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U.S. Economy Expands to 0.5% Pace, Weakest in Two Years

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US economy

The U.S. economy expanded in the first quarter at the slowest pace in two years as American consumers reined in spending and companies tightened their belts in response to weak global financial conditions and a plunge in oil prices.

Gross domestic product rose at a 0.5 percent annualized rate after a 1.4 percent fourth-quarter advance, Commerce Department data showed Thursday. The increase was less than the 0.7 percent median projection in a Bloomberg survey and marked the third straight disappointing start to a year.

Shaky global markets and oil’s tumble resulted in the biggest business-investment slump in almost seven years, and household purchases climbed the least since early 2015, the data showed. While Federal Reserve officials on Wednesday acknowledged the softness, they also indicated strong hiring and income gains have the potential to reignite consumer spending and propel economic growth.

“The fact that personal consumption is a bit on the soft side is a disappointment, especially in light of the low gasoline prices,” said Thomas Costerg, senior economist at Standard Chartered Bank in New York, who correctly projected first-quarter growth. “Consumption seems to be stuck in a low gear.”

Economists’ projections for GDP, the value of all goods and services produced in the U.S., ranged from gains of 0.1 percent to a 1.5 percent. This is the government’s first of three estimates for the quarter before annual revisions in July.

Consumer Spending

Household purchases, which account for almost 70 percent of the economy, rose at a 1.9 percent annual pace last quarter, compared with 2.4 percent in the final three months of last year.

Spending, while slightly better than the 1.7 percent median forecast, was a disappointment in light of the consumer-friendly fundamentals including low gasoline prices, cheap borrowing costs, increased hiring and warmer-than-usual winter weather.

“The first quarter is going to be the worst quarter for consumption for all of 2016,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “With financial markets calming down and retracing all of their losses, the fundamental factors that have driven consumption will continue to do so.”

Jobless Claims

Americans have more job security. A separate report from the Labor Department showed filings for unemployment benefits held last week around four-decade lows. Jobless claims rose to 257,000 from the prior week’s revised 248,000 that were the fewest since 1973.

The GDP report showed disposable income adjusted for inflation climbed 2.9 percent in the first quarter, an improvement from the 2.3 percent gain in final three months of 2015. The saving rate ticked up to 5.2 percent from 5 percent.

The biggest factor weighing on the economy last quarter came from companies. Nonresidential fixed investment, or spending on equipment, structures and intellectual property, dropped at a 5.9 percent annualized pace, the biggest decline since the second quarter of 2009.

Last year’s slump in oil prices that extended into early 2016 led to an 86 percent annualized plunge in capital spending on wells and shafts, the most in records back to 1958.

Investment is also languishing as corporations struggle to boost profits against a backdrop of weak overseas demand and restrained domestic purchases.

Customers in the U.S. also limited orders as companies trim stockpiles to bring them more in line with sales. Inventories subtracted 0.33 percentage point from growth after a 0.22 percentage-point drag in the three months ended in December.

Progress in trimming inventories, along with receding headwinds from abroad and a comeback in the prices of oil and other commodities, may keep investment from deteriorating further.

A dearth of eager overseas customers led to a drop in exports in the first quarter. Trade subtracted 0.34 percentage point from overall growth, the most in a year.

Final Sales

Stripping out unsold goods and trade, the two most volatile components of GDP, as well as government expenditures, so-called final sales to private domestic purchasers increased at a 1.2 percent rate, the weakest advance since the third quarter of 2012.

Government spending rose at a 1.2 percent pace, led by states and municipalities.

If the past two years are any guide, the economy will shake off the first-quarter softness. In 2015, GDP rose 0.6 percent before rebounding to a 3.9 percent pace in the second quarter. A year earlier, the economy shrank at a 0.9 percent rate and then advanced 4.6 percent in the April-June period.

Fed policy makers, after skipping an interest-rate hike for a third straight meeting on Wednesday, suggested they remain upbeat about the underpinnings of U.S. growth. Central bankers also said they will continue to “closely monitor” inflation.

The GDP price index rose 0.7 percent in the first quarter. A measure of inflation tied to personal spending and excluding volatile food and fuel costs climbed 2.1 percent, the most in four years and in line with policy makers’ target.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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