Asia refining margins likely to come under pressure

Updated 09 January 2013

Asia refining margins likely to come under pressure

LAUNCESTON, Australia: Saudi Aramco probably won few friends among Asian refiners when it defied expectations and raised the official selling prices of its crude oil grades for February cargoes.
The increase was the third in a row of increases that have contributed to a cut in refining margins in region, which takes about two-thirds of the crude shipped by Aramco.
If there is a silver lining to the cloud of higher prices for refiners, it's that OSPs could be lowered from March, assuming that current market trends continue.
Saudi Aramco increased the premium on its main Arab Light grade to $ 3.45 a barrel over regional benchmark Oman/Dubai crude for February, up from $ 3.30 in January.
The heavy grade was raised to a discount of $ 1.10 a barrel in February from January's bigger $ 1.40 discount.
Both price increases were outside the expectations of traders surveyed by Reuters before the Jan. 4 announcement, with a medium forecast of a rise of 10 cents a barrel for Arab Light, and a 25-cent widening in the discount of Arab Heavy.
Aramco doesn't disclose its thinking for movements in OSPs, but one possible reason the prices were raised when the market was expecting a reduction is that Dubai crude's discount to Brent widened considerably in December.
As Aramco is believed to try and keep prices more or less the same for customers in various regions, a widening of the Dubai-Brent exchange for swaps would seem to justify increasing the OSPs for Asia while cutting them slightly for Europe.
Brent was $ 5.20 a barrel higher than Dubai on Jan. 7, which represents a gain of 37 percent since the $ 3.83 on Dec. 7 last year.
But the premium has narrowed from $ 5.40 a barrel on Jan. 2, a trend that could continue, given the adequate supplies of light crude globally and economic weakness in Europe, a major consuming centre.
The end of the current cold weather in North Asia, which has boosted demand for kerosene, and the start of refinery maintenance season, may also combine to curtail demand for heavier crude grades in coming months.
This will encourage Aramco to lower OSPs in a bid to keep volumes healthy.
Lower refining margins will also eventually encourage lower OSPs, especially if refiners are able to switch to alternative, cheaper crudes.
Abu Dhabi National Oil Co. and Yemen cut their OSPs, Qatar trimmed its retroactive price for December, while Iran and Iraq have yet to release their prices for Asia.
However, while Saudi Arabia is the biggest supplier to Asia, other crude producers will be keen to sell extra cargoes if they are able to undercut Aramco's prices, even by a small margin.
Refining margins in Asia have recovered slightly in recent days to stand at around $ 7.18 a barrel over Dubai crude, Reuters data shows.
This is up from the average of $ 6.02 a barrel for the past 15 days, but still 3.2 percent below the 365-day moving average of $ 7.42.
Also, margins are now being supported by the demand for kerosene for heating out of Japan, which has boosted middle distillates such as jet fuel.
This means margins are likely to come under pressure again, once the winter demand eases.
Another factor that may lead to a lowering of the Saudi OSPs is the narrowing backwardation of Dubai crude.
The first to second month spread was 44 cents a barrel on Jan. 7, less than half the $ 1.01 it was at the end of October last year.
The easing of the backwardation suggests the premium buyers are willing to pay for immediate cargoes is easing, a sign strong demand seen recently may be easing.
Pulling together the various market signals presents a picture of current robust Asian crude demand easing slightly in coming months as winter ends and refineries go into maintenance.
Against this there is stronger economic growth, especially in China, as a bullish factor for crude demand in the region.
However, on balance, it seems fair to expect that the increase in Saudi OSPs in February won't be repeated in March.
— Clyde Russell is a Reuters market analyst. The views expressed are his own.


UK to allocate $17bn for new infrastructure bank

Updated 27 February 2021

UK to allocate $17bn for new infrastructure bank

  • Sunak to use budget to expand apprenticeships and extra funds for traineeships

LONDON: Britain is to launch a new infrastructure bank with £12 billion ($17 billion) in capital and £10 billion in government guarantees, the treasury said on Saturday, aimed at supporting the economy.

British Finance Minister Rishi Sunak, is expected to announce the initial funding at Wednesday’s budget and the bank will launch in spring, the ministry said.

“Britain’s businesses and the Great British public deserve world-class infrastructure and that is exactly what this new bank will help us deliver for them,” Sunak was quoted as saying.

The bank is set to finance private sector projects in the green economy, focusing on areas such as carbon capture and renewable energy.

It will also provide loans to local authorities at low interest rates to support “complex infrastructure projects.”

The Finance Ministry said the bank would unlock billions more in private finance to support a £40 billion infrastructure investment to “fire up the economy” and help reach commitments on net zero emissions and reducing regional deprivation.

The announcement comes as Britain’s economy has been hit hard by pandemic lockdowns.

Analysts expect unemployment to surge when the UK government’s furlough scheme paying the bulk of wages for millions in the private sector ends — as currently planned — at the end of April.

Sunak last week hinted he would announce further employment support in the coming months.

He first announced the planned bank in November last year, saying its headquarters would be in northern England rather than in the financial hub of London.

Apprenticeships

The minister will also announce more funding for apprenticeships in England.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive £3,000 for each apprentice hired, regardless of age — an increase on current grants of between £1,500 and £2,000 depending on age.

The scheme will be extended by six months until the end of September, the Finance Ministry said.

Sunak will also announce an extra £126 million for traineeships for up to 43,000 placements.

‘Enormous strains’

Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of 1 percentage point across all interest rates was £25 billion a year to the government’s cost of servicing its debt, Sunak told FT.

Additionally, the government will also announce a new £100 million task force to crackdown on COVID-19 fraudsters exploiting government support schemes, it said.


S. Africa proposes new rules to boost economy

Updated 27 February 2021

S. Africa proposes new rules to boost economy

  • Africa’s most industrialized nation — the hardest-hit by the coronavirus disease (COVID-19) pandemic on the continent — has put public works in sectors

JOHANNESBURG: South Africa’s National Treasury is proposing changing rules governing pension funds to encourage investment in infrastructure projects.

Africa’s most industrialized nation — the hardest-hit by the coronavirus disease (COVID-19) pandemic on the continent — has put public works in sectors such as transport, energy and water at the heart of its economic recovery plans.

The treasury is proposing changes to Regulation 28 of the Pension Funds Act in draft amendments published for public comment on Friday. This rule sets the maximum percentage of a fund’s assets that can be invested in different asset classes and is aimed to shield savers from over-concentrated investments.

The proposed amendments do not introduce infrastructure as a new asset class alongside existing ones like equities, debt instruments and property but allow for infrastructure investments to be recognized within those asset classes.

They also say overall investment in infrastructure across all asset categories may not exceed 45 percent of domestic exposure and an additional 10 percent for the rest of Africa.

The changes should make it easier for retirement funds to invest in infrastructure and allow for better measurement of investment in projects, the Treasury said in a statement.

The changes are “informed by a number of calls for increased investment in infrastructure given the current low economic growth climate,” it said, stressing that the decision to invest in any asset class remained up to the board of trustees of each fund.

The public can comment on the amendments until late March.


G20 vows multilateral approach to tackle crises

Updated 28 February 2021

G20 vows multilateral approach to tackle crises

  • Finance chiefs agree to avoid premature withdrawal of fiscal support

ROME/BRUSSELS: The world’s financial leaders committed to a more multilateral approach to the twin coronavirus and economic crises.

“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after an online meeting held by the G20 finance ministers and central bankers on Friday.

The financial chiefs agreed to maintain expansionary policies to help economies survive the effects of coronavirus disease (COVID-19). 

The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.

The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.

US Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.

The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.

Scholz said Yellen told the G20 officials that Washington also planned to reform US minimum tax regulations in line with an Organization for Economic Co-operation Development (OECD) proposal for a global effective minimum tax.

“This is a giant step forward,” Scholz said.

 Franco said the new US stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.

The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.

On this front there was broad support for boosting the capital of the International Monetary Fund (IMF) to help it provide more loans, but no concrete numbers were proposed.

To give itself more firepower, the IMF proposed last year to increase its war chest by $500 billion in its own currency called the Special Drawing Rights (SDR), but the idea was blocked by former US President Donald Trump.

“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.


Deal signed to stimulate Saudi private sector

Updated 27 February 2021

Deal signed to stimulate Saudi private sector

The Saudi Center for International Strategic Partnerships (SCISP) signed a memorandum of cooperation with the Council of Saudi Chambers (CSC) to boost the private sector’s role in international partnerships.

The move aims to stimulate the private sector’s participation and sustainability by providing all necessary support to achieve the objectives of the Kingdom’s international strategic partnerships.

SCISP CEO Faisal Al-Sugair said the agreement is part of the measures aimed at involving all relevant actors in the Kingdom’s economic system to achieve the strategic goals of Vision 2030.

The memorandum includes exchange of information, data and necessary reports that support the two parties’ work, Al-Sugair said.

Established in 2017, the SCISP is a government entity linked to the Council of Economic and Development Affairs.


Nigeria seeks asset managers for $2.6bn infrastructure firm

Updated 27 February 2021

Nigeria seeks asset managers for $2.6bn infrastructure firm

  • Nigeria emerged out of economic recession in the fourth quarter of 2020, despite a contraction in the year as a whole

ABUJA: Nigeria’s central bank is seeking asset managers for a new $2.6 billion infrastructure investment company set up to develop the country’s crumbling transport networks and boost economic growth.

The asset managers will originate and manage infrastructure projects, generating return from investments, the bank said on Saturday. The deadline for submission of proposals is March 16.

Nigeria emerged out of economic recession in the fourth quarter of 2020, despite a contraction in the year as a whole. But growth is fragile, as poor infrastructure has stymied the economy for decades, holding back the distribution of wealth in Africa’s biggest economy.

President Muhammadu Buhari approved the creation of Infrastructure Corporation of Nigeria (InfraCorp.) in February to focus on infrastructure development, with a seed capital of 1 trillion naira ($2.6 billion).

Initial capital will come from the central bank, the Nigerian Sovereign Investment Authority (NSIA), and the Africa Finance Corporation, the central bank has said.

Economists say the poor state of Nigeria’s infrastructure has put at risk the Buhari government’s ambitions for turning the country into a manufacturing hub and growing the agriculture sector.

In 2017, the government set up the Development Bank of Nigeria to boost credit to small-scale businesses that make up almost of half of the economy.

Now the government wants to fix its crumbling roads and rail network that have made it hard to move agricultural and finished goods to markets.