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Stocks jump on virus slowdown hopes, but oil slips on oversupply

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© Reuters. FILE PHOTO: A pump jack operates in front of a drilling rig at sunset in an oil field in Texas

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By Swati Pandey and Paulina Duran

SYDNEY (Reuters) – Stocks jumped on Monday as investors were encouraged by a slowdown in coronavirus-related deaths and new cases, while oil prices skidded after Saudi-Russian negotiations to cut output were delayed, keeping oversupply concerns alive.

Equity investors took solace as the death toll from the coronavirus slowed across major European nations including France and Italy.

U.S. stock futures rose 4% in Asian hours, trading close to its upper limit after U.S. President Donald Trump expressed hope the country was seeing a “levelling off” of the coronavirus crisis.

London’s was up 3.2% in early trading, while index was 4% higher.

“The stabilisation we are seeing in the market today is welcomed but it is something really fragile,” said Frank Benzimra, head of Asia equity strategy at Societe Generale (PA:).

In commodity markets, fell as much as $4 after Saudi Arabia and Russia postponed their meeting, initially scheduled for Monday, to Thursday even as the virus pandemic pummels demand.

“With a very light calendar globally today, there is enough momentum to keep the equity rally running through the course of the day and also into European time,” said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

“All bets are off after that although I could see a couple of days of positive sentiment ahead, especially if those mortality rates keep falling.”

In currency markets, sterling fell 0.06% in Asia after British Prime Minister Boris Johnson was admitted to hospital following persistent coronavirus symptoms 10 days after testing positive for the virus.

In Asia, Australia’s benchmark index rose 4.33%; added 4.24% after a slow start while South Korea’s index climbed 3.85%. Hong Kong’s was 2.18% higher.

That sent MSCI’s broadest index of Asian shares outside of Japan up almost 2.03%, on track for its best performance in over a week.

Markets in mainland China were closed for a public holiday.

Worryingly, the number of new coronavirus cases jumped in China on Sunday while the number of asymptomatic cases surged too as Beijing continued to struggle to extinguish the outbreak despite drastic containment efforts.

“Focus in markets will now turn to the path out of lockdown and to what extent containment measures can be lifted without risking a second wave of infections,” National Australia Bank analyst Tapas Strickland wrote in a note.

“Key to a strong rebound in China will be the ongoing lifting of containment measures with Wuhan – the epicentre of the outbreak – set to lift containment measures on April 8.”

Strickland, however, noted many in China were still subject to social distancing and isolation restrictions to prevent a resurgence in infections.

The pandemic has claimed more than 68,000 lives and infected over a million people globally. The United States has the highest number of reported cases, at over 300,000.

Concerns about heavy damage to the global economy have pushed investors into the perceived safety of government bonds where yields are at or near all-time lows.

“One of the major concerns of markets at the moment is the extent and the soundness of the recovery in production that we are seeing in China and other Asian countries,” SocGen’s Benzimra added.

Elsewhere in currencies, the dollar gained 0.4% against the yen to 108.93..

The euro was barely moved at $1.0819 while the risk sensitive Australian dollar was up 0.6% at $0.6037. The pound was last down 0.02% at $1.2266.

In commodities, Brent crude futures was down nearly 1.23%, or 42 cents, at $33.69 a barrel while slipped 1.83%, or 52 cents, to $27.82.

added 0.54% to $1,625.2 an ounce.

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Bombardier to lay off nearly 200 regional rail workers in GTA – BNNBloomberg.ca

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Bombardier Inc. says it will temporarily lay off 196 employees working on regional transit services in the Greater Toronto Area due to a steep decline in ridership numbers amid the COVID-19 pandemic.

The company said in an email the job cuts, effective June 21, amount to about 20 per cent of its workforce at GO Transit and the Union Pearson Express.

Both rail services are owned by the Metrolinx transit agency, which contracts out operations to Bombardier.

Bombardier says ridership has dropped by 90 per cent due to the impact of the pandemic, prompting a reduction in service levels.

Commuting has plummeted as confinement measures shuttered businesses, triggered layoffs and prompted work-from-home policies.

Air passenger numbers have also plunged, with international traveller volumes falling 98 per cent year over year at Canadian airports last week, according to the Canada Border Services Agency.

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Did Iraq Just Doom The OPEC Deal? | OilPrice.com – OilPrice.com

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Did Iraq Just Doom The OPEC Deal? | OilPrice.com

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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    OPEC

    OPEC is in negotiations with its members to find the best way forward, but talks appear to have stalled over one laggard, Iraq, which has failed to live up to its agreement under the cartel’s production cut deal. Does this give OPEC cover for meeting delays and overall noncompliance, or is it a sincere effort to get it onboard?

    Whether Iraq can be brought in line and fully comply with its share of the OPEC deal is certainly doubtful. Yet interestingly enough, OPEC and Russia have staked the extension of the dealy past June, when the current level of cuts expire and cuts begin to ease, entirely on whether all laggard members bring production down to agreed-upon levels. 

    Either OPEC and Russia are certain they can get Iraq to bring its production down to its quota, or they are content to have the cartel’s production above normal. 

    Russia and Saudi Arabia both agreed that the current level of production cuts should be extended at least one more month. The caveat? That all other countries implement their established quotas in full. 

    That’s a pretty big ask, and if history repeats itself, it’s impossible. What this means for oil prices is that there would be no extension, inventories won’t draw down as quickly, and oil prices will remain depressed along with demand for crude–which although it is picking back up thanks to lockdowns being lifted, is still about 20 million barrel per day under what it was before the pandemic. 

    Iraq isn’t the only laggard, to be fair. Nigeria, Angola, and Kazakhstan are also not keeping up their end of the bargain. The cartel went to work trying to get the three, and Iraq, to recommit to the cuts, and with the exception of Iraq, all three gave the requisite assurances.  Related: Are Investors Ignoring The Largest Financial Risk Ever?

    Of course, that doesn’t mean they will necessarily do so, but it’s at least a start. 

    Iraq, however, has not committed to bringing its production down to the quota in June. 

    OPEC’s compliance for May is thought to be about 89%. This isn’t terrible considering the volume of how much is being cut. Still, compliant Saudi Arabia is declaring its unwillingness to continue its share of the cuts for another month unless the laggards get their act together. Laggards that include Iraq, whose compliance reached only about 42% in May.

    OPEC won’t even have the meeting this week unless Iraq agrees to improve its compliance. 

    Is it all just a ploy to manage market expectations in the run up to the meeting to ensure that whatever agreement is hatched is looked upon favorably, therefore maximizing the price impact? Is it a strategy to get out of extending the deal, perhaps as discussed with U.S. President Donald Trump? Is it designed to put maximum pressure on Iraq to comply? 

    Chances are, we’ll never know. But one thing is for certain: Iraq will not comply with the deal–period. 

    In fact, it said as much. Iraq said it would fully implement cuts by the end of July-in their promise-to-fulfill-later kind of way that they have done in the past. 

    Iraq the Laggard

    For the most part, when it comes to chronic noncompliance, we are talking about the usual suspects of Iraq and Nigeria. But Iraq is so much bigger. 

    Both countries have unique challenges when it comes to sticking to any production cut deal that OPEC or OPEC+ could ever hatch. For Iraq, it is their reliance on international oil companies, most of which operate in the semi-autonomous Kurdistan region. So on one hand, Iraq doesn’t want to bite the hand that feeds it–big foreign oil companies–and on the other, Iraq has a tough time trying to regulate what goes on in the Kurdistan region. This is not even to mention the rocky political climate in Iraq. Related: Can Yemen’s Oil Industry Make A Comeback?

    For Nigeria, it’s the fact that it has a strong reliance on its oil revenues. Most OPEC nations rely on oil revenue for a substantial part of the revenue. But for Nigeria, shutting down oil production and forgoing the revenue associated with that oil production is tough.  Yet Nigeria has agreed, although its May compliance was still not up to snuff.

    OPEC’s Other Problem

    Is OPEC really worried about the extra barrels Iraq is pumping? After all, Saudi Arabia has overachieved its own quota for well over a year while the laggards basked in their overproduction. Most signs point to legitimate worry. Saudi Arabia has declined to publish its July OSP for July until after the meeting. The Kingdom is also raising its customs duties on hundreds of products to generate more non-oil revenue. In a similar vein, it’s tripling its VAT and suspending its cost of living allowances. These are worrisome signs.

    What’s most concerning in the market, however, is the notion that the OPEC deal could fall apart entirely. 

    The previous deal catastrophe is all too fresh in our minds after Russia and Saudi Arabia–the two heavyweights in the deal–failed to reach an agreement over the cuts. The deal failure triggered a price war between the two, plunging the world into a glut of oil and sending prices spiraling as demand fell in the wake of the pandemic. 

    By Julianne Geiger for Oilprice.com

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      Russia's Energy Minister Sees Shortage In Oil Market Next Month – OilPrice.com

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      Russia’s Energy Minister Sees Shortage In Oil Market Next Month | OilPrice.com

      Julianne Geiger

      Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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      Russia’s Energy Minister Alexander Novak is predicting a shortage in the oil market next month, Ifax reported on Thursday.

      Novak said that the global oil markets could see a shortfall between three and five million barrels per day in July, depending on the outcome of the OPEC meeting that could be held yet this week.

      The meeting that will help shape the future of the oil market over the next few months is proving difficult, however, even though it would appear that Saudi Arabia and Russia have reached an agreement in principle to extend the current level of cuts through the end of July.

      The cuts are currently set to ease starting in July.

      But negotiations among the cartel members are complex, with Iraq, Angola, Nigeria, and Kazakhstan overproducing—a bone of contention with more fastidious members such as Saudi Arabia.

      OPEC+’s compliance reached 89% in May. OPEC’s second largest producer, Iraq, reached only 42% compliance, based off of preliminary data. While Saudi Arabia and Russia agreed to extend the cuts at least for another month, they are not interested in doing so unless Iraq and the other overproducers bring their production in line with the given quotas.

      OPEC+ quotas call for total cuts of 9.7 million bpd. Oil demand, however, is still off by 21 million bpd as of May, according to Novak. But that’s up from 25-28 million bpd off in April.

      Novak added that the filling up of oil storage has slowed, and that thanks to the current production cuts and the improving demand figures so far, the market should achieve balance in June, before slipping into a deficit in July.

      Based on May’s production, OPEC has another 1 million barrels to cut to get into full compliance with the current deal.

      By Julianne Geiger for Oilprice.com

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