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Why oil rebounded last week despite coronavirus doom

Why oil rebounded last week despite coronavirus doom

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Last week proved once more that markets often react on sentiment and perceived outlook rather than to cold, hard facts.

The coronavirus outbreak severely impacted oil demand, a situation underlined by forecasts released last week by both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).

The IEA downgraded its demand predictions for this year by 365,000 barrels per day (bpd) to 825,000 bpd, the lowest since 2011. It even expected oil demand to fall by 435,000 bpd during the first quarter of 2020.

OPEC’s downward revisions were less hefty. The organization predicted oil demand to grow by 990,000 bpd in 2020, which included a downward revision of 230,000 bpd.

The two reports were published amidst negative news of the coronavirus. Its impact on Chinese oil demand has been severe, reducing the run rates of refineries by as much as 3 million bpd. The impact of the virus will take 1.1 million bpd out of the market during the first quarter of this year and 344,000 bpd during the second in China – all according to the IEA.

The situation has become so grave that several suppliers are willing to discount the oil price for their eastbound cargo in order to retain market share. According to S&P Global, this mainly affected Brazil, Russia and Angola.

These numbers make sense when looking at the impact the spread of coronavirus has had on global supply chains, especially in the automotive and technology sectors. Hyundai closed factories in Korea, and Chrysler Fiat in Serbia. General Motors is worried about its production lines in the US and several factories in the UK have shortened their hours due to a lack of parts.

Apple has been particularly impacted, with several of its factories in China manufacturing parts or assembling iPhones having been slow to reopen after the lunar new year — if at all.

The outlook on the global economy is bleak. In January the International Monetary Fund (IMF) downgraded global economic growth for 2020 by 0.1 percent to 3.3 percent. That was before worries about the coronavirus emerged.

On Sunday the IMF’s managing director, Kristalina Georgieva, floated a further reduction in the growth rate by 0.1 – 0.2 percentage points. At the same time, she warned about making hasty predictions, because too little was known at this point about how the virus would develop.

Depending how the economic impact of the coronavirus unfolds, the 600,000 bpd might well do the trick and balance markets.

Cornelia Meyer

The impact of the virus is twofold, one lasting and the other one resulting in a rebound after the worst is over. The former is the loss in consumption, travel and tourism during the Chinese lunar new year, constituting a one-time hit, which cannot be recovered.

The second effect is the loss of production in the global supply chain. Industry will, over time, make up for the backlog that creates. Down the line it will probably even result in greater-than-expected demand for oil – the premier fuel for transport – because shipments will resume, and factories will need to compensate for the backlog.

So why then was there a hike in the oil price while the short-term outlook was so bleak? The development ran against what was seen in most other commodities, especially copper. Brent was up by more than $3.60 per barrel or close to 7 percent on the week. The price has dropped a little bit since then, reaching $57.39 per barrel for Brent in early Asian trading on Monday.

The answer is simple. While the short-term outlook is negative, analysts and traders pin great hopes on the upcoming meeting of OPEC+, a grouping of the OPEC member countries and their 10 allies lead by Russia.

Ministers will gather in Vienna on March 5 and 6 and most analysts expect them to follow the recommendations of a technical meeting held earlier this month, which stipulated that the grouping should cut production by an additional 600,000 bpd. That would go beyond the 1.7 million bpd by which OPEC+ reduced production in December of last year. The full 2.3 million bpd should remain off the market until June, when another meeting is scheduled.

Depending how the economic impact of the coronavirus unfolds, the 600,000 bpd might well do the trick and balance markets. There are, however, other factors that could influence developments.

For one, political and internal tensions in Libya have grinded to a halt the country’s oil exports. If the Berlin process achieves its desired results later this quarter, Libyan production, and with it exports, could resume adding to the supply glut.

Secondly, analysts will observe how OPEC+ interacts in March. Saudi Arabia wanted to bring the March meeting forward, but Russia denied the urgency. Russia has so far, many times talked tough ahead of OPEC+ meetings. In the end Moscow relented and consented to play its part in doing what was required to balance markets.

The odds are that the March meeting will be no different and that is clearly what traders anticipate. Should that not be the case, expect the price of oil to slide after March 6.

• Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

China arrests activist who criticized Xi over virus

Chinese rights advocate Xu Zhiyong speaks during a meeting in Beijing, China in this handout photo dated March 30, 2013. (Reuters)
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Updated 18 February 2020

China arrests activist who criticized Xi over virus

  • Anti-corruption activist Xu Zhiyong was arrested on Saturday after being on the run since December, according to Amnesty International
  • China’s ruling Communist Party has severely curtailed civil liberties since Xi took power in 2012

BEIJING: Police in China have arrested a prominent activist who had been a fugitive for weeks and criticized President Xi Jinping’s handling of the coronavirus epidemic while in hiding, a rights group said Tuesday.

Anti-corruption activist Xu Zhiyong was arrested on Saturday after being on the run since December, according to Amnesty International.

China’s ruling Communist Party has severely curtailed civil liberties since Xi took power in 2012, rounding up rights lawyers, labor activists and even Marxist students.

The death this month of a whistleblowing doctor who was reprimanded by police for raising the alarm about the deadly new virus before dying of it himself triggered rare calls for political reform and freedom of speech.

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The “Chinese government’s battle against the coronavirus has in no way diverted it from its ongoing general campaign to crush all dissenting voices,” said Patrick Poon, China researcher at Amnesty International, in an emailed statement.

Another source, who spoke to AFP on the condition of anonymity, said Xu had been arrested in the southern city of Guangzhou.

Guangzhou police did not respond to requests for comment.

Xu went into hiding after authorities broke up a December gathering of intellectuals discussing political reform in the eastern coastal city of Xiamen in Fujian province, prior to the coronavirus crisis.

Over a dozen lawyers and activists were detained or disappeared after the Xiamen gathering, according to rights groups — and Xu’s detention appears linked to his presence at the meeting, explained Poon.

But while on the run, Xu continued to post information on Twitter about rights issues.

On February 4 Xu released an article calling on Xi to step down and criticized his leadership across a range of issues including the US-China trade war, Hong Kong’s pro-democracy protests and the coronavirus epidemic, which has now killed nearly 1,900 people.

“Medical supplies are tight, hospitals are filled with patients, and a large number of infected people have no way to be diagnosed,” he wrote. “It’s a mess.”

“The coronavirus outbreak shows just how important values like freedom of expression and transparency are — the exact values that Xu has long advocated,” Yaqiu Wang, China researcher at Human Rights Watch, told AFP.

But the disappearance of Xu illustrates how the Chinese state “persists in its old ways” by “silencing its critics,” she said.

Xu — who founded a movement calling for greater transparency among high-ranking officials — previously served a four-year prison sentence from 2013 to 2017 for organizing an “illegal gathering.”

“That he was a fugitive for so many days while continuing to speak out, that in itself was... a kind of challenge to (Chinese authorities),” said Hua Ze, a long-time friend of Xu who told AFP she lost contact with the Chinese activist on Saturday morning.


Keir Starmer elected new UK Labour leader

Updated 34 min 20 sec ago

Keir Starmer elected new UK Labour leader

  • The 57-year-old former chief state prosecutor defeated Corbyn loyalist Rebecca Long-Bailey and backbencher Lisa Nandy in a lengthy campaign
  • Starmer, who was Labour’s Brexit spokesman, called his election “the honor and privilege” of his life

LONDON: Pro-European centrist Keir Starmer was on Saturday unveiled as new Labour party leader, heralding a shift in Britain’s main opposition party after a crushing election defeat under veteran socialist Jeremy Corbyn and years of ideological infighting.
The 57-year-old former chief state prosecutor defeated Corbyn loyalist Rebecca Long-Bailey and backbencher Lisa Nandy in a lengthy campaign sparked by Corbyn’s resignation after December’s loss at the polls to Boris Johnson’s Conservatives.
Angela Rayner becomes the new deputy leader, Labour announced on Twitter, after it was forced to cancel a special conference because of the coronavirus outbreak.
Starmer, who was Labour’s Brexit spokesman, called his election “the honor and privilege” of his life and vowed to “engage constructively” with Johnson’s Conservative government.
Johnson immediately offered his congratulations and the pair spoke, with Starmer accepting an invitation to a government briefing on COVID-19 next week.
“Keir offered to work constructively with the government on how best to respond to the coronavirus outbreak,” his spokesman said.
Starmer himself vowed to reunite Labour, after deep rifts between supporters of socialist Corbyn’s hard-left ideals and centrists, and wrangling over its Brexit strategy.
He immediately addressed the issue of anti-Semitism that Corbyn was accused of failing to tackle, which tarnished the party’s reputation and caused Jewish members to leave in droves.
“Anti-Semitism has been a stain on our party. I have seen the grief that it’s brought to so many Jewish communities,” Starmer said.
“On behalf of the Labour Party, I am sorry.
“And I will tear out this poison by its roots and judge success by the return of Jewish members and those who felt that they could no longer support us.”
Starmer, who won a resounding 56.2 percent of the vote of Labour members, acknowledged the party had “a mountain to climb,” after four straight general election defeats — two under Corbyn.
But he vowed: “We will climb it.”
He added: “I will lead this great party into a new era, with confidence and with hope.
“So that when the time comes, we can serve our country again in government.”
Labour grew out of the trade union movement but moved to the political center under former prime minister Tony Blair, who was in office between 1997 and 2007.
Corbyn spent a lifetime on the sidelines because of his left-wing views, and his election as leader in 2015, on the back of a huge surge in party membership, was a shock.
MPs and party members have been locked in an ideological battle ever since.
“There’s really a lot of bad blood and mistrust,” said Steven Fielding, a political expert at the University of Nottingham.
“The first challenge (for the new leader) will be to put a team together that at least looks like it has the ability to unify the party.”
Winning back voters who defected to the Conservatives is also top of Starmer’s “to do” list if Labour is to have any hope of victory at the next election, currently scheduled for 2024.
Brexit was a toxic issue for the party, torn between euroskeptic supporters in many northern English towns and pro-EU voters in the big cities such as London.
Starmer was opposed to Brexit and played a key role in moving Labour to support a second referendum on leaving the European Union.
However, voters were not convinced and Johnson took Britain out of the bloc on January 31.
The coronavirus outbreak has brought a more immediate challenge.
Johnson’s government has imposed draconian curbs on public movement to try to stop the spread — measures backed by Labour, although it successfully pressed for more parliamentary scrutiny of new police powers.
The Conservatives have also promised eye-watering sums to keep businesses and individuals afloat, wading into traditional Labour territory.
In response, Johnson’s popularity ratings have shot up.
A YouGov survey last week found that 55 percent of the public had a favorable opinion of him, up from 43 percent a week earlier.
Some 72 percent thought the government was doing well — including a majority of Labour voters.
Ministers have been on the back foot in recent days, however, over the lack of testing for coronavirus and protective equipment for health care staff.
Labour has been pressing the issues and Starmer said this would continue.
“My instinct will be to be constructive but to ask the difficult questions,” he told a Guardian podcast this week.