Briefing highlights
* Oil prices continue to climb
* A ‘potent mix’ of geopolitical threats
* Deal struck for Mitel takeover
* Markets at a glance
* U.S. 10-year yield hits 3 per cent
* Tims parent announces ‘Working Together’ plan
* Teck Resources profit rises
‘Potent mix’
Oil prices are rising again today, continuing a two-week run on a “potent mix” of geopolitical risks.
West Texas intermediate crude futures are above US$69 a barrel this morning, and Brent futures above US$75.
“Crude oil prices continue to be a cause for concern, hitting a fresh three-year high above US$75, despite comments from Iranian oil minister Bijan Zanganeh that there would be no need to extend the current pact of output freezes beyond this year,” said CMC Markets chief analyst Michael Hewson, referring to an OPEC production agreement aimed at buoying the market.
“It is this move higher in crude oil prices, along with the rise in demand, that is helping fuel the recent rise in yields, as well as the positive tone for equity markets.”
Of course, prices going “too far” could start to drag on stocks, Mr. Hewson said.
In a look at what’s driving prices, Société Gén erale analysts Michael Wittner and Mark Kogel point their fingers largely at geopolitics, from Iran to Venezuela and Libya to Syria.
“In our view, this potent mix of geopolitical risks has been the main driver behind the upward move in oil prices in the last two weeks,” they said in a report titled “Send lawyers, guns and money: Geopolitical risk continues to drive oil markets.”
Investor flows and fundamentals are also playing a role, Mr. Wittner and Mr. Kogel said, though to a lesser extent.
Here’s their geopolitical look:
IRAN
Mr. Wittner and Mr. Kogel believe there’s a strong chance of sanctions against Iran as a May 12 deadline approaches.
“Before or most likely on this day, the U.S. will decide to either extend waivers of oil sanctions, or allow them to snap back into place,” they said.
“French President Macron and German Chancellor Merkel will be separately visiting the U.S. this week, and their discussions with U.S. President Trump will undoubtedly cover Iran, among many other subjects,” they added.
“However, we maintain our view that there is a 70-per-cent probability that oil sanctions will snap back on 12 May.
VENEZUELA
The country is a mess, and oil production has dropped, with a May 20 election looming.
“Other news flow on Venezuela indicates worsening problems in paying off its debt; meanwhile, oil investment continues to get cut,” Mr. Wittner and Mr. Kogel said.
“It was also reported that since a former military general took over as oil minister and chief of the state company late last year, huge numbers of skilled professional workers have quit their jobs, making things even worse,” they added.
“We continue to estimate a 50-per-cent probability that the U.S. will impose oil-related sanctions after President Maduro’s expected victory in the 20 May elections.”
LIBYA
“The key development in the last two weeks is that the powerful general Khalifta Haftar, who heads the Libyan National Army, is reportedly in poor health (possibly due to a stroke) and has left Libya; he is currently reported to be receiving medical care in Paris,” the analysts said, noting that crude production stabilized after Mr. Haftar and the army took control of eastern Libya’s oil terminals.
“The risk for the oil markets is that without Haftar, the LNA and the alliance he led could fall apart, the fighting in the east could escalate, and Libya will once again become subject to large and sustained outages of crude output and exports.”
SYRIA
Tensions are running high between the Saudis and Iran. Ditto between Israel and Iran, notably over Syria, and “a direct shooting war seems to be a very real possibility,” said Mr. Wittner and Mr. Kogel.
“Syria is very complex; suffice it to say that in addition to Israel and Iran, countries with interests in Syria, as well as military forces on the ground, include Russia, Turkey, Kurdish militias, and the U.S.,” they added.
“To make matters even more complicated and unstable, the U.S. is publicly threatening to withdraw from Syria. Saudi Arabia and the UAE are also considering getting involved in Syria, with the encouragement of the U.S.”
Read more
- Brent tops $75, highest since 2014 OPEC meeting that led to pump war
- Jeff Lewis: Canadian crude tops Venezuelan imports at Gulf Coast refineries for the first time
- Iran threatens to quit non-nuclear treaty if Trump scraps accord, restores sanctions
Deal struck for Mitel
An investor group has struck a deal to buy Canada’s Mitel Networks Corp. for about $2-billion, including debt.
The group led by Searchlight Capital Partners L.P is offering $11.15 a share in cash, and Mitel’s board is backing the bid.
“Our board determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our shareholders,” said Mitel chairman and co-founder Terry Matthews.
“It also affirms the tremendous value and market leadership of Mitel. We believe this transaction will provide Mitel with additional flexibility as a private company to pursue the company’s move-to-the-cloud strategy.”
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Markets at a glance
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More news
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