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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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Moody’s says the IMF programme will increase Pakistan’s foreign financing.

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Moody’s, a reputable international rating agency, has stated that Pakistan’s chances of acquiring funding will increase as a result of the recent agreement with the International Monetary Fund (IMF), which offers dependable sources for that purpose from both friendly countries and international financial institutions.

According to a recent Moody’s analysis on Pakistan’s economy, social unrest and tensions could result from Pakistan’s ongoing inflation. The country’s economic reforms may be hampered by increased taxes and potential changes to the energy tariff, it continued.

Moody’s, on the other hand, agrees that the coalition government headed by Shehbaz Sharif of the PML-N is in danger of failing to secure an election mandate, which may potentially undermine the successful and long-lasting execution of economic reforms.

The government’s capacity to proceed with economic changes may be hampered by societal unrest and poor governance, according to Moody’s.

In order to appease the IMF by fulfilling a prerequisite for authorising a rescue package, the government raised the basic tariff on electricity, which coincided with the most recent increase in fuel prices announced on Monday. This report was released by Moody’s.

Food costs have increased in the nation, where the vast majority is experiencing an unprecedented crisis due to the high cost of living, following the government’s earlier presentation of a budget that included a large increase in income tax for the salaried classes and the implementation of GST on commodities like milk.

The most recent comments were made following Islamabad’s achievement of a staff-level agreement for a $7 billion contract that spans 37 months and is contingent upon final approval by the IMF Executive Board.

It states that Pakistan will need foreign financing totaling about $21 billion in 2024–2025 and $23 billion in 2025–2026, meaning that the country’s present $9.4 billion in reserves won’t be sufficient to cover its needs.

Therefore, according to Moody’s, Pakistan is in an alarming position with regard to its external debt, and the next three to five years will be extremely difficult for the formulation and implementation of policies.

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Base Of bilateral relations: China And Pakistan Reiterate Their Support For CPEC

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China-Pakistan economic corridor is a major project of the Belt and Road Initiative, and both countries have reiterated their commitment to it. It remains a fundamental aspect of their bilateral relations.

Vice Chairman Zhao Chenxin of the National Development and Reform Commission of China and Minister Ahsan Iqbal of Planning and Development met in Beijing, where Ahsan Iqbal made this assurance.

The summit made clear how committed China and Pakistan are to advancing their strategic cooperative partnership in all weather conditions.

The focus of the discussion was on how the CPEC was going, with both parties reviewing project development and discussing how the agreement made at the leadership level will lead to the launch of an enhanced version of the CPEC.

In order to improve trade, connectivity, and socioeconomic growth in the area, they emphasised the need of CPEC projects.

The Ml-I Project, the KKH realignment, and the Sukkur-Hyderabad motorway—the last remaining segment of the Karachi-Peshawar motorway network—were all to be expedited.

Expanding the partnership’s horizons to include technology, innovation, education, connectivity, and renewable energy sources was another topic of discussion.

Specifically in the special economic zones being built under the Comprehensive Economic Cooperation (CPEX), Vice Chairman NDRC emphasised the possibility of China investing more in Pakistan.

In addition to expressing confidence in the ongoing success of the two nations’ collaboration, Zhao Chenxin reiterated China’s support for Pakistan’s development aspirations.

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Pakistani government raises petrol prices

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A recent announcement states that the price of petrol has increased by Rs 9.99 per litre, to Rs 275.60 per litre.

The cost of high-speed diesel has also increased significantly, rising by Rs 6.18 a litre. Diesel is now priced at Rs 283.63 a litre.

Furthermore, kerosene now costs Rs 0.83 more per gallon.

The cost of products and services is predicted to rise in response to the increase in petroleum prices, further taxing household budgets and jeopardizing the stability of the economy.

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