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OPEC+ eye modest supply boost as demand dented by China Covid rules

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OPEC+ members meeting on Thursday are expected to agree a marginal increase in oil production, bolstered by risks to demand amid coronavirus restrictions in China. 

Russia’s invasion of Ukraine has also added to supply concerns, which have increased with Europe’s announced moves on a potential Russian oil embargo.

Prices soared on Wednesday, with Brent North Sea crude closing above $110 a barrel, its highest level in two and a half weeks. 

But analysts said the new surge would not shake the 13 members of the Organization of Petroleum Exporting Countries (OPEC), led by Riyadh, and their 10 partners led by Moscow. 

“It is likely that OPEC will stick with its plan despite ongoing instability relating to the Russia-Ukraine conflict,” XTB analyst Walid Kudmani told AFP, citing “prospects of falling demand due to widespread lockdowns seen in China as a result of rising Covid cases”. 

As in previous months, the cartel is likely to open the taps at 432,000 barrels per day for June, a strategy begun in the spring of 2021 when the economy began recovering after the drastic cuts imposed amid the shock of the pandemic. 

The talks will begin with technical discussions at the ministerial committee meeting at 1100 GMT in Vienna, the headquarters of the cartel. 

– China, grounds for ‘caution’ –

Largely spared for two years, China in recent weeks has been battling its worst coronavirus outbreak since the spring of 2020 which has strained its zero-Covid strategy. 

Beijing on Wednesday closed dozens of metro stations and residents fear their city will be locked down, as is already the case in Shanghai, the country’s largest city with 25 million people. 

“The slowing activity in China is certainly a factor that will justify their decision to stay pat, faced with the mounting international pressure to increase production to address the worsening global energy crisis,” Ipek Ozkardeskaya, an analyst at Swissquote bank, told AFP.

This is “a reason to remain cautious,” said Fawad Razaqzada, analyst at City Index and Forex.com.

As for the new economic sanctions planned against Russia, they are not expected to move the needle for the moment. 

In its sixth package of sanctions, the European Commission calls for a ban on all Russian oil, crude and refined, transported by sea and pipeline by the end of 2022, European Commission President Ursula von der Leyen told the European Parliament.

– ‘Huge impact’ –

That prospect threatens supply in an already tense European market.

While unanimity among the 27 EU member states is required for the sanctions to go forward, Hungary, which is highly dependent on Russian deliveries, rejected the project in its current form.

“If it (the EU) manages to convince its members to ratify the plan… then this will have a huge impact on Russian oil exports,” Razaqzada said.

But once again the OPEC+ alliance, anxious to remain united and avoid upsetting Moscow, will “certainly not save the day,” Ozkardeskaya said.

“The cartel made clear that the Ukraine war — that impacts the Russian exports — is not cause for concern,” she said.

Stephen Innes, an analyst at SPI Asset Management, said OPEC+’s wait-and-see approach was “increasingly untenable” and “contrary to its mission statement”.

“(It’s) why they have fallen under constant criticism for being slow and technically unprepared to react to recent developments in global markets,” he said.

But does OPEC+ really hold the key to price stabilisation? Between a lack of investment in oil infrastructure in some member countries and operational problems, the cartel regularly fails to meet its production quotas.

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Lufthansa optimistic for 2022 as tourist demand bounces back

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Lufthansa warns that 'ticket prices will have to rise' due to the surge in fuel costs
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German national carrier Lufthansa on Thursday said it slashed its losses in the first quarter and set its sights on a record summer for tourist traffic as demand recovers from the pandemic. 

The airline group’s net loss over the first three months of 2022 came to 584 million euros ($620 million), down from one billion euros in the same quarter last year.

The improved result was due in part to the rise in air traffic as coronavirus-related restrictions were rolled back in many countries and fears over the Omicron variant ebbed.

The number of passengers on Lufthansa flights “more than quadrupled” in the first quarter to 13 million, from three million in 2021, when travel restrictions in many markets were more severe.

“New bookings are increasing from week to week,” Lufthansa CEO Carsten Spohr said in a statement, with demand rising particularly strongly among leisure travellers. 

“We are expecting strong growth in the summer and probably more holiday-makers than ever before,” Spohr said in a press conference.

For business travel, the recovery was slower, with the group expecting traffic to reach “around 70 percent” of its pre-coronavirus level by the end of the year, the group said in a statement.

In all, Lufthansa expected to offer “around 75 percent” of its pre-crisis capacity over the year.

– ‘On track’ –

Lufthansa’s cargo division had a “record result” in the first quarter, the carrier said, as demand for freight remained high amid turmoil in global supply chains. 

The segment recorded an operating result — a key measure of underlying profitability — of 495 million euros, up from 315 million euros in the first quarter of 2021.

Europe’s largest airline group — which includes Eurowings, Austrian, Swiss and Brussels Airlines — struggled at the outbreak of the pandemic and was saved from bankruptcy by a government bailout.

But business has picked up and Lufthansa said last November it had repaid the nine-billion-euro loan it had received from the government. 

The group was now “on track” to make a positive operating profit in the second quarter and over the year, chief financial officer Remco Steenbergen said at a press conference.

Nonetheless, the group would not include the target in its official guidance because of the “extremely volatile” price of fuel, a factor outside Lufthansa’s control.

The surge in energy costs, driven by the Russian invasion of Ukraine, was “too high to be offset by additional cost reductions”, Steenbergen said, concluding that “ticket prices will have to rise”.

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Shell profit up as high oil prices offset Russia hit

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Oil prices have surged in recent months
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British energy giant Shell on Thursday logged soaring first-quarter net profit as surging oil prices offset a sizeable charge linked to its Russia exit.

Profit after tax leapt 26 percent to $7.1 billion (6.7 billion euros) from a year earlier, Shell said in a statement.

While the group took a $3.9-billion charge on its exit from Russia after Moscow invaded Ukraine, it saw lower costs elsewhere.

Underlying earnings spiked almost three-fold to a quarterly record of $9.1 billion, sparking fresh calls in Britain for a windfall tax on energy majors.

UK consumers are enduring a cost-of-living crisis caused by the highest rate of inflation in decades, also as economies reopen from pandemic lockdowns.

Prime Minister Boris Johnson, who faces a key mid-term test in local elections Thursday, has dismissed calls for a windfall levy on oil giants, arguing it would slow their efforts to invest in cleaner energy.

Yet environmental campaigners and opposition politicians are calling for a one-off tax to ease household budgets and curb reliance on fossil fuels.

– Windfall tax –

“A windfall tax on these unexpected record profits of unimaginable sums would be the fastest and fairest way to ease pressure on households feeling the pinch and reduce our dependence on oil and gas, which is the root cause of the cost of living crisis,” said Greenpeace UK’s Philip Evans.

Shell added Thursday that revenues rallied 51 percent to $84.2 billion in the first three months of the year.

Oil prices have surged in recent months on concerns over tight supplies following the invasion of Ukraine by major oil and gas producer Russia.

“The war in Ukraine is first and foremost a human tragedy, but it has also caused significant disruption to global energy markets and has shown that secure, reliable and affordable energy simply cannot be taken for granted,” noted chief executive Ben van Beurden.

“The impacts of this uncertainty and the higher cost that comes with it are being felt far and wide.”

The London-listed group last month flagged it would take a hit of between $4 billion and $5 billion in the first quarter as a result of impairment from assets and additional charges relating to its Russian activities.

Shell announced in late February that it would sell its stakes in all joint ventures with Russian state energy giant Gazprom after the Kremlin launched its assault on Ukraine.

– Share buyback –

The company then decided in March to withdraw from Russian gas and oil in line with UK government policy.

Britain, which is far less dependent than the rest of Europe on Russian energy, plans to phase out oil imports by the end of 2022 and eventually stop importing its gas. 

Shell’s British rival BP on Tuesday booked its biggest-ever quarterly loss, at $20.4 billion, after a mammoth $25.5 billion charge on its Russian withdrawal.

However, BP also logged record-high underlying profits for the first quarter on high oil prices.

Shell has meanwhile begun the second tranche of its $8.5-billion share buyback unveiled in February.

The group’s share price rallied 3.1 percent to £22.95 in morning deals on London’s rising stock market.

“The recovery in energy prices from the depths of the pandemic had already allowed Shell to reduce net debt and begin a renewed focus on shareholder returns,” said Interactive Investor analyst Richard Hunter

World oil prices rocketed close to $140 per barrel in early March, although they have since fallen back to around $100.

Both BP and Shell had suffered vast losses in 2020 as the coronavirus pandemic slashed energy demand and prices.

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Turkey inflation spirals to nearly 70 percent in April

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Many economists blame Erdogan's unconventional economic strategies
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Turkey’s official inflation rate spiralled to nearly 70 percent in April, data showed on Thursday, posing a huge challenge to President Recep Tayyip Erdogan, whose unconventional economic policies are often blamed for the economic turmoil. 

The consumer price index rose by 69.97 percent year-on-year in April compared with 61.14 percent in March, the national statistics agency said.

Erdogan insists that sharp cuts in interest rates are needed to bring down soaring consumer prices, flying in the face of economic orthodoxy. 

The collapse of the lira has pushed up the cost of energy imports and foreign investors are now turning away from the once-promising emerging market. 

Russia’s invasion of Ukraine and the coronavirus pandemic have exacerbated the energy price spikes and production bottlenecks.

Turkey’s annual inflation rate — the highest since Erdogan’s ruling AKP party stormed to power in 2002, is largely linked to his unconventional economic thinking, analysts say. 

Erdogan has put pressure on the nominally independent central bank to start slashing interest rates. 

In April, the bank kept its benchmark interest rate steady for the fourth consecutive month, bowing to the pressure despite high inflation. 

The biggest price increases in April were for the  transport sector, standing at 105.9 percent, while the prices of food and non-alcoholic drinks jumped 89.1 percent.

– ‘Fleeting trend’ –

Treasury and Finance Minister Nureddin Nebati on Monday brushed aside concerns, saying that the current inflationary trend was fleeting and would “not spread over the long term and be permanent”. 

“We will increase the welfare and purchasing power of our citizens over the past level,” he said.

Turkey has cut taxes on some goods and offered subsidies for some electricity bills for vulnerable households but even this has failed to stem inflation.

The Turkish currency has lost 44 percent of its value against the dollar last year and more than 11 percent since the start of January. 

Erdogan’s government has responded by using state banks to buy up liras in a bid to cut the currency’s losses. 

There is also speculation that the central bank sells dollars to stem the lira’s slide through back channels. 

Former deputy general manager of Turkey’s state bank Ziraat shared information he received from the banking circles, Turkish media reported. 

“The central bank sells $2.5-3 billion a week through public banks,” he was quoted as saying this week. 

Erdogan, who faces a crucial presidential vote next year, has also shifted policy to mend broken alliances with cash-rich Gulf states to draw financial support. 

Last week, he visited Saudi Arabia in a bid to reset relations since the 2018 killing of Riyadh critic journalist Jamal Khashoggi in the kingdom’s consulate in Istanbul. 

Erdogan said his government agreed with Saudi Arabia to “reactivate a big economic potential”. 

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