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OPEC+ is poised to cool oil market with extra production

InternationalMar 04. 2021Oil pumping jacks operate in an oilfield near Almetyevsk, Tatarstan, Russia, on March 11, 2020. MUST CREDIT: Bloomberg photo by Andrey Rudakov.

By Syndication Washington Post, Bloomberg · Javier Blas, Grant Smith, Salma El Wardany

OPEC+ is poised to agree a production increase this week as it seeks to cool a rapid rally in crude prices.

There is a widespread view within the group that the market can absorb additional barrels, according to people familiar with the deliberations. While the usual differences are present — with Saudi Arabia cautious and Russia keen to open the taps — all sides are ready to increase production, they said, asking not to be named because the information was private.

That could put the group on track to implement the majority of the 1.5 million barrel-a-day output increase that’s up for debate on Thursday.

An agreement to hike OPEC+ supply would be the latest sign that the global economy is recovering from the damage wrought by the coronavirus pandemic. The cartel has endured a year of pain, dominated by the deepest output cuts in its history. But the sacrifice has paid off, reviving oil prices back to pre-crisis levels above $60 a barrel.

Brent crude rose 0.3% to $62.89 a barrel as of 7:54 a.m. in London. The international benchmark has surged more than 20% this year.

“Both the global economic outlook and oil market prospects show signs of continued improvement,” OPEC Secretary-General Mohammad Barkindo said at the opening of a meeting of the group’s technical experts on Tuesday. “The headwinds of uncertainty that shocked and disrupted the market last year continue to abate.”

There are two distinct elements to the production increase that the Organization of Petroleum Exporting Countries and it allies will debate this week.

First, will the cartel proceed with a 500,000 barrel-a-day collective output hike in April? Second, how will Saudi Arabia phase out the extra supply reduction of 1 million barrels a day it’s been making voluntarily in February and March?

Russia has been the most consistent advocate for the 500,000 barrel-a-day increase, and other members now largely agree that it should go ahead, according to people familiar with the matter.

The top oil executive from the United Arab Emirates, which has also supported output hikes at recent OPEC+ meetings, gave a bullish assessment of the market on Tuesday.

“Oil demand is robust,” Sultan Al Jaber, the chief executive officer of Abu Dhabi National Oil Co., said at the IHS Markit Ltd. CERAWeek virtual conference. “Demand will rise to above pre-covid levels by the end of this year.”

Adnoc has already signaled it’s preparing to open the taps, allocating customers greater volumes of Murban, Das and Upper Zakum crudes for April compared with March.

Saudi Arabia always said that its voluntary supply reduction would only last for two months, but seasoned OPEC-watchers have suggested that Riyadh could phase it out gradually.

The kingdom will start to roll back its extra cut as planned in April, but is still discussing internally whether to return all of the barrels in a single month, or over a longer period, said people familiar with the deliberations. The decision will take into account the commissioning of the new 400,000 barrel-a-day Jizan refinery, which could affect both domestic crude consumption and exports, they said.

At CERAWeek, Saudi Aramco CEO Amin Nasser struck a more cautious tone than his counterpart from the UAE, predicting strong demand in the second half of 2021, and a return to pre-Covid consumption next year.

Whatever the Saudis decide, the global oil market is poised to receive its biggest supply boost since August, when OPEC+ first began the process of tapering the 9.7 million barrel-a-day cut agreed in April last year as the pandemic crushed demand.

The group appears to think the market is ready for it. Even if OPEC+ boosts production by 2.4 million barrels a day between February and June — the maximum amount allowed under the current deal — it will still be able to clear the remnants of the 2020 supply glut by August, the secretariat’s analysts predicted on Tuesday.

Achieving that would be a remarkable comeback from one of the biggest crises in the cartel’s history. It’s almost exactly a year since a disagreement between Russia and Saudi Arabia over how to respond to the early stages of the pandemic triggered a monthlong price war. The group flooded the market just as demand plunged, a disastrous decision that pushed crude prices below zero for the first time in history.

Twelve months later, fuel stockpiles in industrialized countries aren’t far off target levels and crude prices are close to break-even for some members, presenting “the perfect opportunity for OPEC+ to raise production,” analysts at Australia & New Zealand Banking Group Ltd. said in a note.

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Amazon, Google vie for piece of India’s digital payments market

InternationalMar 04. 2021A customer pays Indian Rupee banknotes to a vendor at a sim card store in Mumbai on April 21, 2018. MUST CREDIT: Bloomberg photo by Dhiraj Singh.

By Syndication Washington Post, Bloomberg · Saritha Rai

Technology giants Facebook, Amazon.com and Google and credit-card providers Visa and Mastercard are among those vying for unprecedented access to India’s burgeoning digital retail payments market.

The companies are part of four consortia preparing to apply for licenses to operate retail payments and settlement systems in the country, people familiar with the matter said. More companies could band together before a March 31 application deadline.

In a market where cash is still king, digital payments are quickly gaining ground as India’s 1.3 billion people are starting to embrace online shopping and services such as online gaming and streaming. With Credit Suisse Group predicting $1 trillion in online payments in India in 2023, the companies chosen to enable such transactions stand to reap lucrative commissions.

“India’s mobile digital payments is seeing huge growth in a post-pandemic world,” said Vijay Shekhar Sharma, founder and chief executive officer of New Delhi-based payment provider Paytm. “It’s a good time to open up more diverse payments solutions and keep the momentum going.”

One of the consortia consists of Amazon, Visa, Indian retail banks ICICI Bank and Axis Bank as well as fintech startups Pine Labs and BillDesk. Another group is led by billionaire Mukesh Ambani’s Reliance Industries and its partners Facebook and Google, which together agreed to invest more than $10 billion in Reliance’s digital services unit last year.

Sharma’s Paytm heads a group that includes ride-hailing startup Ola and at least five other companies. The fourth consortium consists of Tata Group, Mastercard, telecom operator Bharti Airtel and retail banks Kotak Mahindra Bank and HDFC Bank.

Sharma, a spokeswoman for Tata Group and a spokesman for Google declined to comment on the potential bidders. Amazon and Facebook didn’t respond to emailed questions.

The contest is fierce as regulator Reserve Bank of India is expected to give just one or two licenses, as implied in its notification inviting bids. The process to decide the winners could take at least six months and it could be a further year or more before the systems and solutions come into use.

The winners will take on National Payments Corporation of India, the sole pioneering umbrella organization backed by more than 50 retail banks. Its Unified Payments Interface, or UPI, protocol debuted in 2016 and set the digital payments arena afire by allowing users to link their phone numbers to their bank accounts. That made transferring and receiving money via apps as easy as sending a text message, allowing large scale and high volumes of transactions to happen at minimal cost.

“The regulator probably doesn’t want concentration risk as the UPI backbone has become critical to the economy,” said Nandan Nilekani, who conceived and built a biometric identity database the system uses to identify users. “With more licensees and these systems presumably being able to operate seamlessly with each other, the aim seems to be to reinvigorate innovation and push digital payments even deeper into the country,” said Nilekani, co-founder and chairman of IT services company Infosys Ltd.

Though commissions on digital payments are thin, the volume is potentially huge as India tries to reduce its reliance on cash. Card and mobile payments represented only 21% of $781 billion in retail purchases at brick-and-mortar stores in 2019, according to an estimate by S&P Global Market Intelligence.

The new licensees could make money by charging businesses transaction fees. They can also break new territory by setting up and operating ATMs, point-of-sale systems, remittance services and new innovative payment solutions.

“There seems to be a prime mix of regulatory support and innovation attracting investors to the space right now,” said Anis Uzzaman, general partner and chief executive officer of Silicon Valley-based Pegasus Tech Ventures, an investor in Robinhood and other fintech startups. “A new generation of entrepreneurs is grabbing the opportunity.”

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Sunak to hike U.K. business tax to pay for covid’s economic bill

InternationalMar 04. 2021Chancellor of the Exchequer Rishi Sunak on March 3, 2020, in London. MUST CREDIT: Bloomberg photo by Hollie Adams.

By Syndication Washington Post, Bloomberg · Alex Morales, Andrew Atkinson

U.K. finance minister Rishi Sunak announced he will carry on spending to help the economy through the pandemic emergency but outlined a plan for businesses and individuals to start paying the huge bill in the years ahead.

With the country mired in a third national lockdown, the chancellor of the exchequer delivered his annual budget and made clear that saving jobs is his immediate priority.

He added 65 billion pounds ($90.7 billion) of aid to help companies and citizens make it through the rest of this year and next, taking the government’s total fiscal support to 407 billion pounds.

In a dramatic statement to Parliament, Sunak then sketched out a blueprint to start restoring the U.K.’s battered public finances over the coming years. At the center of his plan is a politically risky freeze of income tax thresholds, pulling more people into paying higher bills as earnings rise in future, and an increase in corporation tax to 25% in 2023, from 19% now.

Given how much the government is spending to help businesses through the crisis, it is “fair and necessary” to ask them to contribute, Sunak said.

“It’s going to take this country – and the whole world – a long time to recover from this extraordinary economic situation,” the chancellor told members of Parliament. “Once we are on the way to recovery, we will need to begin fixing the public finances – and I want to be honest today about our plans to do that.”

The U.K. economy has already suffered its deepest recession in more than 300 years, alongside the worst pandemic death toll in Europe. Official forecasts Wednesday confirmed the economy will suffer long-term damage from the crisis, lasting years.

Key budget developments include:

– Income tax thresholds will be frozen for the basic 20% rate and higher 40% rates after next year, potentially dragging more people into paying more tax as their earnings increase in future years. Sunak said he wasn’t “hiding” this policy, and argued it will be “progressive and fair.”

– The 5% reduced rate of VAT will be extended for six months to Sept. 30.

– The stamp duty holiday, which pauses taxing home sales, will be extended until June 30.

– The furlough wage support program will be extended through September. As businesses reopen, from July, they will be asked for a contribution of 10%, rising to 20% in August and September.

– The 20 pound a-week uplift to Universal Credit welfare payments will be extended for six months.

– Planned rises in alcohol and fuel duty will be canceled.

– The Bank of England is being ordered to drive the U.K.’s goals toward eliminating greenhouse gas pollution.

– The U.K. economy, which shrank almost 10% last year, is forecast to expand by 4% this year, according to the Office for Budget Responsibility.

– The economy will grow 7.3% next year, stronger than forecast, but after five years it will remain 3% smaller than it would have been without the pandemic.

– Gilts fell across the curve on Wednesday after the Debt Management Office announced that it will sell 295.9 billion pounds ($413 billion) of bonds in 2021-22.

“When Chancellor of the Exchequer Rishi Sunak looks back at his March 2021 budget, he’ll probably be able to say he got the balance right. He extended significant near-term support to help drive the recovery from the pandemic while deferring most tax increases until the economy has healed,” said Dan Hanson, senior economist with Bloomberg Economics.

The extended aid for workers and businesses will help prevent a surge in unemployment. But it will also add to the 300 billion pounds the U.K. has spent fighting the pandemic amid the sharpest contraction since the Great Frost of 1709.

Sunak is aiming to strike a balance between providing short term emergency help for a country still battling to emerge from lockdown, while seeking to reassure markets that he will get a grip on the deficit before too long.

Politically, Sunak is in danger of infuriating his Conservative colleagues who do not want taxes on business to rise and may worry that increased bills for citizens ahead of the 2024 election will cost the party votes.

The economic risk is that planned tax increases and the withdrawal of state support could deter investment and potentially stifle the longer-term recovery.

With that in mind, Sunak also announced measures to encourage investment and incentives for businesses to hire more apprentices. A new “super deduction” policy will be introduced, which will mean that for the next two years when companies invest, they can reduce their taxable income by 130% of the cost of that investment.

“We’ve never tried this before in our country,” Sunak said. Forecasters say the plan will boost business investment by 10%, he added.

The main opposition Labour Party said the chancellor was desperate to slash government aid for those who need it.

“Behind the spin, the videos and the photo ops, we all know the chancellor doesn’t believe in an active and enterprising government,” Labour Leader Keir Starmer said. “We know he’s itching to get back to his free market principles and to pull away support as quickly as he can.”

While the national debt has risen past a record 2 trillion pounds, historically low interest rates means the cost of servicing it is low. That gives the chancellor breathing space, although he’ll also have an eye on the next general election due in 2024.