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Explained: OPEC+ Crisis, UAE-Saudi Clash Over Oil

While India’s petrol and diesel prices have crossed Rs 100/liter in most states, the top oil-producing nations are in the middle of a price war. The war is between OPEC+, UAE, and Saudi Arabia. In case you do not know what OPEC is we highly recommend you go through this piece on marketfeed on What is OPEC and How Does it Control Global Crude Prices?

Nevertheless, let me give you a brief about OPEC. OPEC stands for Organization of the Petroleum Exporting Countries. Established in the 1960s consisting of 13 of the world’s major oil-exporting nations. The purpose of the organization was to control the global supply of oil and its prices, thereby giving a fair price discovery to all member and non-member nations. 

OPEC+ or OPEC Plus was a cartel formed in 2016 by 10 other oil-producing nations excluded from OPEC, these were Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan. OPEC and OPEC Plus were later amalgamated and now work together making OPEC Plus a 23 member organization. 

The organization conducts meetings twice a year to establish specific quotas or targets for each member based on current supply and demand, as well as expectations of future supply and demand. The basic norm is that all member nations have to follow these quotas. Since most of OPEC Plus’ oil production comes from state-run oil companies, it is easy for officials to control output/supply.

The Clash

When the pandemic started, oil consumption went down, demand decreased and therefore oil prices fell. In fact, in the US, WTI oil futures prices went negative to -$37.63 a barrel. To protect these oil prices from falling further OPEC nations decided to cut production since it would reduce supply and prices would eventually rise. The OPEC countries formed a pact to cut oil production till April 2022. The plan worked well so far till the global crude oil price surpassed normalcy. In India, many states have reported petrol prices crossing Rs 100 a litre. The OPEC nations have now decided to meet and mitigate the issue of soaring oil prices. The natural thing to do would be to increase oil production. On 5th July, the member countries met at a video conference, but the meeting was called off after a spat between UAE and Saudi Arabia. 

Problem #1: UAE wants to produce more oil, Saudi disagrees

OPEC Plus allots a baseline quota to each nation. A country needs to keep up with its baseline quota of producing oil. Neither too much, nor too little. UAE has been allotted a baseline of 32 lakh barrels per day. UAE Energy Minister Suhail Al-Mazrouei said that the level is “totally unfair and unsustainable.” The UAE thinks it can produce more than the current baseline, it says that it can produce 38 lakh barrels per day. Obviously, more barrels produced would mean more money coming into the country. 

Energy Minister Al-Mazrouei believes that the country has ‘sacrificed’ a lot in terms of production capacity as compared to other members. Saudi Arabia on the other hand believes that THEY sacrificed more production capacity as compared to other countries. Astonishingly, Saudi is the LARGEST producer of oil amongst the OPEC Plus countries and in the world. 

Problem #2: Saudi says extend agreement date, UAE refutes

OPEC had signed an agreement for cutting oil production that was valid for two years ending April 2022. Saudi Arabia wants the agreement for oil cuts to be ‘extended’ by 6 months till the end of 2022.

Naturally, UAE would not be happy with the extension as they would lose an opportunity to earn some extra income given that they are focussing on increasing oil production.

The 18th OPEC Plus meeting was called off. This is not the first time that there has been a clash amongst OPEC nations. Last year, Saudi and Russia had a disagreement on cutting oil production where Russia refused to cut oil production, unlike other OPEC nations. There have been multiple instances where different countries conflicted on production and price. In most conflicts, Saudi has a role and seems to be the big brother of OPEC member nations.

Saudi and UAE are amidst a political cold war. Saudi had imposed trade restrictions on UAE. Any company operating in Saudi would be forced to set up their regional office in Saudi or face business restrictions. This would mean that companies operating in both countries would have to choose between the two. Saudi Arabia imposed travel restrictions to and from UAE the very next day the OPEC Plus dissension took place. 

How Does This Conflict Impact India?

India’s ex-Petroleum Minister Dharmendra Pradhan had locked horns in the international forum with Saudi Arabia. Pradhan had pressed OPEC to cut down on production curbs in other countries. He had stated the importance of the right petroleum prices for all-around economic development. 

India had filled its ‘strategic oil reserves’ when prices were rock bottom last year. These reserves would then be used to cushion oil prices whenever they soared. Saudi had also nudged India to use these reserves instead of pressing for reducing production curbs. So can India actually use these reserves to control oil prices? The answer is NO. These reserves are way too small to have an impact on oil price control. India is planning to double its strategic reserves in the near future. It is planning to privatize the whole initiative incentivizing private companies that set up strategic oil reserves 

India faces way too many problems right now. Uncertain monsoons, rising inflation, possible US interest rate cuts, and high petrol prices. If petroleum prices are not curbed, India can expect some really high inflation rates. Goods would become expensive and transportation costs would increase. The only option available then would be for the government to cut down on high taxes that it charges on petrol. It would be in the best interest of India for UAE and Saudi Arabia to settle their vows and come to an agreement.

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Market News Top 10 News Top Global News

OPEC+ Clinches Oil Deal with Compromises – Top 10 Global News

1. Futures Rise as Jobs Miss Boosts Stimulus Bets

American equity-index futures gained and Treasury yields rose after a report showing U.S. employment gains slowed in November bolstered expectations for more federal stimulus. S&P 500 futures gained along with those on the Nasdaq 100 and Dow Jones. The dollar headed for its biggest weekly decline in five days. U.S. Labor Department figures showed non-farm payrolls increased by a less-than-forecast 245,000 from the prior month, as the unemployment rate dipped 0.2% to 6.7%. Energy companies led the Stoxx Europe 600 index higher, with U.K. equities outperforming as negotiators edged closer to a Brexit trade agreement. The euro strengthened for the fourth day after data signalled the German economy’s resilience to the coronavirus pandemic.

Futures on the S&P 500 Index increased 0.3% early morning New York time, the highest ever.

The Stoxx Europe 600 Index climbed 0.3%, the highest in a week.

The MSCI All-Country World Index rose 0.2%, the highest on record.

2. OPEC+ Finds Its Way to an Exhausting Compromise on Oil Cuts

After five days of difficult talks that exposed new rifts between core members, OPEC+ agreed to gently ease output cuts next year. The deal appeared to satisfy the oil market and most of the cartel’s members, but strained the group’s unity and set up testing times ahead. After a split emerged between Saudi Arabia and the United Arab Emirates, the cartel couldn’t agree on what had been widely expected before this week: a full three-month delay to the scheduled January output increase. Instead, ministers resolved to add 500,000 barrels a day of production to the market next month, then hold monthly meetings to decide on subsequent moves. The maximum change in any month will be 500,000 barrels a day in either direction.

3. U.S. Hiring Rebound Markedly Slows Amid Virus Surge

The U.S. labour-market rebound markedly slowed in November, indicating the surge in Covid-19 cases is hitting workers and curbing the broader economic recovery. Nonfarm payrolls increased by 245,000 from the prior month, as the unemployment rate dipped 0.2 percentage point to 6.7%, according to a Labor Department report Friday. The labour-force participation rate and employment-population ratio both declined, in negative signs for the economy. The data raise the chances that President-elect Joe Biden will inherit an even weaker labour market next year, with the recovery at risk of stalling during the wait for widespread vaccine distribution. With millions still enduring long-term joblessness, the report may also help push Congress to pass new fiscal aid and could make Federal Reserve officials more inclined to provide new stimulus when they meet Dec. 15-16.

4. Ant, Grab Win Singapore Digital Bank Licenses Along With Sea

Ant Group and a venture led by Grab Holdings won licenses to run digital banks in Singapore, paving the way for the technology giants to expand their financial services in the Southeast Asian hub. Sea Ltd. is also among the four winners announced Friday by the Monetary Authority of Singapore after almost a year of deliberation. A consortium involving China’s Greenland Financial Holdings Group is the other successful candidate. Singapore joins the U.K. and Hong Kong in opening up its banking system to purely digital entrants, as it seeks to inject innovation and competition into a market dominated by traditional lenders. The permits are coveted given the city’s status as a rapidly growing wealth management centre and a gateway to Southeast Asia, where the digital lending market is expected to quadruple in five years.

5. India’s Gold Imports Slump as Festival Fails to Light Up Demand

Gold imports by India tumbled last month as the festival of lights failed to revive demand in the world’s second-biggest consumer. Overseas purchases fell 41% in November from a year earlier to 33.1 tons. Still, imports showed an improvement from the 29 tons in October. Jewellers in India may be staring at one of their worst years for sales in 2020 as the coronavirus pandemic, high prices and a weak economy slam the ability of buyers to purchase gold. Demand during Diwali, the biggest occasion for the country’s more than 90 crore Hindus to purchase jewellery, was only about 70% of last year’s levels. India’s imports in the January to November period are down 63% from a year earlier to 220.2 tons.

6. Glaxo-Backed Vaccine Shows Strong Immune Response in Early Trial

A Covid-19 vaccine project supported by GlaxoSmithKline is headed for advanced trials after showing a strong immune response in early studies. Sichuan Clover Biopharmaceuticals Inc. of China said its shot induced neutralizing antibodies and proved to be safe in a study of 150 adults and elderly volunteers. The vaccine uses adjuvants — agents that boost a vaccine’s response — from both Glaxo and Dynavax Technologies Corp. Advanced-stage trials using Glaxo’s adjuvant are planned to begin this month, while studies using the Dynavax system will start in the first half of 2021, according to a statement Friday. The Clover vaccine showed long-term stability at refrigerator temperature. That would allow it to be used widely, including in developing nations.

7. U.K. Grants Five Passports a Minute to Hongkongers as China Tightens Grip

The U.K. is granting the most special travel documents to Hong Kong residents since the 1997 handover, bolstering predictions of a mass exodus as China tightens its grip over the former British colony. Some 216,398 Hong Kong residents received British National (Overseas) passports during the first 10 months of the year, higher than any annual figure stretching back to 1997. In October alone, the office issued 59,798 Hongkongers with BNOs, or 52% higher than in the same period last year, and the highest monthly figure since the Passport Office began readily compiling them in 2015. That translates to more than five every minute, based on an average eight-hour working day.

8. Europe Vaccination Plans; U.S. Sees Record Cases: Virus Update

European nations are rushing to draw up large-scale coronavirus vaccination programs, with the U.K. hoping to inoculate millions of Britons before the year is out. Sweden expects to get enough doses in the first quarter to immunize a fifth of the population and Norway sees its program starting in early 2021. Spain is aiming at vaccinating up to 20 million people by June. The U.S. posted another day of record Covid-19 infections and deaths, as overburdened hospitals around the nation brace for a surge in cases after Thanksgiving. In Asia, Japan’s Osaka prefecture raised its virus alert to the highest level following a rise in serious cases. South Korea’s number of newly confirmed cases climbed to the highest since early March.

9. BlackRock, Storebrand Pressure Indian Bank Over Coal Mining Loan

Shareholders of India’s largest bank are raising concerns about a proposed loan to Adani Enterprises Ltd. to help fund the opening of the controversial Carmichael coal mine in northern Australia. Officials from New York-based BlackRock Inc. and Norway’s Storebrand ASA have contacted the State Bank of India, which is majority-owned by the Indian government, about the loan. The loan’s value is expected to be as much as 5000 cr rupees ($678 million). The Carmichael mine has been the focus of environmental protestors since it was proposed in 2010, with demonstrations most recently at a Nov. 27 cricket match in Sydney between Australia and India. Adani changed its trading name in Australia to Bravus Mining and Resources last month, possibly to help dampen controversy about the mine, which is located in Galilee Basin in the northeastern Queensland province. The project has become a target of anger from climate-change activists in the country, which saw record temperatures and widespread wildfires this year.

10. Angry India Farmers Are ‘Ready to Die’ in Showdown With Modi

As India’s virus numbers swell and the economy stumbles, Prime Minister Narendra Modi has another crisis to deal with: Tens of thousands of angry farmers vowing to camp outside the capital for months. The farmers — mostly from Punjab, often called India’s bread-basket — want him to repeal three laws passed in September that allow them to sell crops directly to private firms instead of licensed middlemen at state-controlled markets. While Modi has said the laws will help them earn more cash, farmers fear those companies won’t give them minimum prices set by the government.

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Market News Top 10 News Top Global News

Giant U.K. Retailers go Bankrupt – Top 10 Global News

1. Stocks Bounce Back With U.S. Futures; Dollar Slips

Global stocks and U.S. futures are starting December on a bullish note with a rebound from Monday’s retreat. Cyclical shares led the Stoxx Europe 600 Index higher as banks, miners and energy firms climbed. U.K. stocks were up almost 2% after Goldman Sachs strategists called them a buy ahead of a Brexit trade deal. The risk-on mood carried across other markets. Bitcoin is approaching $20,000 and futures on the Russell 2000 Index of small-cap stocks outperformed the tech-heavy Nasdaq 100 Index. The dollar weakened against most of its major peers.

Futures on the S&P 500 Index increased 0.8% as of morning London time.

The Stoxx Europe 600 Index gained 0.9%.

The MSCI Asia Pacific Index rose 1%.

The MSCI Emerging Market Index rose 1.2%.

2. Pfizer, BioNTech Seek EU Clearance for Covid-19 Vaccine

Pfizer and BioNTech sought regulatory clearance for their Covid-19 vaccine in the European Union, putting the shot on track for potential approval there before the end of the year. The European Medicines Agency said it could issue an opinion within weeks, with a meeting on the assessment scheduled for Dec. 29 at the latest. Submitted on Monday, the formal application caps a rolling review process that started on Oct. 6 and allowed Europe’s drugs regulator to examine data on the vaccine as it emerged. Governments around the world are eager to start vaccinating their populations to curb the pandemic. Rival Moderna requested clearance in the U.S. and Europe on Monday. The U.K. invoked a special rule to allow its regulator to bypass its EU counterpart and maybe the first to sign off on the Pfizer-BioNTech product. The U.S. isn’t far behind, with a Food and Drug Administration panel set to meet on Dec. 10 to discuss the vaccine.

3. Exxon Faces Historic Writedown After Energy Markets Implode

Exxon Mobil is about to incur the biggest writedown in its modern history as the giant U.S. oil and gas producer reels from this year’s collapse in energy prices. Exxon — traditionally far more reluctant to cut the book value of its business than other oil majors — on Monday disclosed it will write down North and South American natural gas fields by $17 billion to $20 billion. That could make it the industry’s steepest impairment since BP’s 2010 Gulf of Mexico oil spill that killed 11 workers and fouled the sea for months. Meanwhile, capital spending will be drastically reduced through 2025. The announcement comes in the waning days of a gruelling year for Chief Executive Officer Darren Woods, who’s resorted to laying off thousands of employees, curtailing retirement benefits and cancelling ambitious growth projects. 

4. Two U.K. Retail Collapses Threaten 25,000 Jobs in 24 Hours

The U.K. retail industry suffered one of the harshest blows yet after two of the country’s best-known retailers collapsed, putting 25,000 jobs at risk in less than 24 hours. Debenhams said Tuesday morning it’s preparing to close its doors for good after failing to find a buyer. Late Monday, Philip Green’s Arcadia Group, which owns brands including Topshop and Dorothy Perkins, began insolvency proceedings. Both retailers have anchored malls and main streets across Britain for decades and operate about 600 stores combined. U.K. retailers have suffered a double whammy: the pandemic hit as many were struggling to adjust to online competition. The industry is set to lose 235,000 retail jobs this year, according to the Centre for Retail Research.

5. European Central Bank Warns Against Hopes for Blockbuster Stimulus

The European Central Bank should focus on keeping financial conditions at current levels through the crisis rather than announcing a blockbuster stimulus package that beats market expectations, according to Executive Board member Isabel Schnabel. Just over a week before the ECB Governing Council’s policy decision, Schnabel confirmed that more support is likely because the pandemic will be more protracted than expected. But she also noted that borrowing costs have dropped to record lows because of monetary and fiscal aid, and what is most important is sustaining that state of affairs until the crisis is past.

6. Pound Rises as Traders Bet on Brexit Breakthrough Within Days

The pound advanced to the highest level in three months as anticipation grew that the U.K. and European Union may strike a trade deal soon. Pound sterling rose as much as 0.6%, sending the currency above September-highs. Irish Prime Minister Micheal Martin told the Irish Times he’s hopeful for a Brexit deal by the end of the week, echoing similar comments by French European Affairs Minister Clement Beaune. With time running short to ratify any agreement before the transition period ends on Dec. 31, momentum is building for a pact. It was spurred by relief the U.K. and EU seemed willing to negotiate a deal and on optimism over the developments of several Covid-19 vaccinations.

7. Xiaomi Seeks Up to $4 Billion in Shares, Convertible Bonds

China’s No. 2 smartphone maker Xiaomi Corp. is seeking to raise as much as $4 billion from a combined share placement and sale of convertible bonds, adding to a war chest aimed at expanding its market share from competitor Huawei. Xiaomi is selling 100 crore shares in a top-up placement to raise as much as $3.2 billion. Xiaomi is also seeking $855 million through a seven-year, zero-coupon convertible bond. Xiaomi shares had been on a rally this year, rising 146% from a year ago. However, its stock slipped after it disclosed that its internet services revenue had grown at its slowest pace in three years in the September quarter. It grabbed market share from Huawei when American sanctions deepened particularly in overseas markets from Europe to India.

8. OPEC+ Talks Delayed as Split Deepens Between Key Gulf Allies

OPEC+ talks were delayed for two days to give ministers more time to reach a deal, after a long and tense meeting on oil production broke down without an agreement. The move was the most dramatic sign yet of the deep division inside the cartel after hours of talks on Monday yielded no result. Oil prices, which have rallied on vaccine hopes as well as expectations that OPEC will maintain its current output curbs, slipped on the news. OPEC ministers met on Monday and had been scheduled to talk to their non-OPEC partners on Tuesday. At one point, there had appeared to be a consensus building between ministers yesterday, but the meeting then became unusually fraught. The run-up to the meeting saw new cracks emerge in the relationship between the United Arab Emirates — a core part of the group — and other members. The UAE’s national long-term strategy to crank up production is clashing with the cartel’s current restrictions.

9. Oyo Has $1 Billion to Fund Operations Until IPO, CEO Tells Employees

Ritesh Agarwal, founder and CEO of Oyo Hotels, told employees the Indian startup is making progress in recovering from the coronavirus fallout and has about $1 billion (INR 7500 cr) to fund operations until an IPO. The 27-year-old entrepreneur made the comments in a fireside chat with Oyo board member Troy Alstead, after the once high-flying company endured months of layoffs and losses as Covid-19 hammered its business. Oyo is one of the largest startups in the portfolio of SoftBank Group, reaching a valuation of $10 billion (INR 75,000 cr) before the downturn. Agarwal said the company’s focus is on getting revenue per available room to 60% to 80% of pre-pandemic levels across all markets. India, China, Japan and Southeast Asia are making progress in reaching that range, he added.

10. Wendy’s to Open 250 Cloud Kitchens in India as Virus Hits

Wendy’s has struck a deal with India’s Rebel Foods to open about 250 cloud kitchens across the country, one of the most ambitious efforts yet to serve customers through delivery rather than the traditional fast-food stores as the industry adapts to the coronavirus pandemic. The U.S. company is experimenting with a new format as the Covid-19 outbreak makes many consumers unwilling or unable to visit traditional stores. Cloud kitchens, which derive their name from cloud computing, are remote facilities without seating or cashiers that prepare food exclusively for delivery. Wendy’s, with nine brick-and-mortar outlets in India, said it believes its cloud kitchen alliance is the largest yet in the industry. Rebel Foods, backed by Sequoia Capital and Goldman Sachs Group is the world’s largest cloud-kitchen operator with more than 300 locations.