Jhole, 800 bales, Hala and 400 bales, Shahpur Chakkar at Rs4,150, 1,000 bales, Mirpurkhas at Rs4,100 to Rs4,125, 600 bales, 400 bales, Hyderabad and 200 bales, Nawabshah at Rs4,125.
PUNJAB VARIETY: 1,000 bales, Burewala, at Rs4,075 to Rs4,125, 1,000 bales, Chichawatni at Rs4,100 to Rs4,125, 1,000 bales, Pak Pattan, at Rs4,090 to Rs4,100, 1,000 bales, Mian Channu at Rs4,100 to Rs4,125, 600 bales, 200 each Murid Wala and Gojra at Rs4,100, 200 bales, each Mungi Bungalow and Khanpur at Rs4,050 and Rs4,075.
Source
Aug
27
Oil prices rebound above $117
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Oil prices rebounded briefly above $117 on Tuesday, erasing earlier losses as attention switched to a hurricane that could threaten US energy facilities in the Gulf of Mexico, traders said.
New York’s main contract, light sweet crude for delivery in October, jumped $1.72 to $116.83 per barrel, after earlier reaching $117.89.
London’s Brent North Sea crude for October added $1.23 to $115.26.
Oil bounced higher as Tropical Storm Gustav grew into a hurricane on Tuesday.
“Gustav continues to represent a potential threat to oil and gas installations in the Gulf region and will be watched with vigilance,” warned Barclays Capital analysts in a note to clients.
Anglo-Dutch energy giant Royal Dutch Shell meanwhile said it was planning to evacuate some staff from its Gulf facilities because of Gustav.
“Given the current track for Gustav and the expectation that it might enter the Gulf of Mexico this weekend, we are making logistical arrangements to evacuate staff who are not essential to production or drilling operations,” Shell said in a statement.
Aug
24
Stocks at the Karachi share bazaar slid a further 2.4 per cent on Friday, recording a sharp plunge of 30 per cent in equity values over the eight months since January this year.
The KSE-100 index clinging to four figures of 9,994 points just four months down the road from its record high at 15,750 on April 18, looked especially gory.
Many stock brokers shook their heads when asked if they were on the sell side. But foreign investors were clearly the panic prone herd.
“Net foreign selling since January stands at $350 million with sell orders flying across trading rooms of brokerages aggregating to a huge $20 million in the past two days”, says Mohammad Sohail at JS Capital.
The sinking value of the rupee which hit the pit at Rs77.15 to a dollar on Friday, weak economic numbers including depletion in foreign exchange reserves and the political wrangling among coalition partners were believed to have prompted Moody’s to issue a note of caution on Wednesday, which foreign funds took as a signal to take to a flight.
Foreigners who had entered the equity market in droves to grab advantage of the previous seven years of the country’s outperformance as one of the best markets in the world, still hold $3 billion worth of stocks and 25 per cent of the free float.
But over the past four months, value of Pakistani equity market has sunk to $41 billion, from $75 billion, reflecting a loss of $34 billion. Converted at the current currency value that worked out to a drain of staggering Rs2.6 trillion! Market capitalisation at close of trading on Friday stood at Rs3.1 trillion.
Tariq Iqbal Khan, chairman and MD of NIT, the country’s largest mutual fund and the manager of the recently constituted “Equity Market Opportunity Fund” of the size of Rs20 billion says, he never sells in a falling market.
He reiterated that the Opportunity Fund had been created to capture value buying for its contributors, which in turn could stabilise the market. He said that the ‘concept paper’ of the Opportunity Fund clearly laid down that approvals had to be sought from the federal government and the SECP and that the Fund could sell “only if it is satisfied that such sale would not in any manner destabilise the market and that it is not detrimental to the basic objective of never acting against public interest”.
Nadeem Naqvi, who recently stepped down as the CEO of AKD Securities to venture into more challenging tasks, asks for a look at the global picture. “Stock markets”, he says “are taking the blow everywhere because both the US and Europe are experiencing sharp economic slowdown; Japan posted negative GDP growth in the last quarter and Indian economy growth has slid from 9 to 7 per cent”.
China is expected to face a meltdown after the glowing economics of Olympics are over. “Due to the global slowdown, inflation is rising and interest rates are likely to edge higher in the future, pushing down asset values including that of stocks all across the world”, says Nadeem.
But for the KSE, he has something cheerful to say. “Historically over the 10 to 15 years, the Pakistani stocks have traded at the forward price-to-earnings (p/e) ratio of 8.5 to 9 times and the equities are now down to a multiple of 6.7 times, which means the downside is limited”.
He, however, adds that the upside too is capped at the index level of 11,000 points, given the political uncertainty, high interest rates, economic worries and the erosion in the value of rupee”.
Several market pundits agreed that the KSE might continue to trade in the range of 9,000 to 11,000 points until the winter this year.
Source
Aug
24
Opec may decide to cut output in Sept meeting
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Over the last few days, thanks to the rising tension in Georgia and the weakening dollar, oil has regained some of the lost ground. Yet, most people believe that the markets are in for further erosion provided indeed, the geopolitical issues don’t get out of hand.
Tehran’s Opec governor Mohammad Ali Khatibi says that the cartel could decide to rollover or even cut production from existing levels when it meets in Vienna early September.
He felt the oil market was oversupplied by around 1.3 million barrels per day.
However, he admitted that the peak winter demand could absorb most of this excess - unless the slowing economy takes a bigger bite out of consumption.
Venezuela is also insisting on reviewing the cartel’s output at its next ministerial meeting.
The International Energy Agency (EIA) now believes that in the emerging scenario even Saudi Arabia may be tempted to curtail its output. Saudi July production was reported at a high 9.7 million bpd.
Interestingly, after a long time, the issue of abiding by the Opec output quotas is also back under hammer. The group’s President Chakib Khelil, while on a visit to Iran last week, emphasised on the Opec members to keep oil output within the agreed targets.
Underlining the rapidly changing market dynamics, the IEA has now cut its 2008 oil demand forecast from the Opec by 100,000 bpd, from its previous projections, despite raising the forecast for non-Opec supply.
Despite raising its forecast for global oil demand by 70,000 to 87.8 million bpd the next year, the IEA estimated the call on Opec’s crude in 2009 to average 31.33 million barrels a day, an increase of 90,000 from its previous estimate.
Within hours of the release of the IEA’s sober assessment of the outlook for oil markets, the US Energy Information Administration said US demand had also fallen by 800,000 barrels a day in the first half of the year, the largest decline for 26 years.
In the meantime, the Opec forecast for 2009 oil demand growth remained unchanged at the lowest rate in seven years and warned that consumption could fall even further.
The 13 member group left the rate at 1.03 per cent, the narrowest since 2002, even after raising its estimates of daily demand in 2008 and 2009 by 90,000 barrels.
“Risks to the outlook for the world oil market appear to be on the downside,” the Opec report said. Global oil consumption will average 86.9 million barrels a day this year and 87.8 million barrels a day in 2009.
The London-based Centre for Global Energy Studies (CGES) in its monthly oil report also points to the worsening economic outlook suggesting that oil prices have further to fall.
The CGES report says that recent figures have shown that oil demand was contracting significantly in the OECD countries, while the reduction of subsidies in several emerging markets was also expected to have an impact on non-OECD demand.
The CGES emphasises, “This would be a new experience for the oil industry and Opec in particular, because global oil demand last contracted in 1993, and before that in the early 1980s.
Opec has been living for years now in a world of growing oil consumption without investing in much additional capacity.
Dealing with falling oil demand is quite different, requiring coordinated cutbacks in oil production to prevent oil prices from crashing. This is an immense challenge for Opec with a history of cracking under pressure.