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OPEC Member Angola Plans to Loosen Its Currency’s Peg to Dollar

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Angola oil
  • OPEC Member Angola Plans to Loosen Its Currency’s Peg to Dollar

Angola is planning to give freer reign to its currency and end a foreign-exchange scarcity that has crippled the OPEC member’s economy. It also plans to renegotiate some debt, which sent its dollar securities tumbling.

The central bank will scrap the kwanza’s peg to the dollar and establish a band in which the currency will trade, Governor Jose de Lima Massano told reporters Wednesday in Luanda. The exchange rate will be determined at the central bank’s foreign-currency auctions, the regulator said in a statement on its website Thursday, which will resume this month.

“We have an exchange rate that does not reflect the truth,” Massano said. The possibility of a currency depreciation is “great,” he said.

The move underlines how President Joao Lourenco, little more than three months after being elected in place of Jose Eduardo dos Santos, is driving through reforms to bolster growth in Africa’s second-largest oil exporter. Angola’s economy was battered by the decline in crude prices from mid-2014, and its foreign reserves slipped to the lowest since 2010.

Currency Pressure

Regulators have defined minimum and maximum exchange-rate limits, without disclosing them. Banco Nacional de Angola will manage the currency market in a way that guarantees the sustainability of external accounts and stable prices.

While its currency has weakened more that 40 percent against the dollar since the oil crash, analysts say it’s still overvalued. The kwanza has been pegged at about 166 against the greenback since April 2016, but trades at 430 on the black market, according to local website kinguilahoje.com. Authorities have vowed to crack down on black-market currency traders.

Foreign-exchange reserves dipped to $14.2 billion in November from $15.4 billion in October, and are down from $20 billion at the start of 2017, according to the central bank.

Reserve Drop

The dollar shortage has left hundreds of companies struggling to pay foreign workers and overseas suppliers, prompting many to leave the import-dependent country. To stem dollar outflows, Angola has imposed limits on the transfer of foreign currencies abroad.

“It’s difficult to tell, but it’s possible that they will let the kwanza drop by more than 20 percent,” said Samantha Singh, an analyst in Johannesburg at Absa Bank Ltd.

Debt Talks

Angola will seek to renegotiate domestic and foreign debt to reduce the burden on government finances, Finance Minister Archer Mangueira said at the same press conference. It may issue more debt if the need arises, he said. The previous government of Dos Santos began talks in August with banks to raise $2 billion of bonds.

“We’re developing efforts to renegotiate our debt with our main partners throughout 2018,” he said. The nation’s foreign debt is $38 billion and renegotiating the maturities and interest rates of liabilities is a “priority,” he said, without providing more details.

The yield on Angola’s $438 million of securities due in 2019 rose 32 basis points, the most on a closing basis since March, to 5.4 percent by 12:54 p.m. in London on Thursday. The rate on the government’s $1.5 billion of debt maturing in 2025 rose three basis points to 6.79 percent.

“The yield on Angola’s Eurobond could rise by 700 to 1,000 basis points,” William Jackson, a senior emerging-markets economist at Capital Economics in London, said in an emailed note. Much of Angola’s external debt is in the form of bilateral loans from nations such as China, rather than Eurobonds, according to Jackson.

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

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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oil

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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