The recent spare of corona virus infection in Asia has rattled financial and commodity markets with growth forecast pace for the second largest economy trimmed to 5.5% for 1Q19 and 5.8% FY20. Airline and tourism stocks wobbled significantly while pharmaceutical and gold stocks rallying as demand for safe haven assets ebbs higher. The virus has cost the stock markets over $700billion in asset valuation triggering the Peoples Bank of China’s (PBOC) liquidity intervention and slashing of key benchmark lending rates to cushion impact.
One of the critical markets impacted has been crude price slide with WTI futures trading at lows of $50.4/bbl. as International Ice Brent priced at $54.5/bbl. This is a steep slide from the highs crude traded of $71/bbl. (Ice Brent) when the US drone air strike killed Iranian General earlier in the year. This has triggered OPEC+ member state nations to bring forward the supply curb implementation date to February from March. The OPEC+ will implement its 500,000bpd additional supply curbs above the 1.2million bpd cuts to provide support to crude prices. The supply cuts could even be deeper that the half a million a day additional quota.
Zambia’s hope for fuel price cuts?
The fuel procurement process in Africa’s red metal producer does not allow for effective transmission mechanism for crude price fluctuations to the pump prices. It is very unlikely that the price of crude will be suppressed for long because OPEC member states are already steeping in to widen the supply curbs let alone the Chinese authorities are working the clock top contain the virus. South Africa will be effecting a price cut of fuel on the midnight of 05 February because its procurement process allows for monthly adjustment. Another factor weighing crude futures is the extended lunar holiday on some Chinese provinces which have still weighed business activity. Asides crude price bears that ideally should offset currency bears effect of oil import cost, the oil price futures dip is a temporary one.
The Kwacha Arbitrageur