The meeting of the OPEC at Vienna concluded with a broad agreement to cut supply by around 1 million barrels per day by the OPEC. Of course, Saudi Arabia has made it clear that the supply cuts would only be effective if all the members of OPEC agreed to honour these quotas. Iran, Nigeria, and Venezuela are likely to be exempted. The big question will be Russia. Saudi has asked for a 300,000 bpd cut, but Russia appears to be keener on something like 150,000 bpd of cuts. In 2016, OPEC and Russia had continuously sustained a cut of 1.8 million bpd leading to a sharp rise in oil prices from the lows.
The Cabinet approved the sale of the government’s 52.6% stake in REC to PFC, another power financing company. The announcement has already been made in the previous budget but only now it has been actioned. At the current market price, the REC stake is worth Rs.11,000 crore and that will directly add to the disinvestment coffers of the government of India. The government had done a similar cross transfer deal in case of selling its stake in HPCL to ONGC for Rs.37,000 crore. The government will just about cross the halfway mark to its target of Rs.80,000 crore post the REC deal.
The sell-off in the US markets continued after a day’s holiday to mark the cremation of George Bush. The selloff has been largely led by the inverted US yield curve which is hinting at a real threat of a recession. That has not gone down well with the markets. Also, the markets are worried that the trade pact between the US and China may be more on paper. The sharp fall in oil prices is also raising the specter of a slowdown in growth. There is also uncertainty over the fate of BREXIT after Theresa May lost a vote and will have to now give greater powers to the UK parliament.
If Donald Trump’s intent was to cut down the trade deficit by imposing tariffs on Chinese imports, then it is surely not working. The monthly trade deficit came in at $55.50 billion, which is its worst performance since the peak trade deficit seen at the height of the sub-prime crisis in 2008. The overall merchandise trade deficit is also the highest ever. One of the main purposes of the trade war was to reduce the US trade deficit with China. But the reverse seems to be happening. China accounts for nearly 80% of the total trade deficit of the US and that is what has been rankling Trump.
With the dollar payments to Iran coming under a cloud due to the US sanctions, India and Iran have signed a deal to pay for oil imports in INR. The funds will be directly remitted into a UCO Bank account of National Iranian Oil Company (NIOC). Half of these payments will be earmarked to pay for Indian exports to Iran. As per the terms of the US sanctions on Iran, exports of food grain, medical devices, and medicines to Iran are permitted despite the sanctions. As part of the sanctions exemption granted by the US, India has been allowed to import a reduced quantum of 3 lakh barrels per day from Iran as against its normal import quantity of 5.6 lakh barrels from Iran. Iran has always been an important oil supplier. It used to be the second largest supplier to India, but now it is the third largest.
To tide over the current crisis, Jet Airways has sought a $350 million soft loan from Etihad Airways. Etihad already has a 24% stake in Jet Airways and talks are underway to permit Etihad to increase their stake to the maximum permissible limit of 49%. That will mean that Naresh Goyal becomes a minority shareholder and cedes control in the group. Jet has held back senior manager salaries for quite a few months and now plans to complete the full payout by March 2019. Jet has been reporting losses for 3 quarters in succession as it struggles between rising ATF prices and falling margins on the competition.
