Emerging Markets Daily - March 2
Oil Soars as Buyers Shun Russia Crude, Russia's EM Allies Explore Work-Arounds, Iran Eyes Sanctions Lifting, Sea Ltd. Woes, Aramco Market Cap Hits $2.3 Trillion
The Top 5 Stories Shaping Emerging Markets from Global Media - March 2
Oil Soars to $110 as European Energy Groups Shun Russian Crude
Financial Times
“Big energy consumers are boycotting Russian crude following Moscow’s invasion of Ukraine in moves that helped to push oil prices above $110 a barrel on Wednesday. Demand for Russian oil has collapsed as refineries, banks and shipowners shunned the country’s vast commodities market.”
“Energy Aspects, a consultancy, said 70 per cent of Russian crude was ‘struggling to find buyers’. Energy markets have largely been spared from sanctions deployed by the US, EU and UK on Russia’s financial sector, but typical buyers are effectively self-sanctioning, setting off a race to secure alternative supplies in an already tight market.”
“Brent crude, the international oil marker, rose 6 per cent to an eight-year high above $111 a barrel on Wednesday, extending gains this week to almost 10 per cent. In a sign that pressure in commodities is not limited to oil, European natural gas prices surged 50 per cent on Wednesday to an all-time high of €185 a megawatt hour.”
“Germany’s economy minister Robert Habeck said on Wednesday the worst-case scenario had ‘not yet materialised’ and Russia was still sending gas. But he added the country had to be prepared and might have to keep coal-fired power stations running as back up.Russia supplies around 40 per cent of Europe’s gas. Russia is the world’s third biggest oil producer behind the US and Saudi Arabia and it typically exports around 7.5mn barrels a day of oil and other energy products.” Neil Hume reports.
Amid Sanctions, Russia’s EM Allies Explore Work-Arounds
Reuters
Efforts on de-dollarisation are not limited to trade…Yuan accounted for 13.1% of the Russian central bank's foreign currency reserves in June 2021, compared with just 0.1% in June 2017. Dollar holdings dropped to 16.4%, from 46.3%.
“As western governments ratchet up sanctions against Russia over its invasion of Ukraine, Moscow's emerging markets allies are exploring channels for trade and financing to continue.”
“The other members of the erstwhile BRICs group - Brazil, India and China - are treading cautiously for fear of tripping on the sanctions, but the beginnings of a parallel financial system centred on Beijing are becoming detectable.”
“The United States and Europe have banished big Russian banks from the main global payments system SWIFT and announced other measures to limit Moscow's use of a $640 billion war chest.”
“So the willingness of the emerging market giants to sustain business relations with Russia highlights a deep rift over Europe's biggest crisis since World War II, and threatens to chip away the dominance of the U.S. dollar in global trade.”
“The western curbs, which aim to cut Russia out of the global financial system, could also deepen commercial links between Moscow and Beijing. In India, as concerns mount over sustaining supplies of Russian fertilizer, government and banking sources say there is a plan to get Russian banks and companies to open rupee accounts with a few state-run banks for trade settlement as part of a barter system. Brazil's President Jair Bolsonaro said his country will remain neutral in the conflict.”
“A source at a Chinese state bank who declined to be identified says ‘exporters are now in favour of using yuan to settle their payments’ with Russia. Some of those trades were settled in euros or dollars until last week.”
“Yuan settlements already accounted for 28% of Chinese exports to Russia in the first half of 2021, compared with just 2% in 2013, as both China and Russia step up efforts to reduce reliance on the dollar, while developing their own respective, cross-border payment systems.”
“Efforts on de-dollarisation are not limited to trade…Yuan accounted for 13.1% of the Russian central bank's foreign currency reserves in June 2021, compared with just 0.1% in June 2017. Dollar holdings dropped to 16.4%, from 46.3%.” Reuters reports.
Iran Offers Fewer Crude Cargoes to Chinese Traders On Hopes of Sanctions Lifting
Platt’s/Hellenic Shipping News
“Iran’s state-owned National Iranian Oil Company was offering fewer cargoes to Chinese trading houses as it looks to keep barrels to sell directly to the market ahead of the potential lifting of sanctions, Chinese trading sources who deal with Iranian cargoes said on Feb. 28.”
“‘Iran is paving its way back to the market officially, which buyers are eagerly [looking forward to] to compensate for the possible reduction from Russia,’ a Beijing-based analyst said, adding that the market generally expected NIOC to stop offering discounts on its crude once the sanctions are lifted.”
“‘Our reference case has long assumed an interim deal by April, but significant diplomatic progress in the current round of talks now makes a full return to the 2015 JCPOA the most likely outcome in our view,’ S&P Global Commodity Insights said in a note Feb. 23.”
“‘An agreement by end-February could realistically lead to full implementation and the lifting of all oil export restrictions on Iran by May. We estimate this would facilitate 750,000 b/d of production growth within three months of sanctions relief, plus around 300,000 b/d of shipments from floating storage, lifting August crude and condensate exports to 1.75 million b/d,’ it added.”
“Currently, China imports Iranian barrels as crude grades from other origins, such as Malaysia Blend, Oman and Upper Zakum. Independent refineries in eastern China’s Shandong province took almost all of these cargoes, which amounted to 22.8 million mt, or 458,000 b/d in 2021, and 2.275 million mt in January, S&P Global data showed.”
“A trader based in Qingdao city, Shandong province, said his company only got 100,000 mt of Iranian crude delivery in February, compared to about 300,000 mt in the previous months.” Platt’s/Hellenic Shipping News report.
Singapore-Based Sea Ltd. Tumbles Again, Decline Hits $132 Billion From Peak
Bloomberg
“Sea Ltd., once the hottest stock in the world, has lost more than $130 billion in market value from its peak last year after a disappointing earnings report that added to its woes.”
“The Singapore-based company gave a muted forecast for its digital entertainment unit and its shares fell 13% in U.S. trading. That cut $11 billion from its market valuation, pushing its total decline to $132 billion from its high in October.”
“Investors balked as the mobile gaming company forecast $2.9 billion to $3.1 billion in bookings at its digital gaming arm, set to be its first decline ever. That compares with last year’s bookings of $4.6 billion.”
“The company had factored in a slowdown in online activity and unexpected government actions in India in its forecast, Yanjun Wang, Sea’s group chief corporate officer, said on a conference call on Tuesday night.
“Sea, which counts Tencent Holdings Ltd. as its biggest investor, faces increased regulatory scrutiny in India. Sea lost more than $16 billion of its value in its biggest daily drop after New Delhi abruptly banned its most popular mobile gaming title, underscoring the geopolitical challenges it faces in expanding its offering beyond Southeast Asia.” Bloomberg reports.
Saudi Aramco Market Cap Hits $2.3 Trillion, Just Behind Apple Inc.
Arab News
“Shares in oil giant Aramco touched the highest level in its history of SR43.1 ($11.5) on Wednesday, propelled by a rally in the energy market. This brought the oil giant’s market value to as much as $2.3 trillion, positioning it as the second-largest valued company worldwide after Apple Inc.”
“The shares have been trading at record levels for few times recently, breaking a new record every few days. Oil prices rose significantly ahead of the OPEC+ meeting –where the Organization of the Petroleum Exporting Countries members and its allies will convene to discuss oil output.” Arab News reports.
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