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Oil rises for a second day on supply tightness concerns

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  • Russia’s Gazprom tightens squeeze on gas flow to Europe.
  • Fed expected to hike rates 75 bps on Wednesday.
  • Brent premium to US crude hits widest in three years.

LONDON: Oil prices rose on Tuesday for a second day on increasing concerns about tightening European supply after Russia, a key energy supplier to the region, cut gas supply through a major pipeline.

Brent crude futures rose $1.14, or 1.1%, to $106.29 a barrel by 1029 GMT, extending a 1.9% gain the previous day.

US West Texas Intermediate (WTI) crude futures increased $1.31, or 1.4%, to $98.01 a barrel, having gained 2.1% on Monday.

Russia tightened its gas squeeze on Europe on Monday as Gazprom said supplies through the Nord Stream 1 pipeline to Germany would drop to just 20% of capacity. 

The cut in supplies will leave countries unable to meet their goals to refill natural gas storage ahead of the winter demand period. Germany, Europe’s biggest economy, faces potentially rationing gas to industry to keep its citizens warm during the winter months. 

“The announcement revived fears that Russia, despite its cynical denial, will not shy away from using its energy as a weapon in order to gain concessions in its war against Ukraine and…could probably expect short-term success,” Tamas Varga from oil brokerage PVM said.

The European Union has repeatedly accused Russia of resorting to energy blackmail, while the Kremlin says shortfalls have been caused by maintenance issues and the effect of Western sanctions.

On Tuesday, EU countries agreed on an emergency regulation to curb their gas use this winter. 

Europe’s crude, oil product and gas supplies have been disrupted by a combination of Western sanctions and payment disputes with Russia since its Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation.”

Still, falling demand because of recent high crude and fuel prices and the expectation of an increase in interest rates in the United States have put pressure on prices.

The US central bank is widely expected to raise interest rates by 75 basis points at the conclusion of its policy meeting on Wednesday. That increase may reduce economic activity and thus impact fuel demand growth. 

Morgan Stanley said that 77% of global central banks have hiked rates in the last six months, with that percentage reaching a 40-year high, and “making this the most-synchronised cycle of rate hikes since the early 1980s”.

The bank lowered its demand growth forecasts for this year and next. It forecasts Brent crude prices at $110 a barrel in the third quarter and WTI at $107.50, each $20 lower than their previous forecast.

The gap between European and international oil benchmark Brent and US benchmark WTI has widened to levels not seen since June 2019 as easing gasoline demand in the United States weighs on US crude while tight supply supports Brent. 

Prompt Brent inter-month spreads reached $5 a barrel on Tuesday, their highest level in three weeks. In a backwardated market, front-month prices are higher than those in future months.

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Pakistani stocks are rising, and the KSE-100 breaks the 69,000 barrier.

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The benchmark KSE-100 Index increased 1.76 percent on Monday, passing beyond the 69,000 barrier for the first time in its history. This maintained Pakistani stock market’s record-breaking run, as investors remained upbeat about potential rate cuts by the central bank.

The most recent advances also follow Prime Minister Shehbaz Sharif’s iftar dinner given by Saudi Crown Prince Mohammed bin Salman in Makkah, at a time when Riyadh is anticipated to announce an approximately $1 billion investment in Reko Diq, one of the world’s greatest reserves of copper and gold.

After reaching a high of 69,720.03, the KSE-100 Index concluded at 69,619.98 with a net gain of 1,203.20 points by the time trading was closed for the day. This was due to international investors, both individual and institutional, making purchases.

The meeting between Shehbaz and the Saudi crown prince, also referred to as MBS, may open doors for investment in a variety of industries, including mining, energy, and agriculture.

With record-high energy and interest rates driving up the cost of conducting business to an unaffordable level, investors are clamoring for foreign investment to prop up the economy.

Any improvement in this area would not only contribute to the rupee’s appreciation but also increase the value of cheap equities due to the anticipated purchasing frenzy, as buyers will not pass up the chance to purchase at the reduced prices.

However, there is a big question mark over the heightened expectations that the State Bank of Pakistan will begin reducing interest rates following the consumer price index (CPI) showing a steady fall in inflation over the past three months, particularly the greater than anticipated decline in March.

The reason is that, given Islamabad’s desperation to secure another package from the Washington-based lender, there is an impending hike in gasoline costs in addition to power and gas charges. This move will further sustain the inflationary pressure under the IMF criteria.

Meanwhile, the most recent US data has reduced expectations for potential rate reduction by the Federal Reserve, which is driving up the price of gold as speculative purchasing occurs.

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The price of gold is still rising in Pakistan.

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24 carat gold’s per tola pricing increased by Rs 600 on Monday, when it was sold for Rs 245,700 as opposed to Rs 245,100 the day before.

Ten grams of 24 carat gold cost Rs 514 more than the selling price of Rs 210,648; ten grams of 22 carat gold cost Rs 193,094 instead of Rs 192,622, according to the All Sindh Sarafa Jewellers Association.

Silver prices per tola and per ten grams stayed at Rs 2,650 and Rs 2271.94, respectively.

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According to the Association, the price of gold went up $5 to $2,355 on the global market from $2,350.

24 carat gold saw a rise in prices per tola on April 6 of Rs 4,900. It was sold on Saturday for Rs 245,100 as opposed to Rs 240,200 the day before.

The price of 10 grams of 24 carat gold went up by Rs4,200, and it was sold for Rs210,134 as opposed to Rs205,932. The price of 10 grams of 22 carat gold went up to Rs192,622 from Rs 188,772, according to the All Sindh Sarafa Jewellers Association.

Silver prices per tola and per ten grams stayed at Rs 2,650 and Rs 2271.94, respectively.

According to the Association, the price of gold went up $44 to $2,350 on the global market from $2,306.

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PIA privatization: “Investors from Saudi Arabia and Qatar are briefed by Pakistan.”

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According to information provided, investors in the aviation industry in Qatar, Abu Dhabi, and Saudi Arabia were approached and given a briefing on the privatization of PIA.

According to additional sources, investors received information about “profitable” investments in the international lines operated by FIA and PIA.

Since National Airline’s debts and losses were transferred to the withholding firm prior to privatization, all of them have been paid off.

According to the sources, every obstacle to the PIA’s privatization has been removed.

It is important to note that, as the government moves on with its privatization plan, up to three Gulf nations—the United Arab Emirates, Saudi Arabia, and Qatar—have expressed interest in purchasing the financially troubled Pakistan International Airlines (PIA), according to sources.

Previously, purchasers were asked to submit proposals by May 3 for the privatization of Pakistan International Airlines (PIA).

The Pakistani government intends to sell 51 percent of the national flag carrier’s shares; the remaining 49 percent will be owned by the government. The government’s goal is to privatize solely the PIA’s aviation department.

According to the officials, the business that purchases the 51 percent of the shares would continue to hold administrative authority over PIA.

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