Archives: Reuters Articles

Oct 18 – Oil prices surged on Wednesday as tension escalated in the Middle East after hundreds were killed in a blast at a Gaza hospital, sparking concerns about potential oil supply disruptions from the region.

Brent crude futures LCOc1 advanced USD 1.75, or 2%, to USD 91.65 a barrel at 0609 GMT. West Texas Intermediate crude (WTI) futures were up USD 1.91, or 2.2%, at USD 88.57 a barrel.

In earlier trade, both benchmarks gained more than $2 to touch their highest levels in two weeks.

Markets factored in risk premiums after hundreds of Palestinians were killed in a blast at a Gaza City hospital on Tuesday that Israeli and Palestinian officials blamed on each other.

Jordan then cancelled a summit it was to host with U.S. President Joe Biden and Egyptian and Palestinian leaders.

“The cancellation of a summit between Biden and Arab leaders reduces the likelihood of a diplomatic solution to the Israel Hamas conflict,” Vivek Dhar, an analyst at Commonwealth Bank of Australia, said in a client note.

Markets are nervous about a threatened Israeli ground offensive in Gaza.

“A long occupation looms as the scenario that pushes Brent oil futures above USD US100/bbl because it raises the risk that the Israel Hamas conflict expands and potentially draws in Iran directly,” Dhar said.

Biden is set to visit Israel on Wednesday to show support for the country in its war with Islamist militant group Hamas. The White House said he will make clear he does not want the conflict to expand.

Also supporting oil prices, US crude stocks fell by about 4.4 million barrels in the week ended Oct. 13, according to market sources citing American Petroleum Institute figures on Tuesday. That was much steeper than a 300,000 barrel draw that analysts had forecast.

Official US government data is due later on Wednesday.

On the demand side, China’s economy grew faster than expected in the third quarter, official data on Wednesday showed, suggesting a recent flurry of policy measures is helping to bolster a tentative recovery.

China’s official data also showed that the country’s oil refinery throughput in September hit a record daily rate, up 12% from a year earlier as refiners increased run rates to cater for strong demand for transport fuel over the Golden Week holiday and improving manufacturing.

But analysts sounded cautious on China’s economic growth as the real estate sector remains a drag.

“The September data likely guarantee that China will hit its ‘around 5%’ growth target this year. That said, it will struggle to better it. The economic recovery is still in its infancy,” Moody’s Analytics economist Harry Murphy Cruise said in a note.

Meanwhile, U.S. retail sales increased more than expected in September, spurring expectations of another interest rate hike by the Federal Reserve by year-end. Interest rate hikes to curb inflation can slow economic growth and reduce oil demand.

Venezuela’s government and its political opposition on Tuesday agreed to electoral guarantees for 2024 presidential elections, paving the way for possible US sanctions relief that could eventually boost oil supplies.

(Reporting by Arathy Somesekhar and Muyu Xu; Editing by Sonali Paul and Lincoln Feast.)

BEIJING, Oct 17 – China has told state-owned banks to roll over existing local government debt with longer-term loans at lower interest rates, two sources with knowledge of the matter said, as part of Beijing’s efforts to reduce debt risks in a faltering economy.

Debt-laden municipalities represent a major risk to the world’s second-largest economy and possibly its financial stability, economists say, amid a deepening property crisis, years of over-investment in infrastructure and soaring costs to contain the COVID-19 pandemic.

Local government debt reached 92 trillion yuan (USD 12.58 trillion), or 76% of the country’s economic output in 2022, up from 62.2% in 2019.

Part of that is debt issued by local government financing vehicles (LGFVs), which cities use to raise money for infrastructure projects, often at the urging of the central government when it needs to boost economic growth. Dry coffers could make it harder for Beijing to kickstart a sputtering economic recovery.

The People’s Bank of China (PBOC) issued orders last week to major state lenders to extend terms, adjust repayment plans, and reduce interest rates of outstanding loans to LGFVs, according to the sources.

Loans that were originally due in 2024 or before will be categorized as “normal” instead of non-performing loans if overdue, and that won’t affect banks’ performance evaluations, one of the sources said. Reuters is reporting these measures for banks to defuse local debt risks for the first time.

To ensure banks do not incur heavy losses from the debt restructuring, interest rates on rolled over loans should not be below China’s Treasury bond rates, said one source, adding that loan terms should not exceed 10 years. China’s benchmark 10-year government bond is now yielding around 2.7%, while the benchmark one-year loan prime rate is 3.45%.

The two sources declined to be identified as the policies were confidential.

Despite the mounting local government fiscal mess, China’s central government has taken a cautious stance on resolving their debt issues to avoid risks of moral hazard: Investors could be encouraged to take even greater risks if they assume Beijing will always come to the rescue of local governments or state companies.

China’s deepening property crisis has added to the pressure on municipalities, with developers in no shape to buy new plots of land, traditionally a key source of local revenue. Since the sector’s debt crisis unfolded in mid-2021, companies accounting for 40% of Chinese home sales
have defaulted, most of them private developers.

The People’s Bank of China (PBOC) and the National Financial Regulatory Administration didn’t immediately reply to Reuters’ request for comments.

Major risks

China’s Politburo, a top decision-making body of the ruling Communist Party, said in late July said it would announce a basket of measures to reduce local government debt risks, but no detailed plans have been officially unveiled yet.

The central bank said it will prioritize resolving debt risks in 12 regions identified as “high risk”, including Tianjin City, Guizhou province and Guangxi province, with a focus on open market bonds and non-standard debt products due this year and next year, the sources said.

Banks are being encouraged to issue new loans to LGFVs to repay bonds and non-standard debt, the sources said.

Additionally, the PBOC will set up an emergency tool with banks to offer loans to LGFVs to solve any short-term liquidity stress, the two sources said. LGFVs will need to repay the loans within two years, a second source said.

Financial news outlet Caixin first reported the central bank’s emergency liquidity tool in August.

In the 12 high-risk regions, some local governments will need to pledge or transfer part of their stakes in local state-owned companies to banks in exchange for assistance from banks to roll over loans, the second source said.

Last year, a Chinese government financing unit in the southwestern Guizhou province extended loans worth $2.3 billion by 20 years, which adjusted interest rates to between 3% and 4.5% per year.

(Reporting by Beijing Newsroom; Editing by Simon Cameron-Moore and Kim Coghill)