South Indian textile mills, primarily those in Tamil Nadu are looking at the opportunity of international cottontraders storing imported cotton at the Colombo port in Sri Lanka, as against a Malaysia port currently. An Indian delegation is visiting Sri Lanka for this initiative, which will bring down the transportation cost as well as time.
A leading daily quoted M. Senthil Kumar, chairman of Southern India Mills' Association (SIMA) as saying that the volume of imported cotton is expected to rise in the 2016-17 season, when compared with the current season.
According to Senthil Kumar, SIMA will request international traders to use the Colombo port to store cotton, a location advantageous to supply to even other Asian countries.
The Indian delegation will look for a warehouse, which will not charge detention charges, while offering demurrage-free storage.
Cotton Association of India (CAI) has predicted that cotton production for 2016-17 season beginning October 1 would be 336 lakh bales of 170 kg each. This estimate is nearly similar to the 337.75 lakh bales produced in the ongoing season, as per CAI's July estimate.
SOURCE: Fibre2Fashion
The finance ministry is set to get greater control over at least three schemes to promote exports under another measure to improve the ease of doing business and hassle-free trade.
The three measures are advanced authorisation scheme, export promotion capital goods scheme and deemed exports schemes, accounting for almost . 35,000 crore in government incentives.` While the commerce ministry will keep the policy-making powers for the schemes, it has proposed that their implementation be shifted to revenue department of the finance ministry.
Under the current system, traders approach the Directorate General of Foreign Trade (DGFT) for licences for the schemes and also have to register with the customs department, leading to duplication of effort and hassles.
“The idea is that policy-making will remain with us and implementation be done by MoF. Discussions are on to split roles for advanced authorisation scheme, EPCG scheme and deemed exports,“ said a commerce ministry official.
A similar mechanism has already wor ked for the duty drawback scheme, under which exporters are compensated for customs and excise duties paid on inputs used to manufacture products meant for sales overseas.
While the Foreign Trade Policy sets the guidelines for the payments, the revenue department fixes the rates and refunds the exporters.
Under the advance authorisation scheme, exporters can import raw material and inputs without paying duty after getting a licence from the DGFT.
Similarly, in the export promotion capital goods, or EPCG, scheme, exporters get full exemption from paying duty when importing machinery to manufacture goods meant for exports. Here, too, DGFT is the licensing authority.“Depending on how this takes shape, this can be extended to the merchandise and service exports from India schemes,“ the official added.
The industry has called it a logical move as customs and excise officials are aware of manufacturing units even in far-flung areas and hence are better equipped to issue licenses. “This is a move towards simplification but revenue authorities will have to be more proactive and sensitive to trade,“ said Ajay Sahai, director general of FIEO.
When it comes to exports and trade, rationalising administrative processes make perfect sense. We do need to slash red tape, to make our declining exports more competitive. In tandem, there's the pressing need to shore up productivity, reduce delays and improve logistics in merchandise trade. Going forward, we need to speedily remove infrastructural bottlenecks that seem to make our exports uncompetitive. In parallel, there's also the need for focused policy attention on services exports.
SOURCE: The Economic Times
Overseas funds, foreign and private banks lost money as their bullish bets on the rupee backfired -at least for now -amid rising geopolitical tension between India and Pakistan.
Investors who were selling dollars in the currency forwards market booked losses with the rupee depreciating sharply against the dollar in the spot market. The Indian ar my said Wednesday it had conducted surgical strikes overnight at several terrorist camps along the Line of Control to pre-empt infiltration by terrorists.
The rupee fell 48 paise, or 0.72%, to an intra-day low of 66.95 per dollar as overseas investors sold local bonds and equities, show data from CCIL. It closed at 66.86 per dollar versus 66.47 a day earlier. The benchmark bond yield jumped five basis points, pushing prices down.
During the trading session, the Reserve Bank of India is said to have intervened to curb intraday volatility as some state-owned banks bought the rupee. “Currency market outlook has changed overnight due to sudden cross-border tension,“ said Keta Kurkute, VP-Forex Advisory at Mecklai Financial Services, a currency risk management firm.“Investors are now seen going long on the dollar, reversing their earlier stance. Volatility will rise in the coming days amid escalating geopolitical tension.“
The rupee may depreciate to 67.50 against the dollar in the next few days if the situation with Pakistan worsens, some dealers said. A sharp dip triggered stop-losses for investors, who short-sold the dollar in the forwards market.
Some overseas investors, who were enjoying the luxury of unhedged positions, have started protecting their investments in India. Hedging currency comes at a cost, eating into their investment returns.
“The market was caught on the wrong foot as carry traders were short USD and had to run for cover as prices spiked,“ said Anindya Banerjee, a currency analyst at Kotak Securities.“Spreads between onshore and offshore forwardfutures narrowed. Traders would be keen on buying local bonds into the correction, ahead of the RBI monetary policy .“
Some investors rushed to hedge with the premium rising to 367 paise from 351 paise a day ago in the offshore derivative market, a popular platform for foreign portfolio investors. During the Pokhran nuclear test in May 1998, seen as a sign of India's might at the cost of global economic sanctions, the rupee plunged 6.42%, or `2.55, within a month. During the Kargil war in May 1999, when India vanquished Pakistan, the rupee lost 1.26%, or `1.01, to the dollar in about 45 days.
A warlike situation seems to be a remote possibility as market participants expect only a temporary upheaval. “Barring such an event (surgical strike), we can expect normalcy to return soon,“ Banerjee said.
SOURCE: The Economic Times
Indian Railways will be offering up to 30% discount to bulk customers on incremental loading to improve freight business that has grown at a slow rate in the current year.
“Bulk customers, who do more loading than what they did last financial year will get 30% concession on incremental loading. It will help railways to garner more traffic from road and other modes,“ a senior railway official said. Commodities such as coal and iron ore are not included. The targeted customers for railways are food grain, cement, limestone and steel companies. steel companies.
“We are trying to expand our freight basket by looking beyond coal. This policy will help us make railways a preferable and economical solution to bulk customers. We want to be much more efficient than roads,“ Railways Minister Suresh Prabhu said on Wednesday .
Under the newly-launched station to station freight policy, the railways has empowered zonal general managers to give concessions to existing bulk customers.
The railways get almost 70% of its total revenue from freight. For the current financial year, the freight target is around 1,200 million tonne, but looking at the half yearly trend, the railway freight loading hasn't shown any significant growth. Recently , the railways also rationalised its coal freight rates so that loading could be increased.
Cement and food grains currently contribute a mere 15% of the railways total freight revenues. The national transporter wants to increase this share to 20%. Currently, the railways get almost 50% of its revenue from coal loading. The revenue from coal has been seeing a gradual decline in recent months.
The railways has also announced a policy to provide a sub quota of 33% to women within the reserved categories for the allotment of catering units.
To increase its passenger revenue, the railways also introduced three new premium brands of trains--Hamsafar, Tejas and Uday. These trains would have higher fares than the Rajdhani trains. The railways expects to mop an additional revenue of `1,000 crore through these premium trains.
SOURCE: The Economic Times
The GST Council, that will meet here on Friday, will have the hard task of identifying the items to be exempt from the goods and services tax (GST), besides endorsing the draft rules on the council’s functioning. The GST’s impact on inflation and prices will hinge to a large extent on the selection of exempt items and how different the new sets of items enjoying waivers are from the current sets of goods exempt from central excise duty and state VAT. The council, sources said, would also deliberate on how grandfathering of tax sops like the area-based excise exemptions would be carried out.
Area-based excise duty exemptions, available to manufacturing units in northeastern states as well as the hill states of Uttarakhand, Himachal Pradesh and Jammu and Kashmir, cost the exchequer over Rs 19,000 crore in FY16. At present, about 270 items are exempt from central excise duty and another 150-odd goods are taxed at concessional rates.
The revenue forgone on these sops was estimated at Rs 2.25 lakh crore in FY16. The number of items exempt from state VAT varies from state to state, but the average is around 100. (There is, of curse, some overlap of the excise and VAT exemption lists.) Though no official estimate is available on the revenue forgone on VAT waivers, some tax experts put the figure at close to Rs 1.9 lakh crore in FY16.
Chief economic adviser Arvind Subramanian had said that the general expectation was that the central list of exemptions, which is much bigger, would be brought down, to somewhat converge with the states’ list. “That was the presumption. However, the GST council has to decide whether the list of some 300 items can come down to 99 or so. For me, the narrower the list is, the better. We want fewer exemptions,” Subramanian had said.
Subramanian said that a moderate GST rate won’t be inflationary although more definitive assessment of the price impact of GST on specific commodities could be made only after the council decides the rates and the exemptions. While 54 per cent of the items are now exempt from taxes, the bulk of these might be kept outside the GST ambit also. The bottom 40 per cent of the populace would be “more protected (from price spike) given their consumption pattern and PDS benefits”, the CEA had said.
“It would be desirable to keep mass consumption articles on the exemption list under GST or at least at a very low band of say 4 to 6 per cent under in order to minimise the new tax’s inflationary impact,” said MS Mani, senior director at Deloitte Haskins & Sells.
In its first meeting held here last week, the GST Council decided that the exemption threshold for businesses in the GST be a turnover of Rs 20 lakh for all states except the northeastern ones and the three hill states where the limit would be Rs 10 lakh. It also decided that states will have exclusive control over units with annual turnover up to Rs 1.5 crore while in the case of bigger businesses too, the one-taxpayer-one-authority principle will be retained and either the Centre or the state concerned will be accorded the assessing power based on risk profiling.
SOURCE: The Financial Express
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India and Canada are expected to deliberate on ways for early conclusion of the proposed free trade agreement and foreign investment promotion and protection pact today.
The issue, among others, will figure during the meeting between the trade ministers of both the countries in Toronto.
A high-level delegation led by Commerce and Industry Minister Nirmala Sitharaman is there to attend the third Annual Ministerial Dialogue.
Considering the potential of bilateral trade, the trade ministers are likely to discuss “ways of expeditious and early conclusion of Foreign Investment Promotion and Protection Agreement (FIPA) and Comprehensive Economic Partnership Agreement (CEPA)”, the commerce ministry said in a statement.
CEPA is a comprehensive free trade agreement under which two trade partners significantly reduce or eliminate Customs duties, besides liberalising trade in services and investment norms.
The negotiations for the agreement were launched by both in November 2010 to further boost bilateral trade and investment. The two-way trade stood at USD 6.25 billion in 2015-16, an increase from USD 5.95 billion in 2014-15.
Both ministers may also explore options for Indian interest in addressing the Temporary Foreign Workers Programmes of Canada, which is affecting the Indian IT industry.
The other issues that are likely to figure in the discussion are equivalence by Canadian Food Inspection Agency for Indian organic product exports and exploring investment opportunities in different sectors of India, it added.
The ministers are also expected to discuss issues relating to intellectual property, among others.
Sitharaman is scheduled to meet some top business leaders of Canada tomorrow to talk about various reforms undertaken in India and prospects for investment in various sectors.
The statement said India and Canada have enormous scope for enhanced bilateral trade relation, but it has “not been up to the potential”.
During the visit of Prime Minister Narendra Modi to Canada in April 2015, both nations recognised the need for early finalisation of FIPA and and expeditious, progressive, balanced, and mutually beneficial CEPA, as a basis for expanding trade and investment.
SOURCE: The Financial Express
The government on Thursday notified the six-member Monetary Policy Committee (MPC), paving the way for it to decide key interest rates from the October 4 policy meeting onwards. Additionally, Reserve Bank of India Governor Urjit Patel also met Finance Minister Arun Jaitley in New Delhi ahead of the policy meeting.
The MPC has been tasked with deciding benchmark interest rates, something which the RBI governor used to decide till now. “As per the provisions of the RBI Act, out of the six members, three members will be from the RBI and the other three members of MPC will be appointed by the central government,” the finance ministry said in a statement on Thursday.
“The central government has accordingly constituted, through a gazette notification dated 29th Sept 2016, the Monetary Policy Committee of RBI,” it said.
The three RBI members of the MPC are Patel, Deputy Governor R Gandhi, and Executive Director Michael Patra. The central government’s nominees to the MPC are Chetan Ghate, an Indian Statistical Institute professor; Pami Dua, who teaches at the Delhi School of Economics; and Ravindra Dholakia, a professor at Indian Institute of Management-Ahmedabad.
The central government appointees to the MPC shall hold their posts for a period of four years. TheMPC “would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. A committee-based approach for determining the monetary policy will add lot of value and transparency to monetary policy decisions,” the financeministry said.
The meetings of the MPC will be held at least four times a year and it will publish its decisions after each such meeting.
The inflation target for the MPC and RBI to meet, of 4 per cent (+/-2 per cent) had already been notified by the government earlier. The target stands till March 31, 2021.
SOURCE: The Business Standard
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The market clearly doesn’t relish the prospect of war or military tensions. This was apparent from the nearly 500-point drop in the Sensex on Thursday following news of the Indian army’s surgical strikes inside Pakistan.
The strikes, in retaliation to the Uri terror attack that killed 18 Indian soldiers, carry the risk of dragging India into a longer military conflict with Pakistan. That, if it happens, could dampen market sentiment further and could affect, in particular, foreign fund flows into the Indian stock market, at least in the short term.
A military conflict, besides impacting broader economic sentiment, could also put the brakes on trade with Pakistan, which has been ebbing and flowing over the years.
A recent report by ICRIER (Indian Council for Research on International Economic Relations) shows that India’s trade with Pakistan in 2015-16 was $2.61 billion, up about 11 per cent from $2.35 billion in 2014-15. But it’s been bumpy over the years – trade was the same at $2.61 billion in 2012-13 and higher than present at $2.7 billion in 2013-14.
Even so, India stands to lose more, given that it exports much more (three to four times) to Pakistan than it imports. ICRIER’s report also says that India’s trade potential with Pakistan is $10.9 billion, more than four times the current levels.
That said, if push comes to shove, disruption of trade with Pakistan should not pinch India too much, given that Pakistan accounts for an insignificant portion of India’s global trade.
Exports to Pakistan accounted for about 0.8 per cent of India’s total exports in 2015-16 while imports from the country formed 0.12 per cent of India’s total imports. Overall, trade with Pakistan accounted for just about 0.4 per cent of India’s total trade in 2015-16.
Cotton exporters may be hit
Cotton exporters may take a larger hit than others, given that the commodity accounted for nearly 30 per cent of all exports to Pakistan in 2015-16. Other products that India exports to Pakistan include polypropylene, chickpeas, woven fabrics and single yarn, but each of these products forms a small part (lower single digit percentage) of overall exports to the country.
Among the major products that India imports from Pakistan are light oils and preparations, and dates (each accounting for about 20 per cent of imports from the country).
While the market reacted negatively, listed Indian companies are unlikely to be impacted, given their negligible exposure to the Pakistani market. Most major companies do not seem to be doing big business with Pakistan, perhaps due to the significant risks in the country especially when it comes to India.
Of course, a risk of attack on facilities and installations could weigh on stocks of companies, especially those along the West Coast. But when the dust settles, the market and affected stocks will likely make a comeback, when long-term economic prospects trump short-term geo-political concerns.
When the Kargil conflict erupted in May 1999, the Sensex traded close to 3,400 levels, and by the time it was over in July that year, the index gained nearly 37 per cent to about 4,600 points. The market barometer today trades close to 28,000 levels.
SOURCE: The Business Line
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India, Iran and Afghanistan will meet to discuss the Chabahar Port’s potential within two months.
Officials of these countries will also meet to decide protocols related to transport and transit, ports, customs procedures and consular affairs.
A trilateral meeting was held recently between the transport ministers of the three countries where they decided to organise a connectivity event involving all stakeholders at Chabahar within two months to increase awareness about the new opportunities offered by the port, said an official release.
It was decided to evolve protocols related to transport and transit, ports, customs procedures and consular affairs. An expert-level meeting of senior officials of the three countries will also be convened within a month in Chabahar, it added.
The three Ministers held discussions on the Trilateral Agreement on Establishment of International Transport and Transit Corridor, also called the Chabahar Agreement, which was signed on May 23, 2016 in Tehran in the presence of the Prime Minister of India and Presidents of Iran and Afghanistan.
Development of ports, road and rail connectivity will open up new opportunities, leading to new jobs and prosperity in all three countries, the release added.
Minister of Road and Urban Development of Iran Abbas Ahmed Akhoundi and Minister of Transport and Civil Aviation of Afghanistan Mohammadullah Batash are visiting India at the invitation of Road Transport, Highways and Shipping Minister Nitin Gadkari, the release said.
The Ministers also emphasised the importance of International North-South Transport Corridor.
SOURCE: The Business Line
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INTERNATIONAL
The Chinese government has set a target to achieve average annual output growth of 6-7 per cent in its textile industry during 2016-20, according to a development plan released by the ministry of industry and information technology (MIIT). The plan also sets targets for reduction in energy usage and pollution emission to make the industry greener.
The MIIT has set an 18 per cent reduction target for textile industry's energy intensity between 2016 and 2020, official news agency reported. The target for drop in pollutant emission is 10 per cent during the five-year period. This will enable the industry to become greener and smarter, with more customised products and cleaner technology, the plan mentions.
For exports, the plan says they will contribute a stable share of the global textile trade during 2016-20. The export products will be of better quality, says the MIIT plan.
Last year, the output of textile industry in China increased by 7 per cent, outpacing 6.1 per cent growth registered by the whole industrial sector, according to the official data.
SOURCE: Fibre2Fashion
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Garment workers in Cambodia would get a minimum wage of $153 per month from January 2017. This was decided by the Labour Advisory Committee (LAC) comprising representatives from the government, trade unions and employers. In recent years, the minimum wage has increased significantly from $66 per month in 2012 to $140 per month at present.
At the LAC meeting, 22 of its 24 members present voted in favour of the government's proposal to increase the minimum wage to $148 per month. The minimum wage of $171 proposed by trade unions received two votes, while $147 per month suggested by employers got no votes.
“The result of our voting today is overwhelmingly in support of $148 and the head of the government… decided to add $5 more. So the minimum wage in 2017 is $153,” Labour minister Sam Heng told reporters at his ministry in Phnom Penh. Other benefits that workers have been receiving will remain unchanged.
The garment and footwear sector is very important for the Cambodian economy as it fetches $6 billion annually from exports.
The industry employs over 600,000 people, and the increase in minimum wage will help these workers raise their standard of living, the labour ministry said in a statement.
The new minimum wage falls short of expectations of trade unions. Last month, 17 unions agreed on a common wage demand of $179.60 based on living costs, inflation and social factors.
However, Cambodian garment factories face the risk of losing orders if salaries keep increasing. Already, the new minimum wage is more than double the minimum wage for garment workers in Bangladesh.
SOURCE: Fibre2Fashion
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U.S. economic growth was less sluggish than previously thought in the second quarter as exports grew more than imports and businesses raised their investments, hopeful signs for the economic outlook.
Gross domestic product expanded at a 1.4 percent annual rate, the Commerce Department said on Thursday in its third estimate of GDP. That was up from the 1.1 percent rate it reported last month and higher than analysts' expectations.
The revision incorporated data that showed businesses cut investments in buildings and equipment less than the government previously estimated, while they sank more money into research and development.
Other data released by the Commerce Department showed America's trade deficit for goods shrank in August, boding well for third-quarter growth.
"It now appears that growth is slowly making its way back on to firmer ground," said Michael Feroli, an economist at JPMorgan in New York.
Growth in overall business investment was revised to show a 1 percent annual rate of expansion, the first gain since the third quarter of last year, suggesting the worst of an energy-sector-led slump in business investment might be over.
The slump, fueled by a sharp drop in oil prices that hit America's energy industry, has worried policymakers at the Federal Reserve because less investment could hurt economic growth over the longer term.
The economy has struggled to regain momentum since output started slowing in the last six months of 2015 and the overall growth rate for GDP in the second quarter remained below historically normal rates. That could give grist to Republican Presidential candidate Donald Trump's argument that the economy has sickened under the Obama administration.
At the same time, consumer spending, which makes up more than two-thirds of U.S. economic activity, was robust in the second quarter, rising at a 4.3 percent annual rate, while growth in exports outstripped that of imports enough to boost GDP by the most since the third quarter of 2014.
But companies continued to run down their inventories aggressively, reducing stocks by $50.2 billion and subtracting from GDP growth, while home building also sank.
The U.S. dollar was little changed against a basket of currencies while yields on U.S. government debt were higher.
The GDP data is unlikely to have much impact on the near-term outlook for monetary policy although it could make Fed policymakers more confident the U.S. economy is resisting weaker growth abroad.
Federal Reserve Chair Janet Yellen repeated on Wednesday that Fed policymakers expect to raise interest rates by the end of the year because they worry that gathering steam in the U.S. labor market could fuel inflation.
New claims for unemployment benefits rose slightly last week but remained at levels consistent with a healthy job market, according to a separate report from the Labor Department.
The Commerce Department is due to release new inflation data on Friday.
The government also reported that after-tax corporate profits fell at a 1.9 percent rate in the second quarter, a smaller drop than initially estimated.
With profits declining, an alternative measure of growth, gross domestic income, or GDI, dropped at a 0.2 percent rate in the second quarter. GDI measures the economy's performance from the income side.
SOURCE: Reuters
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U.K. officials have held preliminary talks with China about establishing a trade agreement following the Brexit vote, Jo Hawley, director of trade and investment at the British Consulate-General in Hong Kong, said Thursday.
"We hope that coming out of the EU gives us an opportunity to look at free-trade agreements with other countries," Hawley said at a Hong Kong University of Science and Technology seminar. "We’re very keen to push that forward with the Chinese in particular. China is the big prize."
At the Group of 20 summit in Hangzhou, China, earlier this month Chinese President Xi Jinping told U.K. Prime Minister Theresa May that China was open to bilateral trade talks. The U.K. government on Sept. 15 approved the so-called Hinkley Point plan, allowing Electricite de France SA and China General Nuclear Power Corp. to build two nuclear reactors in southwest England.
While Britain can’t make any trade agreements with other governments until its exit from the EU is made official, preliminary talks are being held. The U.K. can’t agree to a free-trade agreement “until we’ve left the European Union, so at the moment we can only do the preparatory work," Hawley said.
She said her team had held discussions with Gregory So, Hong Kong’s secretary for commerce and economic development, and visiting U.K. officials had spoken to ministers in the Hong Kong government. A spokeswoman for So’s office did not immediately comment.
"We took Jeffrey Mountevans, the Lord Mayor of the City of London, to see various ministers and said we would really welcome opening discussions about free-trade agreements, and they were very warm and keen to be among the first group that we take that forward with,” Hawley said. “Likewise, my colleagues have been in to discussions in mainland China."
She said negotiations on a China-EU trade deal had been very difficult and had not led to a deal. "We feel we would be able to agree on one because it’s easier as an individual country rather than as the big bloc to keep everybody happy."
At the same event, Nobel economics laureate Christopher Pissarides said the Brexit vote is likely to have an impact on Chinese investment in the U.K.
"Buying into the residential sector and property in general in the U.K., if anything, will be encouraged by the lower value of the pound," he said. "But buying long-term into industry the way the Japanese did 20 or 30 years ago, I think, will be put on hold until we know what kind of arrangements there will be after the event."
SOURCE: Bloomberg
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Oil prices rose nearly 3 per cent on Thursday, extending their rally on optimism over Opec’s first output cut plan in eight years, despite some analysts’ doubts that the reduction would be enough to rebalance a heavily over-supplied market. The Organization of the Petroleum Exporting Countries agreed on Wednesday to cut output to 32.5-33.0 million barrels per day (bpd) from around 33.5 million bpd, estimated by Reuters to be the output level in August.
“Opec made an exceptional decision today ... After two and a half years, Opec reached consensus to manage the market,” said Iranian Oil Minister Bijan Zanganeh, who had repeatedly clashed with Saudi Arabia during previous meetings. He and other ministers said the Organization of the Petroleum Exporting Countries would reduce output to a range of 32.5-33.0 million barrels per day. Opec estimates its current output at 33.24 million bpd. “We have decided to decrease the production around 700,000 bpd,” Zanganeh said. The move would effectively re-establish Opec production ceilings abandoned a year ago.
Prices rose 6 per cent on Wednesday, feeding general risk appetite and boosting energy shares. The European oil and gas index was up 4 per cent on Thursday and the pan-European STOXX 600 index rose 2 per cent. But oil prices retreated as scepticism over the effectiveness of the deal led to profit taking. Benchmark Brent crude futures were down 33 cents a barrel at $48.42 by 1038 GMT, after earlier climbing to a high of $49.09, its strongest since September 9. Brent settled up $2.72 a barrel, or 5.9 percent, on Wednesday.
US light crude oil was down 17 cents at $46.88 a barrel, after first hitting $47.47, its highest since September 8. Many analysts said there was a lack of clarity over too many details and there was a risk the deal could unravel. “With such uncertainty around the minutiae, we expect uncommon volatility in the oil market until Opec’s November meeting,” analysts at ING said.
How much each country will produce is to be decided at the next formal Opec meeting in November, when an invitation to join cuts could also be extended to non-Opec countries such as Russia. It is not clear when the agreement would come into effect, how compliance with the agreement will be verified, what new quotas for countries would be and how long the deal would remain in effect, analysts said. And a cut in OPEC production might do little to reduce oversupply, given uncertainty about output from Iran, Libya and Nigeria. “The problem of surpluses will not be solved if these countries take full advantage of their capacities,” Commerzbank chief commodities analyst Eugen Weinberg said. Moreover, if oil prices were to rise, it could also lead to a surge in non-OPEC output.
U.S. bank Goldman Sachs expects the OPEC deal to add $7-$10 to oil prices in the first half of 2017. “We think that OPEC is running a dangerous game if the aim is to push the crude oil price higher from here in the short term as it would just activate more U.S. shale oil production,” said Bjarne Schieldrop, chief commodity analyst at Nordic bank SEB.
SOURCE: The Business Standard
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