Oil gains, with Brent above $40, as hopes rise for output cuts, recovery

Oil prices are being propped by a continuing recovery in China. Above, a Kuwaiti oil tanker unloads crude oil at the port in Qingdao, in China’s eastern Shandong province. (AFP )
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Updated 03 June 2020

Oil gains, with Brent above $40, as hopes rise for output cuts, recovery

  • Both benchmarks have risen sharply in recent weeks from the lows of April
  • Prices buoyed by a continuing recovery in China

TOKYO: Oil rose on Wednesday, with Brent above $40 for the first time since March, as optimism mounted that major producers will extend output cuts and a recovery from the coronavirus pandemic will spur fuel demand.
Brent crude futures for August were up 78 cents, or 2 percent, at $40.35 a barrel, by 0636 GMT. The contract climbed to as high as $40.53, the highest since March 6, after gaining 3.3 percent on Tuesday.
US West Texas Intermediate (WTI) crude futures gained $1.06, or 2.9 percent, at $37.87 a barrel. It rose to as much as $38.18, also the highest since March 6. The contract ended the previous session up 3.9 percent.
Both benchmarks have risen sharply in recent weeks from the lows of April, buoyed by a continuing recovery in China, the red zone of the virus outbreak, while other economies are slowly opening up after lockdowns to contain its spread.
The Organization of the Petroleum Exporting Countries (OPEC) and other major producers including Russia, a group known as OPEC+, may extend production cuts of 9.7 million barrels per day (bpd), or about 10 percent of global output, into July or August, sources said.
The cuts are currently due to run through June, scaling back to a reduction of 7.7 million bpd from July to December, but Saudi Arabia has been pushing to keep the deeper cuts in place for longer.
“Traders are expecting major crude producers to agree on an extension of their huge output cuts to shore up prices,” said Avtar Sandu, senior manager, commodities at Phillip Futures.
With the date of the meeting not yet set and some calling for it to be early as this week, much remains up in the air, however.
But the demand picture is looking brighter as economies including China, the world’s second-biggest oil consumer, start to recover from the pandemic. China’s services sector returned to growth for the first time since January, a private survey showed on Wednesday.
“As virus-related lockdown measures continue to be lifted, we expect that demand will gradually recover,” Capital Economics said in a note, estimating that global oil consumption will fall to just under 92 million bpd on average in 2020.
This compared with 100.2 million bpd in 2019, it said, before the pandemic swept through Europe and the United States, evaporating demand for everything from flying to trips to the dentist.
Traders were also monitoring Tropical Storm Cristobal in the Gulf of Mexico for its potential to disrupt oil and gas facilities.
US crude oil inventories fell by 483,000 barrels in the week to May 29, the American Petroleum Institute said on Tuesday. Gasoline and distillate fuel stockpiles rose.
Official government inventory data will be released later on Wednesday. Those figures show US stockpiles still remain high and are forecast to have risen for a second week in a row.


India opens vast railway network to private players

Updated 02 July 2020

India opens vast railway network to private players

  • The 167-year-old train network carries 20 million passengers daily
  • India’s railway ministry said it would now permit businesses to run trains along 109 routes
MUMBAI: India has opened up its vast railway sector to private companies, allowing firms to operate trains on certain routes, in a bid to boost its stuttering, virus-hit economy.
The 167-year-old train network carries 20 million passengers daily but is plagued by deadly accidents, rickety infrastructure, lack of modern amenities and poor investment.
In an announcement late Wednesday, the railway ministry said it would now permit businesses to run trains along 109 routes, inviting bids from firms weeks after New Delhi opened up coal mining to the private sector.
“This is the first initiative of private investment for running passenger trains over Indian Railways network,” the ministry said in a statement.
“The objective of this initiative is to introduce modern technology rolling stock with reduced maintenance, reduced transit time, boost job creation, provide enhanced safety, provide world class travel experience to passengers,” it added.
The project will require an investment of $39.8 million and private players will have to pay the government fixed haul charges and a percentage of profits determined during the bidding process.
Prime Minister Narendra Modi has sought to privatize a range of industries that have been under state control for decades, sparking criticism from the opposition Congress party.
“Now the government is in a desperate mood to sell a great chunk of one of our largest national asset #IndianRailways,” Congress politician Adhir Ranjan Chowdhury tweeted.
“Privatization cannot be construed as a panacea of railways malady,” he added.
The tottering network is notorious for accidents, with 15,000 passengers killed every year according to a 2012 government report that described the deaths as a “massacre.”
Asia’s third-largest economy has been clobbered by the pandemic and a months-long lockdown, growing at its slowest pace in at least two decades last quarter.
The shutdown, which put millions out of work overnight, is widely expected to plunge the country into recession.
Fears for the economy prompted the government to allow many businesses to resume operations starting last month despite an ongoing increase in infections, which have now crossed 600,000.
Even before Modi announced the lockdown in late March, the economy was struggling to gain traction with sluggish growth, record unemployment and a flurry of bad loans making banks reluctant to lend.