The dollar headed for its best week since November, climbing from a nine-month low reached last week, as Federal Reserve policy makers hinted interest rates may rise in the next few months.
The U.S. currency rose against most of its major peers after Fed Bank of St. Louis President James Bullard said officials may be getting close to lifting rates again, provided growth continues as forecast. Government releases on Thursday showed fewer jobless claims than forecast in the week through March 19 and durable goods orders fell less than projected last month. The yen fell for a sixth day against the dollar after a government report showed Japanese investors bought a record sum of overseas bonds and stocks last week.
Investors are slowly shifting back into the greenback after a cautious tone from Fed policy makers at their March 15-16 meeting sent the dollar tumbling. Traders are refocusing on the U.S. economy to evaluate whether incoming data can sustain a rebound in the currency. Employers probably continued to bolster the headcount this month, a report April 1 is forecast to show.
“The dollar, from a broad perspective, I think there’s probably still some more room to strengthen, if the U.S. data’s good,” said Eric Stein, the Boston-based co-director of global fixed income at Eaton Vance Corp., which oversees around $302 billion. “Again, we get a dovish Fed statement that seems to lead to hawkish commentary afterwards.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, is set for a 1.3 percent gain this week, the biggest since the period ending Nov. 6 and added 0.2 percent to 1,201.76 at 11:32 a.m. in Tokyo on Friday. The dollar climbed 0.1 percent to 113.05 yen and rose 0.1 percent to $1.1163 per euro.
Markets in parts of Asia, including Hong Kong and Singapore, Europe and the U.S. are closed Friday for national holidays.
The yen headed for its biggest weekly decline against the greenback since the period ended Jan. 29., the day when the Bank of Japan announced decision to employ a negative interest-rate policy.
Japanese investors’ purchases of overseas equity and investment-fund shares as well as bonds totaled 2.59 trillion yen ($22.9 billion) in the week ended March 18, largest amount in Ministry of Finance data going back to 2005.
The increased overseas investment is leading to weakness in the yen, said Kenji Yoshii, Tokyo-based currency strategist at Mizuho Securities Co. “Domestic yields remain in negative zones so investors have no choice but to seek yields abroad. This trend will likely continue.”
Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management, said the dollar’s advance accelerated after technical resistance of 112.90 yen was broken, with markets eyeing 113.50 as the next target.
“The higher dollar trend is becoming more evident against the yen,” Kato said. “But the move broadly remains within an adjustment from the post-Fed bearishness.”
Gauging U.S. Data
U.S. data have steadily improved over the last few weeks, with Bloomberg’s gauge of economic surprises advancing to the highest in more than a year.
“The next rate increase may not be far off provided that the economy evolves as expected,” Bullard said in New York on Thursday. Futures contracts show traders see a 6 percent likelihood of a rate increase at policy makers’ meeting next month, and a 38 percent probability in June.
The Bloomberg Dollar Spot Index has fallen 2.5 percent this year, after a 9 percent gain in 2015 and an 11 percent rally the year before.
“The data should continue to strengthen, it should continue to surprise a little bit and that should be sufficient for them to go in June,” Binky Chadha, chief global strategist at Deutsche Bank AG, said in an interview on Bloomberg Television. The upside for the greenback may be limited as “the dollar itself has also priced in a lot.”
Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook
Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.
Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.
Both contracts hit the highest level since mid-March in intra-day trade.
“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.
“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.
Crude prices were also supported by a large fall in U.S. inventories.
The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.
Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.
“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.
The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.
Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.
“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.
This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.
“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.
APICORP: Middle East and North Africa (MENA) Energy Investments to Exceed USD805 Billion Over Next Five Years
The Arab Petroleum Investments Corporation (APICORP), a multilateral development financial institution, estimates in its MENA Energy Investment Outlook 2021-2025, which it launched today that overall planned and committed investments in the MENA region will exceed USD805 bn over the next five years (2021–2025) – a USD13 bn increase from the USD792 bn estimate in last year’s five-year outlook.
The report attributes this modest rise to four factors: A strong confidence in the rebound of global GDP, rising energy demand, the comeback of Libyan projects – which alone accounts for around USD10 bn in planned projects – and the accelerated pace of renewables in the region. Per current estimates, MENA will add 3GW of installed solar power capacity in 2021 alone – double that of 2020 – and 20GW over the next five years.
The region’s economic forecasts suggest that commodity prices and exports will drive the rebound expected for most MENA countries in 2021. However, economies remain under fiscal strains due to unprecedented high debt levels and decline in oil prices, tourism/Hajj revenues, and personal remittances.
Dr. Ahmed Ali Attiga, Chief Executive Officer of APICORP, said: “APICORP’s MENA Energy Investment Outlook 2021-2025 indicates that energy industries are entering a period of relative stability in terms of investments as most MENA countries return to GDP growth in 2021 and the energy transition showing no signs of slowing down. We anticipate a slow but steady recovery of the energy sector from the fallout of the COVID-19 pandemic, supported by continued investment from the public sector and an upswing in demand.”
Committed gas investments in MENA for the period 2021-2025 are expected to total USD75 bn – USD9.5 bn less than the previous outlook. The decline is attributed to the completion of several megaprojects in 2020 and countries being more cautious to new project commitments in an era of gas overcapacity.
Qatar, Saudi Arabia, and Iraq are the top three MENA countries in terms of committed gas investments. This is owed to Qatar’s North Field East megaproject, Saudi Arabia’s gas-to-power drive and the massive Jafurah unconventional gas development – which is poised to make the kingdom a global blue hydrogen exporter – and Iraq’s gas-to-power projects and determination to cut flaring and greenhouse gas emissions.
Planned investments meanwhile held relatively steady at USD133 bn for 2021-2025, signalling the region’s appetite for resuming its natural gas capacity build-up – particularly the ambitious unconventional gas developments in Saudi Arabia, UAE, Oman, and Algeria – once macro conditions improve.
Power investments in MENA for 2021-25 remain largely unaffected compared to APICORP’s 2020-24 outlook. Notably, the sector’s total investment amount of USD250 bn is the highest of all energy sectors – with an estimated USD93 bn and USD157 bn in committed and planned projects, respectively, over the next five years.
With a share of around 40%, renewables form a significant part of those investments as countries push ahead with their energy diversification agendas. In the GCC, Saudi Arabia’s Renewable Energy Project Development Office and Public Investment Fund projects continue to progress. North African countries are also showing measurable development in renewables realm, with Algeria establishing an independent authority to oversee the development of country’s strong pipeline of projects, and Egypt working to resolve regulatory issues related to its wheeling scheme and the unbundling of its power market.
This shift to renewables is a chief factor behind the rising share of investments in transmission and distribution (T&D) in the power sector value chain, as the integration of renewables into power grids requires significant investments to enhance and digitize grid connectivity, not to mention storage to accommodate the surplus power capacity they generate.
Planned investments in the MENA petrochemicals sector are forecast to increase to USD109 billion in 2021-2025, a USD14.2 bn jump compared to last year’s outlook. By contrast, committed investments dipped by USD7.7 bn to around USD12.5 bn due to the completion of several megaprojects in 2020.
Despite MENA petrochemical markets seeing an overall improvement in demand owed to the increased consumption of basic materials as vaccination drives continue and economies recover, some MENA committed petrochemical investments are nonetheless being re-evaluated and rationalized due to fiscal strains, capital discipline and cost efficiencies and evolving market dynamics.
As a whole, the MENA region expects to add an estimated 3GW of solar power in 2021 – doubling its total from 2020 – and almost 20GW by 2025. Wind and other sources such as hydropower are also coming into their own as countries step up their energy diversification plans.
Jordan, for example, managed to increase the percentage of power generated from renewables from just 1% in 2012 to around 20%. Morocco’s 4GW of renewables (wind, solar and hydro) constitute around 37% the country’s total generation mix and almost 90% of its current 3.5GW project pipeline. Egypt’s total installed renewables capacity amounts to around 2.3GW, including 1GW of solar PV and 1.3 GW of onshore wind.
In the UAE, renewables constituted around 6% of total installed capacity and 3% of power generated as of 2020. Although it may just miss its short-term targets, the UAE’s solar capacity is projected to grow the fastest in the region with nearly 5GW of solar projects in the pipeline.
In Saudi Arabia, only 330MW of utility-scale solar PV projects and just one 2.5MW wind demonstration project developed jointly by Saudi Aramco and General Electric were operational as of 2020. Even when combined with the tenders under its National Renewable Energy Program, the total renewables capacity of the Kingdom totals 3.3GW, around 24GW short of its stated target of 27.3GW by 2024.
Despite ongoing procurement of largescale utility projects, Oman is also far from achieving its short-term target of generating 10% of its power from renewables by 2025, with a single 105MW utility solar PV project and a 50MW onshore wind project comissioned over the past 2 years.
As for Iraq, the first solar bid round for projects totalling 755MW capacity was announced in May 2019 and bids of short-listed companies were disclosed in Septmeber the following year. Overall, the country aims to reach 10GW of solar power generation capacity by 2030 and generate 20% of its power from solar.
Developing Energy Storage is Key
The expanding share of renewables, growth in power demand, and balancing supply and demand on a real-time basis necessitates the integration of modern, digitized energy storage solutions. Despite its significant potential in this area, the MENA region suffers from the limited role of storage in networks. To overcome this, regulations will need to evolve to reflect energy storage’s current functions, including leveraging flexibility from consumer aggregation or grid congestion.
The hydrogen and ammonia race
MENA is also a strong candidate for becoming a major hydrogen-exporting region thanks to its combination of low-cost gas resources and renewable energy. A few countries, such as Saudi Arabia and Morocco, have already made headways as low-cost exporters of blue and green hydrogen, net-zero ammonia and other low-carbon products, while other countries, such as Oman, UAE, and Egypt are attempting to catch up.
NNPC Refineries Records N177.21B Loss Due Unproductivity For 19 Months
In 19 straight months of not processing any barrel of crude oil, the government-owned refineries in Nigeria recorded a total loss of N177.21bn, the latest data from the Nigerian National Petroleum Corporation have shown.
An analysis of data collated from NNPC’s monthly reports revealed that all the refineries did not refine crude oil from July 2019 to January 2021.
The refineries, which are located in Port Harcourt, Kaduna and Warri, have a combined installed capacity of 445,000 barrels per day but have continued to operate far below the installed capacity.
The country relies largely on importation of refined petroleum products as its refineries have remained in a state of disrepair for many years despite several reported repairs.
In 2019, Kaduna Refining and Petrochemical Company Limited only processed crude in one month (June); Port Harcourt Refining Company Limited in two months (February and March); and Warri Refining and Petrochemical Company Limited in four months (January, February, March and May).
The Kaduna refinery incurred an operating deficit of N64.84bn from July 2019 to January 2021, according to the NNPC data.
The Port Harcourt refinery lost N57.07bn in the period under review while the Warri refinery lost N55.30bn.
“The declining operational performance is attributable to ongoing revamping of the refineries, which is expected to further enhance capacity utilisation once completed,” the NNPC said in its latest monthly report.
In January 2021, 1.68 billion litres of Premium Motor Spirit (petrol) were supplied into the country through the Direct Purchase Direct Sale arrangement as against the 1.58 billion litres of PMS supplied in the month of December 2020.
Under the DSDP scheme, selected overseas refiners, trading companies and indigenous companies are allocated crude supplies in exchange for the delivery of an equal value of petrol and other refined products to the NNPC.
The Federal Executive Council approved in March the plan by the Ministry of Petroleum Resources to rehabilitate the Port Harcourt refinery with $1.5bn.
Early this month, the NNPC and Maire Tecnimont S.p.A. signed the engineering, procurement and construction contract for the rehabilitation of the refinery.
The Italy-based company said its subsidiary, Tecnimont S.p.A., had been awarded a contract by the Federal Executive Council to carry out rehabilitation works for the PHRC, a subsidiary of NNPC.
The overall contract’s value is about $1.5bn, and the project entails EPC activities for a full rehabilitation of the Port Harcourt refinery complex, aimed at restoring the complex to a minimum of 90 per cent of its nameplate capacity.
Maire Tecnimont said the project would be delivered in phases from 24 and 32 months and the final stage would be completed in 44 months from the award date.
In the first term of the President, Major General Muhammadu Buhari (retd), the NNPC had planned to rehabilitate the refineries to attain a minimum of 90 per cent capacity utilisation.
The plan was to use third-party financiers and the original refinery builders to provide the requisite funding and technical support.
However, after over one and a half years, negotiations with financiers were stalled in December 2018 due to varying positions on key commercial terms.
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