Mario Draghi, the celebrated economist who is credited with saving the euro, was sworn in as Italy’s new prime minister Saturday. He will be tasked with guiding the country through the twin crises of the coronavirus and a crumbling economy.
Draghi, who formerly served as the head of the European Central Bank, took the oath of office with support from across the political spectrum with all but one of Italy’s major parties backing him. Twenty-three members of Draghi’s cabinet, which included technocrats and a broad swath of politicians, also took the oath of office Saturday.
In addition to charting Italy’s course through the pandemic, Draghi is tasked with spending a roughly $240 billion, once-in-a-generation recovery fund provided by the EU to resuscitate an economy bound toward recession. Italy’s economy is in its worst downturn since World War II, according to Reuters.
A boost for the Italian economy could benefit the whole eurozone.
“Your experience will be an exceptional asset for Italy and Europe as a whole, especially in these difficult times,” European Commission President Ursula von der Leyen wrote on Twitter.
Draghi must also lead Italy through the pandemic as the country reports one of the top infection rates on the continent and amid a stalled vaccine rollout, which has affected most of Europe. But Draghi begins leading Italy’s 67th government since World War II with broad political backing, including from the anti-establishment Five Star Movement, which is the largest group in the country’s parliament.
In selecting his cabinet, Draghi selected four members of the Five Star Movement. Eight cabinet positions went to technocrats, as Reuters reports, with the remainder going to parties ranging from center left to far-right populist.
As BBC analysis points out, Italy’s political landscape is notoriously divided and unstable. Draghi is the country’s seventh prime minister in the past decade.
Draghi’s predecessor, Giuseppe Conte, resigned only weeks ago after infighting among political groups over his handling of the pandemic.
Draghi faces parliamentary votes of confidence next week, and with only one major party not included in his cabinet — the far-right Brothers of Italy — he’s expected to net the biggest majority in Italian history. According to Reuters, however, some members of the Five Star Movement have said they might vote against Draghi, creating internal divisions.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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