Business

Oil Prices Rise Amid Middle East Tensions and OPEC+ Policy Delay

Published

6 days ago

November 28, 2024

RTX

Oil Prices Rise Amid Middle East Tensions and OPEC+ Policy Delay

Oil prices edged higher on Thursday, rising nearly 1% as geopolitical tensions in the Middle East reignited supply fears. Brent crude climbed to $72.90 a barrel in midday European trading, recovering from recent losses, after Israel reported ceasefire violations by Hezbollah.

Ceasefire Breach Raises Tensions

Israel’s military claimed that Hezbollah breached a newly established ceasefire along the Israel-Lebanon border. Spokesperson Avichay Adraee stated on social media that “suspects” were observed entering southern Lebanon in what Israel described as a violation of the truce.

The ceasefire, which began on Wednesday, was intended to halt 14 months of conflict in the region. However, renewed hostilities have sparked concerns over the fragile stability along the border, where safety warnings remain in place for residents.

The heightened tensions contributed to a slip in the euro by 0.2%, while European stocks pared earlier gains.

OPEC+ Postpones Key Meeting

Amid these developments, the OPEC+ alliance announced the postponement of its pivotal meeting on oil production policy. Originally scheduled for December 1, the meeting will now take place on December 5, as many key ministers will attend the Gulf Cooperation Council Summit in Kuwait.

Analysts expect the meeting to address the alliance’s production cuts and consider extending them further into 2024. While OPEC+ had planned to gradually increase output if prices stabilised, persistently low prices have led to delays in production hikes.

Stronger Cohesion Among OPEC+

Goldman Sachs analysts highlighted improving cohesion within OPEC+, noting a rise in member compliance with production cuts. “Any ramp-up in OPEC+ production will be gradual and data-driven,” said Daan Struyven, Goldman Sachs’ lead analyst.

The investment bank anticipates that production increases will begin in April 2025, rather than January, with Brent crude forecast to average $76 per barrel in 2025 and peak at $78 by June of that year.

Supply Concerns and Market Trends

US Energy Information Administration data shows crude oil and gasoline inventories are hovering at five-year lows, underscoring short-term supply concerns. Goldman Sachs also predicts Brent crude could rise to the mid-$80s in early 2025 if stricter sanctions reduce Iran’s oil supply by 1 million barrels per day.

Despite global decarbonisation efforts, oil demand is expected to grow for another decade, driven by rising energy needs in emerging markets and slow transitions in sectors like air travel and petrochemical production.

Outlook

As geopolitical tensions and OPEC+ policies continue to influence the market, investors are closely watching developments in the Middle East and the alliance’s production strategy. These factors, alongside structural energy trends, are expected to shape oil prices and global energy dynamics heading into 2025.

Business

GM Faces $5 Billion Restructuring Hit Amid Struggles in Chinese Market

Published

5 hours ago

December 4, 2024

RTX

General Motors (GM) announced a significant restructuring charge exceeding $5 billion, citing challenges in its Chinese operations as domestic carmakers like BYD increase competition through improved quality and lower costs. The Detroit-based automaker revealed the restructuring costs in a regulatory filing on Wednesday, highlighting a struggling joint venture market in China exacerbated by government subsidies favoring local manufacturers.

The charges include a $2.6 billion write-down of GM’s equity stake in its ventures with SAIC General Motors Corp and other partnerships, reducing their valuation to $2.9 billion. Additionally, GM will incur $2.7 billion in restructuring expenses, primarily recorded in the fourth quarter of 2024. These non-cash charges will impact GM’s net income but not its adjusted pre-tax earnings, according to the filing submitted to the US Securities and Exchange Commission.

The joint ventures, once a dependable source of equity income for GM, have faced significant losses recently. Between January and September 2024, the ventures posted a $347 million loss, in stark contrast to a $353 million profit during the same period in 2023. Despite these setbacks, GM forecasts a full-year net profit between $10.4 billion and $11.1 billion.

Market Dynamics Challenge Foreign Automakers

China’s automotive market, the world’s largest, has grown increasingly competitive for foreign carmakers. Domestic manufacturers, bolstered by subsidies and a focus on cost-efficient production, have gained a substantial edge. BYD and others have raised quality standards while undercutting prices, intensifying pressure on international players.

GM’s CEO, Mary Barra, described the Chinese market as challenging, noting that many local brands prioritize production volumes over profitability. However, Barra emphasized that GM is shifting its strategy to target profitability through new initiatives, including launching a pickup truck and importing premium vehicles.

Ongoing Restructuring Efforts

The main joint venture, SAIC General Motors (SGM), is nearing the completion of restructuring actions aimed at addressing market challenges. During a third-quarter earnings call, CFO Paul Jacobson noted signs of improvement, including rising sales and reduced inventory levels.

Barra reaffirmed the company’s commitment to adapting to the evolving market dynamics. “We see potential for profitability in China through differentiated strategies,” she said, emphasizing the importance of restructuring to remain competitive in the rapidly evolving landscape.

The announced measures highlight the broader difficulties faced by foreign automakers in maintaining a foothold in a market increasingly dominated by domestic brands and shifting regulatory landscapes. As GM adjusts its operations, the industry watches closely to see how global players can adapt to China’s fast-changing auto sector.

Business

Euro’s December Rally Faces Headwinds Amid Political and Economic Challenges

Published

5 hours ago

December 4, 2024

RTX

December has historically been a strong month for the euro, with the currency averaging gains of 1.6% against the US dollar over the past 24 years. This trend has been underpinned by seasonal US dollar weakness, driven largely by year-end tax practices of American corporations. However, political instability in Europe, renewed US tariff threats, and global geopolitical tensions could threaten this established pattern in 2024.

The euro’s December strength is remarkable among global currencies, with a 71% likelihood of ending the month in positive territory. The euro has consistently outperformed in December over the past seven years, with gains attributed more to US economic factors than eurozone-specific dynamics. US corporations traditionally reduce dollar holdings at year-end, shifting funds overseas to manage tax liabilities, which weakens the dollar and boosts the euro.

In contrast, the US Dollar Index typically rebounds in January, gaining an average of 0.88% as funds return stateside. This seasonal fluctuation highlights December as a unique opportunity for currencies like the euro to shine.

Currency Trends Beyond the Euro

The seasonal pattern extends to other currencies, with many also benefiting from December’s dollar softness. The British pound and Australian dollar typically gain 0.4% on average, while the Japanese yen strengthens by 0.3%. Lesser-known European currencies, such as the Hungarian forint, Polish zloty, and Czech koruna, often perform well, with the koruna leading at an average December gain of 1.4%.

Risks Clouding 2024’s December Performance

Despite this favorable historical backdrop, the euro and other currencies face heightened challenges this December. In the US, potential policy uncertainty, including the threat of sudden tariff announcements, could disrupt the typical flow of corporate funds abroad. A similar dynamic was seen in 2016, when unexpected political developments led to a 0.67% drop for the euro in December.

On the European front, domestic political instability adds further pressure. Germany, the eurozone’s largest economy, is navigating a fragmented political environment, while France grapples with escalating labor strikes and social unrest. These uncertainties risk dampening investor confidence in the eurozone, weakening demand for the single currency.

Global geopolitical tensions also weigh heavily on the euro’s outlook. The ongoing Israel-Hamas conflict, Russia-Ukraine war, and concerns about China’s economic recovery are likely to bolster the US dollar’s safe-haven appeal, countering its usual December weakness.

With these combined risks, the euro’s December rally, a longstanding tradition in global currency markets, faces one of its most uncertain years in 2024. Whether the euro can overcome these obstacles remains to be seen as markets brace for a volatile month ahead.

Business

El Salvador’s Church Urges President to Maintain Ban on Gold Mining Amid Environmental Concerns

Published

2 days ago

December 2, 2024

RTX

The Roman Catholic Church in El Salvador has joined growing calls for President Nayib Bukele to uphold the country’s ban on gold mining, a policy that has been in place since 2017. Archbishop José Luis Escobar Alas urged the president to retain the ban, warning that lifting it would cause irreversible damage to the nation’s environment.

In a statement on Sunday, Escobar Alas stated, “It will damage this country forever,” adding his voice to concerns raised by various civic and environmental groups. His remarks came after President Bukele expressed opposition to the seven-year-old ban, calling it “absurd” in a post on X (formerly Twitter) on Wednesday. Bukele suggested that unmined gold represents untapped wealth that could transform the country, triggering further debate on the issue.

El Salvador’s ban on metal mining, which applies both above and below ground, was implemented in 2017 to protect the country’s precious water resources from contamination. A broad coalition, including environmental groups and the Catholic Church, supported the measure at the time, citing the risks posed by mining operations to the country’s water supply.

While gold and silver deposits had been discovered in the country, no large-scale mining had begun by the time the ban was enacted. However, it is unclear what El Salvador’s full gold reserves may be. Bukele’s recent comments, however, mark a shift from his stance during his 2019 presidential campaign, when he supported the mining ban.

The president has since suggested that “modern and sustainable” mining could be introduced, with a focus on environmental responsibility. However, environmental advocates have rejected this notion, asserting that such mining practices are not as environmentally friendly as claimed.

Amalia López of the Alliance Against the Privatisation of Water emphasized the dangers of mining, saying, “It’s not true that there’s green mining; it’s paid for with lives, kidney problems, respiratory issues, and leukemia that aren’t immediate.” Critics are particularly concerned about the significant water consumption required for mining operations and the challenges of safely storing water contaminated with heavy metals.

Given Bukele’s political dominance, with his party controlling a majority in the legislature and the opposition weakened, the potential for a formal proposal to lift the mining ban could face little resistance. However, the strong opposition from environmental groups and the Catholic Church signals that the debate over the future of gold mining in El Salvador is far from over.