Tag Archives: energy commodities

Business

Shell posts profit of nearly $40 billion and announces $4 billion in buybacks

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Hong Kong/London
CNN
 — 

Shell made a record profit of almost $40 billion in 2022, more than double what it raked in the previous year after oil and gas prices soared following Russia’s invasion of Ukraine.

Europe’s largest oil company by revenue reported adjusted full-year earnings of $39.9 billion on Thursday — more than double the $19.3 billion it posted in 2021 — driven by a strong performance in its gas trading business. The company’s stock was up 1.7% in London.

The company reported $9.8 billion in profit in the fourth quarter. Just over 40% of Shell’s full-year earnings came from its integrated gas business, which includes liquified natural gas trading operations.

Shell CEO Wael Sawan said the results “demonstrate the strength of Shell’s differentiated portfolio, as well as our capacity to deliver vital energy to our customers in a volatile world.”

The earnings are the latest in a series of record-setting results by the world’s biggest energy companies, which have enjoyed bumper profits off the back of soaring oil and gas prices.

ExxonMobil this week posted record full-year earnings of $59.1 billion. Last month, Chevron

(CVX) reported a record full-year profit of $36.5 billion.

That has led to renewed calls for higher taxation. Governments in the European Union and the United Kingdom have already imposed windfall taxes on oil company profits, with the proceeds used to help households struggling with rising energy bills.

Shell said it expected to pay an additional $2.3 billion in tax related to the EU windfall tax and the UK energy profits levy. The company paid $13 billion in tax globally in 2022.

Shell

(RDSA) also announced another $4 billion share buyback program and confirmed it would lift its dividend per share by 15% for the fourth quarter.

— This is a developing story and will be updated.

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Business

Keystone Pipeline shuts down after oil leak, halting flow of 600,000 barrels a day

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New York
CNN Business
 — 

The Keystone Pipeline has been shut down following a leak discovered near the border of Kansas and Nebraska.

The shutdown of the major oil pipeline that carries crude from Canada triggered volatility in the energy market on Thursday, with oil prices briefly surging as much as 5% before retreating.

Federal safety regulators are investigating the leak and have deployed to the site, a spokesperson for the Pipeline and Hazardous Materials Safety Administration told CNN.

Canada’s TC Energy

(TRP) said it launched an emergency shutdown of the Keystone Pipeline System at 9 p.m. ET on Wednesday after alarms were triggered and pressure dropped in the system. The company said the system remains shut as “our crews actively respond and work to contain and recover the oil.”

Calgary-based TC Energy said there has been a “confirmed release of oil” into a creek located about 20 miles south of Steele City, Nebraska. An estimated 14,000 barrels of oil have been discharged as of late Thursday, the company said.

The PHMSA, an arm of the Transportation Department charged with enforcing safety regulations for pipelines, said the leak is located near Washington, Kansas, which is near the border with Nebraska.

The spokesperson said the agency continues to investigate the cause of the leak.

US oil prices climbed as high as $75.44 a barrel on the news, before easing. In recent trading, oil was up 0.8% to $72.57 a barrel. The gains follow a steep selloff in recent days that left crude at levels unseen since December 2021.

No timetable has been given for restarting the Keystone Pipeline, a 2,700-mile system that delivers mostly Canadian oil to major refineries across America. The pipeline can transport more than 600,000 barrels of oil per day.

Matt Smith, an analyst at commodity data provider Kpler, said Canadian oil normally transported by Keystone can’t be easily replaced.

“We’re seeing a pop in prices because this will impact refiners that take this crude,” Smith said.

“Our primary focus right now is the health and safety of onsite staff and personnel, the surrounding community, and mitigating risk to the environment through the deployment of booms downstream as we work to contain and prevent further migration of the release,” TC Energy said in a statement.

The leak happened on an existing Keystone pipeline that is separate from Keystone XL, a controversial pipeline project that was terminated last year after President Joe Biden revoked the pipeline’s permit on his first day in office.

The Keystone Pipeline has experienced leaks in the past, including one in South Dakota in 2016 and another one in 2019 in North Dakota that impacted nearly five acres.

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World

When China and Saudi Arabia meet, nothing matters more than oil

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Hong Kong
CNN
 — 

Chinese leader Xi Jinping is visiting Saudi Arabia this week for the first time in nearly seven years, during which he signed a comprehensive strategic partnership with the world’s largest oil exporter and met leaders from across the Middle East.

The visit is a sign that China and the Gulf region are deepening their economic relations at a time when US-Saudi ties have crumbled over OPEC’s decision to slash crude oil supply. As Xi wrote in an article published in Saudi media, the trip was intended to strengthen China’s relations with the Arab world.

The partnership agreement signed by the two sides includes a number of deals and memoranda of understanding, such as on hydrogen energy and enhancing coordination between the kingdom’s Vision 2030 and China’s Belt and Road Initiative, according to the official Saudi Press Agency (SPA). It did not provide specific details.

China is Saudi Arabia’s biggest trading partner and a source of growing investment. It’s also the world’s biggest buyer of oil. Saudi Arabia is China’s largest trading partner in the Middle East and the top global supplier of crude oil.

“Energy cooperation will be at the center of all discussions between the Saudi-Chinese leadership,” said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team. “There is great recognition of the need to build a framework to ensure that this interdependence is accommodated politically, especially given the scope of energy transition in the West.”

Governments around the world have committed to drastically cutting carbon emissions over the coming decades. Countries such as Canada and Germany have doubled down on renewable energy investments to expedite their transition to net-zero economies.

The United States has significantly increased domestic oil and gas output since the 2000s, while accelerating its transition to clean energy.

The Russian invasion of Ukraine in February has triggered a global energy crisis that has left all countries racing to shore up supplies. And the West has further scrambled the oil markets by slapping an embargo and price cap on the world’s second biggest exporter of crude.

Energy security has also increasingly become a key priority for China, which is facing significant challenges of its own.

Last year, bilateral trade between Saudi Arabia and China hit $87.3 billion, up 30% from 2020, according to Chinese customs figures.

Much of the trade was focused on oil. China’s crude imports from Saudi Arabia stood at $43.9 billion in 2021, accounting for 77% of its total goods imports from the kingdom. That amount also makes up more than a quarter of Saudi Arabia’s total crude exports.

“Stability of energy supplies, in terms of both prices and quantities, is a key priority for Xi Jinping as the Chinese economy remains heavily reliant on oil and natural gas imports,” said Eswar Prasad, a professor of trade policy at Cornell University.

The world’s second largest economy is heavily reliant on foreign oil and gas. 72% of its oil consumption was imported last year, according to official figures. 44% of natural gas demand was also from overseas.

At the 20th Party Congress in October, Xi stressed that ensuring energy security was a key priority. The comments came after a spate of severe power shortages and soaring global energy prices following Russia’s invasion of Ukraine.

As the West shunned Russian crude in the months that followed the invasion, China took advantage of Moscow’s desperate search for new buyers. Between May and July, Russia was China’s No. 1 oil supplier, until Saudi Arabia regained the top spot in August.

“Diversity is a key ingredient for China’s long-term energy security because it cannot afford to put all of its eggs in one basket and turn itself into a captive of another power’s energy and geostrategic interests,” said Ahmed Aboudouh, a nonresident fellow with the Middle East Programs at the Atlantic Council, a research institute based in DC.

“Although Russia is a source of cheaper supply chains, nobody can guarantee, with utmost certainty, that the China and Russia relationship will continue to shore up 50 years from now,” Aboudouh said.

The Saudi Press Agency cited Saudi energy minister Prince Abdulaziz bin Salman as saying Wednesday that the kingdom would remain China’s “credible and reliable partner in this field.”

Saudi Arabia also has strong motivations to deepen energy ties with China, according to Gal Luft, co-director of the Institute for the Analysis of Global Security.

“The Saudis are concerned about losing market share in China in the face of a tsunami of heavily discounted Russian and Iranian crude,” he said. “Their goal is to ensure China remains a loyal customer even when the competitors offer [a] cheaper product.”

Oil prices have fallen back to where they were before the Ukraine war on fears of a sharp global economic slowdown. The extent to which the Chinese economy can pick up pace next year will have a huge bearing on how bad that slump will be.

Beyond security of supply, Saudi Arabia could offer Beijing another prize with bigger geopolitical ramifications.

Riyadh has been in talks with Beijing to price some of its oil sales to China in the Chinese currency, the yuan, rather than the US dollar, according to a Wall Street Journal report. Such a deal could be a boost to Beijing’s ambitions to expand the Chinese currency’s global influence.

It would also hurt the long-standing agreement between Saudi Arabia and the United States that requires Saudi Arabia to sell its oil only for US dollars and to hold its reserves partly in US Treasuries, all in return for US security guarantees. The “petrodollar system” has helped preserve the dollar’s status as the top global reserve currency and payment medium for oil and other commodities.

Although Beijing and Riyadh never confirmed the reported talks, analysts said it was logical that the two sides would be exploring the possibility.

“In the near future, Saudi Arabia could sell some of its oil and receive revenues in Chinese yuan, which makes economic sense as China is the kingdom’s top trading partner,” said Naser Al Tamimi, senior associate research fellow at ISPI, an Italian think tank on international affairs.

Some believe it’s already happening, but that neither China nor the Saudis want to highlight it publicly.

“They know too well how sensitive this issue [is] for the United States,” said Luft. “Both parties are overexposed to the US currency and there is no reason for them to continue to conduct their bilateral trade in a third party’s currency, especially when this third party is no longer a friend of either.”

Xi’s visit could mark another step “in the erosion of the dollar’s status” as reserve currency, he added.

Nonetheless, there are limits to the growing ties between Riyadh and Beijing.

“The Biden administration’s approach to the Middle East has concerned the Saudis, and they see a growing relationship with China as a hedge against potential US abandonment and a tool for leverage in negotiations with the United States,” said Jon B. Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.

The Biden administration has reoriented its policy priorities with a focus on countering China. At the same time, it has indicated its intention to downsize its own presence in the Middle East, sparking worries among allies there that the United States may not be as committed to the region as it used to be.

“All that being said, Chinese-Saudi ties pale in both depth and complexity to Saudi-US ties,” Alterman said. “The Chinese remain a novelty to most Saudis, and they are additive. The United States is foundational to how Saudis see the world, and how they have seen it for 75 years.”

Despite the possibility of shifting to yuan transactions, it’s too early to say Saudi Arabia would ditch the dollar in pricing its oil sales, analysts said.

Eurasia Group’s Kamal believes it’s “highly unlikely” that Saudi Arabia would take such a step, unless there is an implosion on the US-Saudi relationship.

“In essence there could be discussion on pricing of barrels to China in yuan, but this would be limited in size and probably only correspond to bilateral trade volumes,” he said.

Prasad from Cornell University said countries like China, Russia, and Saudi Arabia are all eager to reduce their dependence on the dollar for oil contracts and other cross-border transactions.

“However, in the absence of serious alternatives and with few international investors willing to place their trust in these countries’ financial markets and their governments, the dollar’s dominant role in global finance is hardly under serious threat,” he said.

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World

Oil tankers are getting stuck in the Black Sea. That could become a problem

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CNN
 — 

A bottleneck is building across an important trading route for oil, which if left unresolved could knock global supply and boost prices at a fragile moment for energy markets.

As of Thursday, 16 oil tankers traveling south from the Black Sea were waiting to cross the Bosphorus strait into the Sea of Marmara, an increase of five from Tuesday, according to a report from Istanbul-based Tribeca Shipping Agency. A further nine tankers were waiting to cross southbound from the Sea of Marmara through the Dardanelles strait into the Mediterranean.

The snarl-up in waterways controlled by Turkey, which Turkish officials said is mostly affecting crude oil shipments destined for Europe, has caught the attention of UK and US government officials who are now in talks with Ankara to resolve the growing impasse.

The snag is linked to a Western price cap on Russian oil that came into effect on Monday. The cap is supposed to limit the Kremlin’s revenues without adding to stress on the global economy by reducing supply. But Turkey is insisting that vessels prove they have insurance that will pay out in light of the new sanctions, before allowing them to pass through the straits linking the Black Sea and Mediterranean.

Although currently causing no disruption to global oil supply and thus prices, the hold-up could become a problem if left unresolved, said Jorge Leon, senior vice president for oil market analysis at Rystad Energy. “This is a very popular route around the world for global trade and specifically for crude,” he told CNN Business.

Countries including Russia, Kazakhstan and Azerbaijan use the Turkish straits to get their oil to world oil markets.

The traffic jam in the Turkish straits arose following the imposition this week of the price cap on Russian oil. The cap bars ship owners carrying Russian oil from accessing insurance and other services from European providers unless the oil is sold for $60 a barrel or less.

In light of the cap, Turkish maritime authorities are concerned about the risk of accidents or oil spills involving uninsured vessels, and are preventing ships from passing through Turkish waters unless they can provide additional guarantees that their transit is covered.

In a notice issued last month by Turkey’s government ahead of the price cap, maritime director general Ünal Baylan said that given “catastrophic consequences” for the country in the event of an accident involving a crude tanker, “it is absolutely required for us to confirm in some way that their [protection and indemnity] insurance cover is still valid and comprehensive.”

The International Group of P&I Clubs, which provides protection and indemnity insurance for 90% of the goods shipped by sea, has said it cannot comply with the Turkish policy.

The Turkish government’s requirements “go well beyond the general information that is contained in a normal confirmation of entry letter” and would require P&I Clubs to confirm coverage even in the event of a breach of sanctions under EU, UK and US law, the UK P&I Club said in a statement.

Turkish officials say this position is “unacceptable” and on Thursday reiterated demands for letters from insurers. “The majority of the crude oil tankers waiting to cross the strait are EU ships and a majority of the petrol is destined for EU ports,” the Turkish maritime authority said in a statement.

“It is difficult to understand why EU-based insurance companies are refusing to provide this letter… for ships that belong to the EU, carrying crude oil to [the] EU when the sanctions in question have been set forth by the EU,” it added.

Western officials, clearly worried about potential disruption to oil supply, say they are in talks with Turkey’s government to resolve the situation.

US Deputy Treasury Secretary Wally Adeyemo told Turkish Deputy Foreign Minister Sedat Onal on a call that the price cap only applies to Russian oil and “does not necessitate additional checks on ships” passing through Turkish waters.

“Both officials highlighted their shared interest in keeping global energy markets well supplied by creating a simple compliance regime that would permit oil to transit the Turkish straits,” the Treasury Department said in a statement.

“The UK, US and EU are working closely with the Turkish government and the shipping and insurance industries to clarify the implementation of the Oil Price Cap and reach a resolution,” according to a statement from the UK Treasury.

“There is no reason for ships to be denied access to the Bosporus Straits for environmental or health and safety concerns,” it added.

Despite the backlog of tankers, the average waiting time to cross the Bosphorus strait is still well below where it was this time last year, according to Leon of Rystad Energy. “Given the reaction from UK and US officials, my hunch is that this is going to be resolved very soon,” he said.

-— Gül Tüysüz in Istanbul contributed to this article.



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World

The West just scrambled the oil market. What happens next is up to Russia

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London
CNN Business
 — 

Most Russian crude oil exports to Europe are now banned, marking the boldest effort yet by the West to pile financial pressure on President Vladimir Putin as his brutal war in Ukraine enters its tenth month.

The oil embargo, which was agreed upon in late May, took effect in the European Union on Monday. It was accompanied by a new price cap on Russian crude set by G7 countries. That’s designed to limit the Kremlin’s revenues while allowing countries such as China and India to continue to buy Russian oil, provided they don’t pay more than $60 a barrel.

What happens next will likely hinge on the response from Moscow, which has vowed not to cooperate with the price cap and could slash its production, rattling global energy markets. Global crude prices were up 2.6% on Monday as investors watched nervously for the next move.

Here’s what you need to know about the oil embargo, the price cap and the potential impact.

The European Union now prohibits Russian crude oil imports by sea, setting up the bloc to have phased out 90% of oil imports from Russia. It’s a huge move given that Europe received roughly a third of its oil imports from Russia in 2021. More than half of Russia’s exports went to Europe 12 months ago.

There are a few exceptions. Bulgaria received a temporary carve-out. The embargo also doesn’t target imports via pipeline. That means the Druzhba pipeline can continue to supply Hungary, Slovakia and the Czech Republic. (Germany and Poland are working to end pipeline imports from Russia as soon as possible.)

But the embargo is significant. In 2021, the EU imported €48 billion ($50.7 billion) worth of crude oil and €23 billion ($24.3 billion) of refined oil products from Russia. Two-thirds of those imports arrived by sea.

A ban on Russian refined oil products, such as diesel fuel, imported by sea will launch in early February.

The European Union, plus the other members of the G7 — the United States, Canada, Japan and the United Kingdom — and Australia also agreed on Friday to cap the price of Russian crude oil at $60 a barrel, a policy aimed at Moscow’s other customers. This measure took effect Monday, too.

The price cap, which can be adjusted over time, is designed to be enforced by companies that provide shipping, insurance and other services for Russian oil. If a buyer pays more than the cap, they would withhold their services, in theory preventing the oil from being shipped. Most of these firms are based in Europe or the United Kingdom.

Despite unprecedented sanctions from the West, Russia’s economy and the government’s coffers have been padded by its lucrative position as the world’s second largest exporter of crude oil behind Saudi Arabia.

In October, Russia exported 7.7 million barrels of oil per day, just 400,000 barrels below pre-war levels, according to the International Energy Agency. Revenues from crude oil and refined products currently stand at $560 million per day.

By quickly phasing out imports, Europe hopes to limit inflows to Putin’s war chest, making it harder for him to continue his war in Ukraine.

But countries like China and India have stepped in buy surplus barrels. That’s where the price cap comes in.

G7 countries don’t want Russian oil taken off the market entirely, since that would push up global prices at a time when high inflation is hurting their economies. By enacting a price cap, they hope that can keep barrels flowing, but make the business less profitable for Moscow.

That’s far from certain. Countries like Poland and Estonia wanted a lower price cap, emphasizing that $60 is too close to the current market price for Russian oil. At the end of September, Russian Urals crude was trading just under $64 a barrel.

“Today’s oil price cap agreement is a step in right direction, but this is not enough,” Estonian foreign minister Urmas Reinsalu tweeted Friday. “Why are we still willing to finance Russia’s war machine?”

Enforcement could also prove difficult. Russia and its customers could start using more ships and insurance providers outside Europe and the United Kingdom to circumvent the rules, increasingly relying on what’s termed a “shadow fleet.”

“Capacity in that fleet has been growing, and it could probably handle Russian volumes for a while,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.

Kremlin spokesperson Dmitry Peskov said Monday that Moscow will “not recognize any price caps.” Russian Deputy Prime Minister Alexander Novak said Sunday that Russia would not export oil to countries adhering to the cap, even if that will mean cutting production.

Oil prices have fallen sharply since the spring as fears about a global recession that may hit demand have come to the fore. Now, all eyes are on Russia’s response. Peskov said the price cap was a step towards “destabilizing the world energy markets.”

Moscow needs to find replacement customers for 1.1 million barrels per day of crude that had still been flowing to Europe, according to the IEA. That may not be easy, especially as coronavirus restrictions and a growth slowdown in China affect demand from the world’s second biggest economy.

The price cap adds to the uncertainty. Would-be customers may decide buying Russian cargoes has become too risky and complex, taking another batch of buyers off the market.

As the Kremlin has threatened, Russia may reduce its oil output as a result. The IEA has estimated Russia will slash output by an additional 1.4 million barrels per day by early 2023.

Other factors will dictate prices, too. Rare protests in China have raised questions about the country’s commitment to its “zero-Covid” policy, and demand could increase if its economy picks up pace.

The Organization of the Petroleum Exporting Countries, or OPEC, could also alter its output. The cartel on Sunday decided to stick with previously announced production cuts, giving it more time to assess the effects of the embargo and the price cap.

Europe’s embargo on refined oil products in February could also be a flash point for energy prices, since the region remains dependent on Russian diesel. Finding alternative sources in just two months may be tricky.

— Anna Chernova contributed reporting.



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World

Europe agrees to cap the price of Russian oil at $60 a barrel

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London
CNN Business
 — 

The European Union has reached a consensus on the price at which to cap Russian oil just days before its ban on most imports comes into force.

News of the deal, which had needed approval from holdout Poland, was confirmed on Twitter by the president of the European Commission, Ursula von der Leyen, marking a key milestone in the West’s efforts to punish President Vladimir Putin without adding to stress on the global economy.

“Today, the European Union, the G7 and other global partners have agreed to introduce a global price cap on seaborne oil from Russia,” von der Leyen said, adding that it would strengthen sanctions on Russia, diminish Moscow’s revenues and stabilize energy markets by allowing EU-based operators to ship the oil to third-party countries provided it is priced below the cap.

The bloc’s 27 member states agreed Friday to set the cap at $60 a barrel, an EU official with knowledge of the situation told CNN on Friday.

The West’s biggest economies agreed earlier this year to establish a price cap after lobbying by the United States, and vowed to hash out the details by early December. But setting a number had proved difficult.

Capping the price of Russian oil between $65 and $70 a barrel, a range previously under discussion, wouldn’t have caused much pain for the Kremlin. Urals crude, Russia’s benchmark, has already been trading within or close to that range. EU countries such as Poland and Estonia had pushed for the cap to be lower.

“Today’s oil price cap agreement is a step in right direction, but this is not enough,” Estonian foreign minister Urmas Reinsalu tweeted Friday. “Intent is right, delivery is weak.”

A price of $60 represents a discount of almost $27 to Brent crude, the global benchmark. Urals has been trading at discounts of around $23 in recent days. Reuters reported that the EU agreement included a mechanism to adjust the level of the cap to ensure it was always 5% below the market rate.

The risk of settling on a lower price is that Russia could retaliate by slashing its output, which would roil markets. Russia previously warned that it will stop supplying countries that adhere to the cap.

With EU countries in alignment, the last remaining obstacle to a wider G7 agreement was lifted. A top US Treasury department official said Thursday that $60 would be acceptable.

“We still believe that the price cap will help limit Mr. Putin’s ability to profiteer off the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” National Security Council coordinator for strategic communications John Kirby told reporters.

“We think that the $60 per barrel is appropriate and we think it will have that effect,” Kirby added.

The price cap is designed to be enforced by companies that provide shipping, insurance and other services for Russian oil. If a buyer has agreed to pay more than the cap, they would withhold those services. Most of these firms are based in Europe or the United Kingdom.

Investors are already on edge, with the European Union’s embargo on Russian oil traveling by sea set to take effect on Monday. Confusion about the impact of that measure, along with lingering questions about the price cap, have unsettled traders.

“There’s so much uncertainty and doubt and lack of clarity about the policy that no one’s really confident about how to act,” said Richard Bronze, head of geopolitics at the research firm Energy Aspects.

Oil prices have dropped sharply since the summer, as China’s coronavirus lockdowns and global recession fears have dented demand. OPEC and Russia announced a big production cut in October, but that had little sustained impact on prices. The EU embargo and efforts to set a price cap could begin to push them higher again.

— Chris Liakos and Betsy Klein contributed to this article.



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Business

China markets tank as protests erupt over Covid lockdowns

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Hong Kong
CNN Business
 — 

China’s major stock indices and its currency have opened sharply lower Monday, as widespread protests against the country’s stringent Covid-19 restrictions over the weekend roiled investor sentiment.

Hong Kong’s Hang Seng

(HSI) Index fell as much as 4.2% in early trading. It has since pared some losses and last traded 2% lower. The Hang Seng

(HSI) China Enterprises Index, a key index that tracks the performance of mainland Chinese companies listed in Hong Kong, lost 2%.

In mainland China, the benchmark Shanghai Composite briefly fell 2.2%, before trimming losses to 0.9% lower than Friday’s close. The tech-heavy Shenzhen Component Index dropped 1.1%.

The Chinese yuan, also known as the renminbi, plunged against the US dollar on Monday morning. The onshore yuan, which trades in the tightly controlled domestic market, briefly weakened 0.9%. It was last down 0.6% at 7.206 per dollar. The offshore rate, which trades overseas, dropped 0.3% to 7.212 per dollar.

The plunging yuan suggests that “investors are running ice cold on China,” said Stephen Innes, managing partner of SPI Asset Management, adding that the currency market might be “the simplest barometer” to gauge what domestic and overseas investors think.

The markets tumble comes after protests erupted across China in an unprecedented show of defiance against the country’s stringent and increasingly costly zero-Covid policy.

In the country’s biggest cities, from the financial hub of Shanghai to the capital Beijing, residents gathered over the weekend to mourn the dead from a fire in Xinjiang, speak out against zero-Covid and call for freedom and democracy.

Such widespread scenes of anger and defiance, some of which stretched into the early hours of Monday morning, are exceptionally rare in China.

Asian markets were also broadly lower. South Korea’s Kospi lost 1%, Japan’s Nikkei 225

(N225) shed 0.6%, and Australia’s S&P/ASX 200 fell by 0.3%.

US stock futures — an indication of how markets are likely to open — fell, with Dow futures down 0.5%, or 171 points. Futures for the S&P 500 were down 0.7%, while futures for the Nasdaq dropped 0.8%.

Oil prices also dropped sharply, with investors concerned that surging Covid cases and protests in China may sap demand from one of the world’s largest oil consumers. US crude futures fell 2.7% to trade at $74.19 a barrel. Brent crude, the global oil benchmark, lost 2.6% to $81.5 per barrel.

On Friday, a day before the protests started, China’s central bank cut the amount of cash that lenders must hold in reserve for the second time this year. The reserve requirement ratio for most banks (RRR) was reduced by 25 percentage points.

The move was aimed at propping up an economy that had been crippled by strict Covid restrictions and an ailing property market. But analysts don’t think the move will have a significant impact.

“Cutting the RRR now is just like pushing on a string, as we believe the real hurdle for the economy is the pandemic rather than insufficient loanable funds,” said analysts from Nomura in a research report released Monday.

“In our view, ending the pandemic [measures] as soon as possible is the key to the recovery in credit demand and economic growth,” they said.

Innes from SPI Asset Management said China’s economy is currently caught in the midst of a tug-of-war between weakening economic fundamentals and increasing reopening hopes.

“For China’s official institutions, there are no easy paths. Accelerating reopening plans when new Covid cases are rising is unlikely, given the low vaccination coverage of the elderly,” he said. “Mass protests would deeply tilt the scales in favor of an even weaker economy and likely be accompanied by a massive surge in Covid cases, leaving policymakers with a considerable dilemma.”

In the near term, he said, Chinese equities and currency will likely price in “more significant uncertainty” around Beijing’s reaction to the ongoing protests. He expects social discontent could increase in China over the coming months, testing policymakers’ resolve to stick to its draconian zero-Covid mandates.

But in the longer term, the more pragmatic and likely outcome should be “a quicker loosening of [Covid] restrictions once the current wave subsides,” he said.

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US

Fact check: Biden’s midterms message includes false and misleading claims

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Washington
CNN
 — 

President Joe Biden has been back on the campaign trail, traveling in October and early November to deliver his pitch for electing Democrats in the midterm elections on Tuesday.

Biden’s pitch has included claims that are false, misleading or lacking important context. (As always, we take no position on the accuracy of his subjective arguments.) Here is a fact-check look at nine of his recent statements.

The White House did not respond to a request for comment for this article.

Biden said at a Democratic fundraiser in Pennsylvania last week: “On our watch, for the first time in 10 years, seniors are going to get the biggest increase in their Social Security checks they’ve gotten.” He has also touted the 2023 increase in Social Security payments at other recent events.

But Biden’s boasts leave out such critical context that they are highly misleading. He hasn’t explained that the increase in Social Security payments for 2023, 8.7%, is unusually big simply because the inflation rate has been unusually big. A law passed in the 1970s says that Social Security payments must be increased by the same percentage that a certain measure of inflation has increased. It’s called a cost-of-living adjustment.

The White House deleted a Tuesday tweet that delivered an especially triumphant version of Biden’s boast, and press secretary Karine Jean-Pierre acknowledged Wednesday that the tweet was lacking “context.” You can read a more detailed fact check here.

Biden said at a Democratic rally in Florida on Tuesday: “And on my watch, for the first time in 10 years, seniors are getting an increase in their Social Security checks.”

The claim that the 2023 increase to Social Security payments is the first in 10 years is false. In reality, there has been a cost-of-living increase every year from 2017 onward. There was also an increase every year from 2012 through 2015 before the payment level was kept flat in 2016 because of a lack of inflation.

The context around this Biden remark in Florida suggests he might have botched his repeat campaign line about Social Security payments increasing at the same time as Medicare premiums are declining. Regardless of his intentions, though, he was wrong.

Biden repeatedly suggested in speeches in October and early November that a new law he signed in August, the Inflation Reduction Act, will stop the practice of successful corporations paying no federal corporate income tax. Biden made the claim explicitly in a tweet last week: “Let me give you the facts. In 2020, 55 corporations made $40 billion. And they paid zero in federal taxes. My Inflation Reduction Act puts an end to this.”

But “puts an end to this” is an exaggeration. The Inflation Reduction Act will reduce the number of companies on the list of non-payers, but the law will not eliminate the list entirely.

That’s because the law’s new 15% alternative corporate minimum tax, on the “book income” companies report to investors, only applies to companies with at least $1 billion in average annual income. (There are lots of nuances; you can read more specifics here.) According to the Institute on Taxation and Economic Policy, the think tank that in 2021 published the list of 55 large and profitable companies that avoided paying any federal income tax in their previous fiscal year, only 14 of these 55 companies reported having US pre-tax income of at least $1 billion in that year.

In other words, there will clearly still be some large and profitable corporations paying no federal income tax even after the minimum tax takes effect in 2023. The exact number is not yet known.

Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, said in a Thursday email that the new tax is “an important step forward from the status quo” and that it will raise substantial revenue, but he also said: “I wouldn’t want to assert that the minimum tax will end the phenomenon of zero-tax profitable corporations. A more accurate phrasing would be to say that the minimum tax will *help* ensure that *the most profitable* corporations pay at least some federal income tax.”

Biden said at the Tuesday rally in Florida: “Look, you know, you can hear it from Republicans, ‘My God, that big-spending Democrat Biden. Man, he’s taken us in debt.’ Well, guess what? I reduced the federal deficit this year by $1 trillion $400 billion. One trillion 400 billion dollars. The most in all American history. No one has ever reduced the debt that much. We cut the federal debt in half.”

Biden offered a similar narrative at a Thursday rally in New Mexico, this time saying, “We cut the federal debt in half. A fact.”

There are two significant problems here.

First: Biden conflated the debt and the deficit, which are two different things. It’s not true that Biden has “cut the federal debt in half”; the federal debt (total borrowing plus interest owed) has continued to rise under Biden, exceeding $31 trillion for the first time this October. Rather, it’s the federal deficit – the annual difference between spending and revenue – that was cut in half between fiscal 2021 and fiscal 2022.

Second, it’s highly questionable how much credit Biden deserves for even the reduction in the deficit. Biden doesn’t mention that the primary reason the deficit plummeted in fiscal years 2021 and 2022 was that it had skyrocketed to a record high in 2020 because of emergency pandemic relief spending. It then fell as expected as the spending expired as planned.

Dan White, senior director of economic research at Moody’s Analytics – an economics firm whose assessments Biden has repeatedly cited during his presidency – told CNN’s Matt Egan in October: “On net, the policies of the administration have increased the deficit, not reduced it.” The Committee for a Responsible Federal Budget, an advocacy group, says the administration’s own actions have significantly worsened the deficit picture. (David Kelly, chief global strategist at JPMorgan Funds, told Egan that the Biden administration does deserve credit for the economic recovery that has boosted tax revenues.)

Biden said at the Florida rally on Tuesday: “Unemployment is down from 6.5 to 3.5%, the lowest in 50 years.” He said at the New Mexico rally on Thursday: “Unemployment rate is 3.5% – the lowest it’s been in 50 years.”

But Biden didn’t acknowledge that September’s 3.5% unemployment rate was actually a tie for the lowest in 50 years – a tie, specifically, with three months of Trump’s administration, in late 2019 and early 2020. Since Biden uses these campaign speeches to favorably compare his own record to Trump’s record, that omission is significant.

The unemployment rate rose to 3.7% in October; that number was revealed on Friday, after these Biden comments. The rate was 6.4% in January 2021, the month Biden took office.

During an on-camera discussion conducted by progressive organization NowThis News and published online in late October, Biden told young activists that they “probably are aware, I just signed a law” on student debt forgiveness that is being challenged by Republicans. He added: “It’s passed. I got it passed by a vote or two, and it’s in effect.”

Biden’s claims are false.

He created his student debt forgiveness initiative through executive action, not through legislation, so he didn’t sign a law and didn’t get it passed by any margin. Since Republicans opposed to the initiative, including those challenging the initiative in court, have called it unlawful precisely because it wasn’t passed by Congress, the distinction between a law and an executive action is a highly pertinent fact here.

A White House official told CNN that Biden was referring to the Inflation Reduction Act, the law narrowly passed by the Senate in August; the official said the Inflation Reduction Act created “room for other crucial programs” by bringing down the deficit. But Biden certainly did not make it clear that he was talking about anything other than the student debt initiative.

Biden correctly noted on various occasions in October that gas prices have declined substantially since their June 2022 peak – though, as always, it’s important to note that presidents have a limited impact on gas prices. But in an economic speech in New York last week, Biden said, “Today, the most common price of gas in America is $3.39 – down from over $5 when I took office.”

Biden’s claim that the most common gas price when he took office was more than $5 is not even close to accurate. The most common price for a gallon of regular gas on the day he was inaugurated, January 20, 2021, was $2.39, according to data provided to CNN by Patrick De Haan, head of petroleum analysis at GasBuddy. In other words, Biden made it sound like gas prices had fallen significantly during his presidency when they had actually increased significantly.

In other recent remarks, Biden has discussed the state of gas prices in relation to the summer peak of more than $5 per gallon, not in relation to when he took office. Regardless, the comment last week was the second this fall in which Biden inaccurately described the price of gas – both times in a way that made it sound more impressive.

You can read a longer fact check here.

Biden has revived a claim that was debunked more than 20 months ago by The Washington Post and then CNN. At least twice in October, he boasted that he traveled 17,000 miles with Chinese leader Xi Jinping.

“I’ve spent more time with Xi Jinping of China than any world leader has, when I was Vice President all the way through to now. Over 78 hours with him alone. Eight – nine of those hours on the phone and the others in person, traveling 17,000 miles with him around the world, in China and the United States,” he told a Democratic gathering in Oregon in mid-October.

Biden made the number even bigger during a speech on student debt in New Mexico on Thursday, saying, “I traveled 17-, 18,000 miles with him.”

The claim is false. Biden has not traveled anywhere close to 17,000 miles with Xi, though they have indeed spent lots of time together. Washington Post fact-checker Glenn Kessler noted in 2021 that the two men often did not even travel parallel routes to their gatherings, let alone physically travel together. The only apparent way to get Biden’s mileage past 17,000, Kessler found, is to add the length of his flight journeys between Washington and Beijing, during which, obviously, Xi was not with him.

A White House official told CNN in early 2021 that Biden was adding up his “total travel back and forth” for meetings with Xi. But that is very different than traveling “with” Xi as Biden keeps saying, especially in the context of a boast about how well he knows Xi – and Biden has had more than enough time to make his language more precise.

Biden claimed at the Thursday rally in New Mexico that under Trump, Republicans passed a $2 trillion tax cut that “affected only the top 1% of the American public.”

Biden correctly said in various October remarks that the Trump tax cut law was particularly beneficial to the wealthy, but he went too far here. It’s not true that the Trump policy “only” affected the top 1%.

The Tax Policy Center think tank found in early 2018 that Trump’s law “will reduce individual income taxes on average for all income groups and in all states.” The think tank estimated that “between 60 and 76 percent of taxpayers in every state will receive a tax cut.” And in April 2019, tax-preparation company H&R Block said two-thirds of its returning customers had indeed paid less in tax that year than they did the year prior, The New York Times reported in an article headlined “Face It: You (Probably) Got a Tax Cut.”

The Tax Policy Center did find in early 2018 that people at the top would get by far the biggest benefits from Trump’s law. Specifically, the think tank found that the top 1% of earners would get an average 3.4% increase in after-tax 2018 income – versus an average 1.6% income increase for people in the middle quintile, an average 1.2% income increase for people in the quintile below that and just an average 0.4% income increase for people in the lowest quintile. The think tank also found that the top 1% of earners would get more than 20% of the income benefits from the law, a bigger share than the bottom 60% of earners combined.

The distribution could get even more skewed after 2025, when the law’s individual tax cuts will expire if not extended by Congress and the president. If there is no extension – and, therefore, the law’s permanent corporate tax cut remains in place without the individual tax cuts – the Tax Policy Center has estimated that, in 2027, the top 1% will get 83% of the benefits from the law.

But that’s a possibility about the future. Biden claimed, in the past tense, that the law “affected” only the top 1%. That’s inaccurate.

This wasn’t the first time Biden overstated his point about the Trump tax cuts. The Washington Post fact-checked him in 2019, for example, when he claimed “all of it” went to the ultra-rich and corporations.



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World

America and Saudi Arabia are locked in a bitter battle over oil. The stakes are massive

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New York
CNN Business
 — 

The relationship between the United States and Saudi Arabia is one of the most important on the planet. And lately, it’s also been one of the most awkward.

Angry officials in Washington vowed “consequences” after Saudi-led OPEC sharply cut oil production earlier this month, driving up pump prices just weeks before the midterm elections.

US lawmakers are threatening steps that were unthinkable not long ago, including banning weapons sales to Saudi Arabia and unleashing the Justice Department to file a lawsuit against the country and other OPEC members for collusion.

Riyadh has been caught off guard by the thirst for revenge from US politicians. And Saudi officials are hinting at payback – including dumping US debt – that could have huge ripple effects in financial markets and the real economy.

Neither side is even trying to hide the tension. After a top Saudi official suggested the kingdom has decided to be the more mature party, a top White House official responded by saying, “It’s not like some high school romance here.”

What happens next is critical.

If this decades-old relationship devolves into a full-blown break-up, there could be enormous consequences for the world economy, not to mention international security.

“This is a new low. We have seen a degradation in the US-Saudi relationship for years but this is the worst it’s been,” said Clayton Allen, director at the Eurasia Group.

The spat is linked to one of the biggest sore spots among voters during the Biden era: Inflation and high gas prices.

After trying and failing to persuade OPEC to ramp up oil production, President Joe Biden reversed his 2020 campaign promise to make Saudi Arabia a “pariah” over its human rights record. Biden visited Saudi Arabia over the summer and even fist-bumped Crown Prince Mohammed bin Salman.

US officials thought they reached a secret deal with Saudi Arabia to finally boost supply of oil through the end of the year, The New York Times reported this week.

They were wrong.

OPEC and its allies, known as OPEC+, responded by increasing oil production by a measly 100,000 barrels per day – the smallest increase in its history. The move was widely viewed as a “slap in the face” of the Biden administration.

What came next was worse.

In early October, OPEC+ announced plans to slash oil production by 2 million barrels per day – a move that briefly drove up oil and gasoline prices at a time of high inflation and infuriated US politicians.

“Neither side seems to understand each other,” Allen said. “Riyadh underestimated the severity of the US backlash. And the US assumed we had an unspoken agreement.”

Fatih Birol, executive director of the International Energy Agency, described the move as “unprecedented” and “unfortunate” in an interview with CNN International on Thursday.

“When the global economy was on the brink of a global recession, they decided to push the prices up,” Birol said.

The tensions haven’t eased, and officials from both sides have sharpened their criticism of each other in recent days. In one telling episode, a top Saudi minister went from defending Biden’s energy strategy to slamming it.

During the OPEC+ press conference in early October, Saudi Energy Minister Prince Abdulaziz bin Salman seemed to praise Biden’s decision to release unprecedented amount of emergency oil reserves from the Strategic Petroleum Reserve.

“I wouldn’t call it a distortion. Actually, it was done in the right time,” Prince Abdulaziz told reporters. “If it didn’t happen, I’m sure that things might be different than what it is today.”

Flash forward three weeks, and that same Saudi minister sang a very different tune.

“People are depleting their emergency stocks, had depleted it, used it as a mechanism to manipulate markets while its profound purpose was to mitigate a shortage of supply,” Prince Abdulaziz said during a conference in Saudi Arabia this week. “However, it is my profound duty to make it clear to the world that losing emergency stock may become painful in the months to come.”

The criticism is noteworthy, especially given that OPEC openly manipulates markets in many ways by withholding supply to support prices.

The risk is that the tension devolves into a tit-for-tat cycle of retaliation that undermines global economic stability, or whatever economic stability there is at the moment.

Lawmakers from both sides of the aisle have stepped up their calls to enact NOPEC (No Oil Producing and Exporting Cartels) legislation that would empower the Justice Department to go after OPEC nations on antitrust grounds. Although NOPEC isn’t new, it seems more possible now than at any point in recent memory. Eurasia Group pegs a 30% chance of NOPEC enactment and a 45% chance of a watered-down version of the bill.

“You can’t overstate how upset a huge number of lawmakers are,” said Allen.

Lawmakers aren’t only upset, they realize OPEC is not exactly endearing itself to voters.

“This is popular. American sentiment is anti-Saudi. This now has domestic political utility for American politicians. That’s where we are now,” said Karen Young, senior research scholar at Columbia University’s Center on Global Energy Policy. “NOPEC would be harder to veto than in the past.”

Saudi Arabia could respond to penalties from Washington with drastic steps of their own, ratcheting up the conflict further.

Saudi officials have privately warned that the kingdom could sell US Treasury bonds if Congress passes NOPEC, The Wall Street Journal reported this week, citing people familiar with the matter.

At a minimum, dumping US debt would create uncertainty in markets at an already-perilous moment. A fire sale would drive up Treasury rates, destabilizing markets and raising borrowing costs for families and businesses.

And of course, Saudi Arabia’s own holdings would be damaged in such a fire sale.

Saudi Arabia is sitting on roughly $119 billion of US debt, according to Treasury Department data, making it the world’s 16th largest holder of Treasuries.

Another risk is that Saudi Arabia, the de facto leader of OPEC+, could remove further supply from world oil markets – or at least refuse to respond to future price spikes as the West continues to crack down on Russia.

Further curbs on OPEC supply would lift gasoline prices and worsen inflation, raising already-high recession risks.

All of this explains why a full-blown breakdown in relations between the United States and Saudi Arabia may be the last thing the fragile economy needs right now.

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Business

America’s emergency oil stockpile is at a 38-year low but it’s still got firepower left

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New York
CNN Business
 — 

Presidents don’t have magic wands to make inflation disappear. But they do have a powerful tool that can help ease the pain of high gas prices: The Strategic Petroleum Reserve.

More than any of his predecessors, President Joe Biden has aggressively leaned on this emergency oil stockpile to knock down the high pump prices that voters despise.

The SPR is a series of underground storage caverns holding vast amounts of crude oil that can be released during wars, hurricanes or other break-the-glass moments. And Biden has not been shy about doing just that, especially since Russia invaded Ukraine in February.

The amount of oil in the SPR is down by roughly a third — 36% to be exact — since Biden took office in January 2021. That has left this emergency oil stockpile at its lowest point since June 1984 — a time when both the US economy and energy demand was significantly smaller than today.

And Biden is not done yet. The president plans to announce the sale of another 15 million barrels from the SPR on Wednesday, a senior administration official said Tuesday evening.

Biden has made clear to his advisers that he is prepared to authorize future releases to balance the oil market, if necessary.

Importantly, this latest sale to be announced Wednesday is not entirely new. It’s part of the previously announced plan to release 180 million barrels of oil over six months. That record-setting emergency release, detailed in late March, was running a bit behind schedule. It now appears the administration will reach its 180 million target, it will just take longer than expected.

The SPR headlines are rattling an energy market already on edge over a potential recession. US oil prices dropped 3% to $82.82 on Tuesday, returning to levels last seen before rumors swirled regarding OPEC+’s controversial production cuts. Analysts pinned the blame for the selloff on the SPR news.

This oil price selloff alone should help keep a lid on gasoline prices, which analysts say were already heading lower without Biden taking further action.

Although it’s hard to pin down precisely how much of an impact the SPR release has had on prices, oil industry veterans tell CNN that Biden’s strategy has been effective, helping to cushion the blow for not only the war in Ukraine but lackluster supply from both OPEC+ and US oil producers.

“Kudos to them. They’ve done a tremendous job achieving their goal of trying to get energy prices lower,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

Gas prices aren’t cheap — a gallon of regular fetched an average of $3.87 nationally on Tuesday — but they are well below the record high of $5.02 set in June.

“It has been effective, so far,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service, who noted that oil prices have not taken out the all-time highs set in 2008. “You have to credit the SPR for that. The administration is laser-focused on gasoline.”

Kloza said he thinks there is a better than 50/50 chance that gas prices drop back down to their recent low of $3.67 a gallon. But rather than crediting US policy, Kloza cited market forces, recession fears and the reopening of refineries sidelined by maintenance.

“I don’t think they need to do anything until 2023. The market is doing most of the work for the White House,” Kloza said. “I think gasoline is destined to go lower.”

It’s not lost on oil market observers that this latest announcement of SPR sales is occurring just weeks before voters head to the polls before the critical midterm elections.

“Given that we are only weeks away from midterm election and the OPEC cut, the Biden administration is trying to ensure that energy prices are not top of mind,” said Andy Lipow, president of consulting firm Lipow Oil Associates.

But Lipow noted frustration in the oil industry that despite complaints about high energy prices, the SPR releases have “done nothing to encourage additional oil production.”

Not only that, but the aggressive emergency releases from Biden have diminished the SPR, potentially limiting the government’s ability to respond to future shocks.

The reserve is not a bottomless pit of oil. It’s more of a rainy-day fund and each release leaves less oil for the next crisis, whatever and whenever that might be.

That’s why the administration plans to detail efforts to refill the emergency reserve, laying out an important marker for market participants given the scale of the federal action over the course of the last six months.

Biden will announce that the administration intends to repurchase crude oil for the emergency reserve when prices are at or below between $67 and $72 per barrel.

The senior official said this will serve as “an important signal for producers” by helping to “moderate and stabilize” prices, not only when they are going high but when they are low.

The plan also serves the purpose of countering criticism about the unprecedented scale of Biden’s reserve releases, one that officials said underscores the administration’s intent to refill when market conditions make it most advantageous.

“We view the SPR is an incredibly important national security asset and we want to make sure that it serves its purpose well into the future,” the official said, noting that it is still the largest reserve in the world.

Despite recent emergency sales, the SPR still holds more than 400 million barrels of oil, considerable firepower that could be used in the coming months to respond to disruptions caused by the war in Ukraine.

“400 million barrels is a lot of barrels,” the official said.

Kloza, the OPIS analyst, said he’s not concerned by the shrinking SPR in part because more so than decades ago, the United States and Canada have the ability to sharply ramp up production, if needed (and if incentivized by higher prices).

“Sometimes reserves become archaic,” Kloza said. “I wouldn’t worry about it until it drops quite a bit lower.”

– CNN’s Alison Kosik contributed to this report

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