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Tuesday November 29th, 2022

Crude oil rebounds back to 25 dollars a barrel

OIL SHOCKS: Smoke rises from the LyondellBasell-Houston Refining plant in Houston, Texas, on April 20, 2020.

AFP – US oil prices rebounded above zero Tuesday, a day after futures ended in negative territory for the first time as a coronavirus-triggered collapse in demand leaves the world awash in crude.

US benchmark West Texas Intermediate for May delivery was changing hands at $1.10 a barrel after closing at -$37.63 in New York.

The May futures contract expires Tuesday, meaning traders who buy and sell the commodity for profit needed to find someone to take physical possession of the oil.

But with the glut in markets and storage facilities full, buyers have been scarce.

Traders are now more focused on the contract for June delivery, which had trading volumes more than 30 times higher. That also rebounded Tuesday, rising to above $21 a barrel following a close of $20.43 a barrel in New York.

Brent crude, the international benchmark, was changing hands at $25.61 a barrel for June delivery, up 0.15 percent.

Oil markets have plunged in recent weeks as lockdowns and travel restrictions to fight the coronavirus around the world batter demand.

The crisis was worsened by a price war between Saudi Arabia and Russia. Riyadh and Moscow drew a line under the dispute and, along with other top producers, struck a deal to cut output by almost 10 million barrels a day earlier this month.

But prices have continued to fall as analysts say the cuts are not enough, and as storage facilities reach capacity.

US crude’s collapse Monday was triggered in part by the closely monitored WTI storage facility at Cushing, Oklahoma filling up, as well as traders closing out their positions before the expiry of the May contract.

“The WTI May futures contract is due to expire on Tuesday, forcing any holders of that contract to accept physical delivery,” ANZ Bank said in a note.

“With storage facilities filling up fast, particularly at the WTI pricing point, Cushing, there are fears that there will be nowhere to store it.”

Michael McCarthy, chief market strategist at CMC Markets, added that “the prospect of having to pay to sell crude oil provided a brutal reminder of the current unusual economic conditions”.

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A new Sri Lanka monetary law may have prevented 2019 tax cuts?

ECONOMYNEXT – A new monetary law planned in 2019, if it had been enacted may have prevented the steep tax cuts made in that year which was followed by unprecedented money printing, ex-Central Bank Governor Indrajit Coomaraswamy said.

The bill for the central bank law was ready in 2019 but the then administration ran out of parliamentary time to enact it, he said.

Economists backing the new administration slashed taxes in December 2019 and placed price controls on Treasuries auctions bought new and maturing securities, claiming that there was a ‘persistent output gap’.

Coomaraswamy said he keeps wondering whether “someone sitting in the Treasury would have implemented those tax cuts” if the law had been enacted.

“We would never know,” he told an investor forum organized by CT CLSA Securities, a Colombo-based brokerage.

The new law however will sill allow open market operations under a highly discretionary ‘flexible’ inflation targeting regime.

A reserve collecting central bank which injects money to push down interest rates as domestic credit recovers triggers forex shortages.

The currency is then depreciated to cover the policy error through what is known as a ‘flexible exchange rate’ which is neither a clean float nor a hard peg.

From 2015 to 2019 two currency crises were triggered mainly through open market operations amid public opposition to direct purchases of Treasury bills, analysts have shown.

Sri Lanka’s central bank generally triggers currency crises in the second or third year of the credit cycle by purchasing maturing bills from existing holders (monetizing the gross financing requirement) as private loan demand pick up and not necessarily to monetize current year deficits, critics have pointed out.

Past deficits can be monetized as long as open market operations are permitted through outright purchases of bill in the hands of banks and other holders.

In Latin America central banks trigger currency crises mainly by their failure to roll-over sterilization securities. (Colombo/Nov29/2022)

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Sri Lanka cabinet clears CEB re-structure proposal: Minister

ECONOMYNEXT – Sri Lanka’s cabinet has cleared proposals by a committee to re-structure state-run Ceylon Electricity Board, Power and Energy Minister Kanchana Wijeskera said.

“Cabinet approval was granted today to the recommendations proposed by the committee on Restructuring CEB,” he said in a twitter.com message.

“The Electricity Reforms Bill will be drafted within a month to begin the unbundling process of CEB & work on a rapid timeline to get the approval of the Parliament needed.”

Sri Lanka’s Ceylon Electricity Board finances had been hit by failure to operate cost reflective tariffs and there are capacity shortfalls due to failure to implement planned generators in time. (Colombo/Nov28/2022)

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Sri Lanka new CB law to cabinet soon as IMF prior action

ECONOMYNEXT – Sri Lanka’s new central bank law will be submitted to the cabinet as a prior action of International Monetary Fund with clauses to improve governance and legalize ‘flexible’ inflation targeting, Central Bank Governor Nandalal Weerasinghe said.

Under the new law members of the monetary board will be appointed by the country’s Constitutional Council replacing the current system of the Finance Minister making appointments.

“It will be a bipartisan approach,” Governor Weerasinghe told an investor forum organized by CT CLSA Securities, Colombo-based brokerage.

“The central bank’s ability to finance the budget deficit will be taken out. Thirdly the flexible inflation targeting regime will be recognized in the law as the framework.”

The law will also make macro-prudential surveillance formally under the bank.

There will be two governing boards, one for the management of the agency and one to conduct monetary policy.

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