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Gloom Gripping South African Economy Spilling Over Into Banks

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  • Gloom Gripping South African Economy Spilling Over Into Banks

Barclays Africa Group Ltd. just delivered further proof that South Africa’s economy won’t be climbing out of the doldrums anytime soon.

The Johannesburg-based lender kicked off the earnings reporting season for South Africa’s banks with a decline in total first-half income, the first interim contraction since Maria Ramos took over as chief executive officer in 2009. The stock dropped on Friday, leading declines on the six-member FTSE/JSE Africa Banks Index and extending its losses this year to 14 percent.

The strain of South Africa’s economic contraction also showed in the 10 percent decrease in earnings excluding one-time items at the bank’s main South African consumer unit in the six months through June as lending at its mortgage and credit card businesses shrank. Income from fees on transactions and commissions and deposits dropped 14 percent, while costs increased faster than revenue.

“We expect the economic environment to remain challenging,” Ramos said in an emailed statement. The company also sketched a bleak outlook for the rest of year across its businesses in 12 African countries, predicting “low- to middle-single digit loan growth,” a decline in its net-interest margin, slower revenue growth and higher costs.

South Africa slumped into a recession in the first quarter after all but two industries shrank amid continued political wrangling and policy uncertainty. Barclays Africa’s South African banking operations account for 74 percent of normalized earnings before one-time items.

The country’s foreign-currency debt was downgraded to junk in April after President Jacob Zuma fired his respected finance minister and replaced him with someone who has no financial experience. Unemployment is also at a 14-year high as the governing African National Congress prepares to pick a new party president at the end of the year.

“Key risks facing South Africa in the second half include heightened political and policy uncertainty in the run up to the ruling party’s December elective conference, the potential for the country’s sovereign credit rating to be downgraded further, and for weak business and consumer confidence to lead to a longer, more protracted recession,” Barclays Africa said.

Its Johannesburg-based peer, Nedbank Group Ltd., reports first-half earnings on Monday.

‘Slightly Negative’

“The main risk to our view on Nedbank and on South African banks in general remains the political and economic situation in South Africa,” Henry Hall, a banks analyst at HSBC Holdings Plc in Johannesburg, said in a note on Friday. The lender, controlled by London-based Old Mutual Plc, will report 2 percent growth in earnings per share before one-time items, Hall said.

A 25 basis-point reduction in interest rates last week will also be “slightly negative” for South African banks, Harry Botha, an analyst at Avior Capital Markets, said in a note. Barclays Africa hedges most of its short-term interest rate exposure so it’s probably in the best position followed by Standard Bank Group Ltd., he said.

A 27 percent improvement in impairments following credit losses from two large corporate clients the previous year and 19 percent growth in profit from its African businesses helped boost earnings. The lender reported a 7 percent increase in normalized EPS excluding one-time items to 9.18 rand, beating the 8.80 rand median estimate of four analysts.

“For the remainder of the year, Barclays Africa will place priority focus on its retail and business bank performance in South Africa and on driving opportunities in its businesses outside of South Africa,” the lender said.

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.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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