US Business

Major oil producers led by Saudi Arabia and Russia stuck to a previously decided output boost on Thursday, despite calls for bigger increases to tame crude prices.

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

Oil prices fell following the announcement by the 13-nation Organization of the Petroleum Exporting Countries led by Saudia Arabia and its 10 partners headed by Russia.

In their monthly video conference, which lasted about an hour, the 23 members of OPEC+ agreed to add another 648,000 barrels per day in August, the same as for July.

“As expected, OPEC+ stuck to its planned 648,000 barrel increase in August and refrained from any decision beyond then,” said Craig Erlam, a senior market analyst at OANDA trading platform.

This “could add an element of uncertainty to future targets, particularly given recent reports that even Saudi Arabia and UAE are running near capacity,” Erlam added.

– ‘Symbolic’ –

Tamas Varga, an analyst with PVM Energy, said the decision seemed “symbolic” as most OPEC+ members have been failing to meet their output quotas.

“Now all eyes will be on Saudi Arabia and the United Arab Emirates,” Varga said. “Any hint that they also struggle to increase output will probably be met with a fresh wave of buying.”

The 13 members of OPEC, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as the coronavirus pandemic and the resulting lockdowns sent demand plummeting.

Since last year, they have been gradually increasing output again. In recent months, the United States and other top oil consumers urged OPEC+ to open the tabs more widely.

The group finally decided at its last meeting in early June to add 648,000 barrels per day to the market in July, up from 432,000 in previous months. 

But the larger-than-expected boost failed to cool prices.

Since Russia invaded Ukraine on February 24, the international benchmark, Brent North Sea Crude, has added around 17 percent, while the US benchmark WTI has jumped more than 18 percent.

Analysts have warned that only a recession may be able to bring down prices.

“The prices will likely push higher unless the recession fears take the upper hand,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank.

“All the talk of a summer of discontent is likely to spill over into the autumn and winter as high oil and gas prices remain a feature of markets,” said Jamie Maddock, an equity research analyst at Quilter Cheviot.

“Attention will now inevitably turn to what OPEC+ does from September,” Maddock added.

– Biden heading to Saudi Arabia –

Production will be back to pre-pandemic levels after August, at least on paper.

Several OPEC+ members have been failing to meet the output quotas, while Iran and Venezuela — and now also Russia — are blocked by sanctions. 

The United Arab Emirates said this week it was close to its oil output ceiling, ahead of a regional visit by US President Joe Biden, who is expected to lobby for increased production.

Biden will visit neighbouring Saudi Arabia, the world’s biggest oil exporter, as part of his tour next month, but analysts doubt it will convince OPEC+ to boost output.

On Monday, at the meeting of the G7 club of industrialised nations in Germany, French President Emmanuel Macron was caught on camera telling Biden details of a conversation with UAE leader Sheikh Mohamed bin Zayed Al-Nahyan.

According to Macron, Sheikh Mohamed said the UAE was at its “maximum” capacity and Saudi Arabia also faced a limit for raising production.

European Commission chief Ursula von der Leyen said Thursday the EU and New Zealand had sealed a free trade deal after four years of talks, promising it would deepen ties.

“This is a historic moment in our cooperation,” von der Leyen told reporters at a joint press statement with New Zealand’s Prime Minister Jacinda Ardern, adding that the deal had come after “tough negotiations”. 

Ardern hailed a “historic further milestone in the strong partnership between two closely-connected like-minded friends.”

The pact brings economies of vastly different sizes closer together: New Zealand has a population of just five million people against the EU’s 450 million.

Once it has survived a long ratification process, the EU said the deal would eliminate all tariffs on its exports to New Zealand and will open markets in key sectors such as financial services, telecommunications, maritime transport and delivery services.

Both sides underlined environmental issues, amid concern in some corners of Europe that trade deals are a threat to climate goals and upholding rights of workers.

“This free trade agreement includes high ambition outcomes in areas related to the Paris Agreement, climate action, labour rights, gender equality, and harmful fishery subsidies,” New Zealand Trade Minister Damien O’Connor told reporters after a final round of talks in Brussels.

His EU counterpart Valdis Dombrovskis called the deal “a state of the art trade deal for the EU” that had “shared values with sustainability at its core.”

The New Zealand agreement, which will be legally finalised over the next months, will have to be agreed by the bloc’s member states as well as European Parliament.

The deal with New Zealand will lend comfort to European countries that had grown increasingly frustrated with the lack of progress on opening new trade ties with international partners.

The EU has struggled in recent years to secure the backing of all 27 member states as well as the European Parliament on trade deals, which were once a central policy for the bloc.

France has led the doubters on the wisdom of trade pacts, and French farmers have voiced concerns that the accord with New Zealand would unfairly open their market to New Zealand imports.

The EU is currently also engaged in talks with India, Indonesia, New Zealand and Australia.

Of particular concern in France is a negotiated deal with the South American trade bloc Mercosur that has yet to be signed as several countries demand concrete commitments from Brazil against the deforestation of the Amazon.

California firefighters ended up using a water-filled pit to douse stubborn flames in a Tesla’s battery compartment earlier this month, illustrating the distinct difficulties in battling electric vehicle blazes. 

As the number of electric cars on America’s roads has jumped, fire crews have had to learn how to attack flames in them that can require hours -– and thousands of gallons of water -– to put out.

Though they can require particular procedures to fight, early indications point to fires in battery-powered cars being no more frequent than their fossil fuel-powered cousins, yet the US government is still gathering data.

US carmaker GM announced Thursday a new training initiative for emergency responders and Tesla has put out guides on how to get a burning battery bank under control. But it’s still up to crews in the field to handle these fires.

“We’re kind of just creeping into the future of firefighting,” said Capt. Parker Wilbourn, a spokesman for the Sacramento Metropolitan Fire District, which handled the burning Tesla.

“This is a new age fire and so we’re having to adapt and find solutions,” he added.

The main difference with electric vehicles is their power source, and lithium-ion batteries burn hot, fast and require large amounts of water to fully extinguish when they catch fire.

Tesla, which dominates America’s electric vehicle market, says it can take 3,000-8,000 gallons (11,000-30,000 liters) of water to put out and cool a battery fire.

“Always establish or request additional water supply early,” Elon Musk’s car company recommends in its emergency response guide. 

Meanwhile, electric-powered vehicles are a steadily growing minority of the over the 275 million vehicles on the road in the United States.

Electrics and hybrids represented nearly 10 percent of US car purchases last year, according to Cox Automotive.

In the case of the June 9 Tesla fire in California, the car was seriously damaged in a crash about three weeks prior and was parked at a junkyard waiting to be dismantled when it started to burn. 

– Risk of ‘thermal runaway’ –

Investigators were working to figure out what caused the fire that took some 4,500 gallons of water to douse, but said there was no indication humans had sparked the blaze.

The batteries can reignite hours or even days after an initial incident, with Tesla recommending the monitoring of battery temperatures for at least 24 hours after a fire.

“It’s not necessarily that they’re more dangerous,” said Michael Gorin, a program manager at nonprofit National Fire Protection Association (NFPA), referring to electric cars. 

“It’s just that it’s a new technology, a new set of hazards,” he added.

He noted electric car blazes don’t appear to be more frequent or dangerous than in fossil fuel-powered vehicles, but America’s road safety agency NHTSA says it does not have enough data to reach conclusions about the rate at which they catch fire.

Lithium-ion batteries can however undergo so-called “thermal runaway” –- an ominous sounding term that refers to an uncontrolled increase in temperature and pressure -– in one cell that can spread to another in a bank of batteries.

The US accident investigation agency NTSB warned in late 2020 of that and other risks linked to the batteries, and recommended car makers follow a common template for their fire response guides in order to help emergency crews.

Fire crews around the world have had to learn the particularities of dealing with the tenacious fires in electric car batteries, and over 250,000 emergency responders in the United States have done training with NFPA, the fire prevention non-profit.

“But I believe it’s 1.1 million firefighters in the United States today,” said Gorin, an NFPA program manager.

GM, in announcing its new training initiative, noted that a key part of encouraging “mass adoption” of electric vehicles is to “support those who play a vital role in the responsible deployment” of the cars: firefighters.

The perception of the vehicles’ safety is key, especially after GM advised owners of some electric Chevrolet Bolt cars last year not to park them indoors or charge them unattended overnight, before initiating a massive recall of all model years. 

Wilbourn, the California fire captain, said one way to ensure safety in the booming electric car market could be some kind of internal fire firefighting capacity built into electric cars.

“Maybe one of those solutions is putting that back on the manufacturer,” he said, noting fire suppression is already a requirement in homes and businesses.

A key US inflation measure showed price increases held steady in the 12 months ended in May, while consumer spending growth slowed sharply, a good sign in the battle against soaring prices.

The trend could offer comfort to consumers and central bankers alike, as a sign the Fed’s aggressive interest rate strategy is starting to have an impact to quell the fastest surge in inflation in more than 40 years.

The personal consumption expenditures (PCE) price index rose 6.3 percent compared to May 2021, still high but the same pace as in the prior month, even as it jumped 0.6 percent compared to April, the Commerce Department reported Thursday.

The index jumped 0.6 percent compared to April, much faster than in the prior month, but slightly below what economists had projected.

But spending edged up just 0.2 percent, less than half the increase in April and part of a steady downward drift as consumers pull back amid surging prices.

Buoyed by a stockpile of savings, helped by massive government aid, consumers have been the lynchpin in the rapid US recovery from the pandemic downturn.

But strong demand clashed with global supply chain snarls and the world’s largest economy has been battered for months by a cresting inflation wave, made more painful by the surge in energy prices sparked by the Russian invasion of Ukraine in late February.

Excluding volatile food and energy prices, PCE rose 0.3 percent in the month, the same as in April, and slowed slightly to 4.7 percent over the past year, the report said.

– Fed inflation battle –

The PCE price index is the Federal Reserve’s preferred inflation gauge, as it reflects consumers’ actual spending, including shifts to lower cost items, unlike the more well-known consumer price index, which jumped 8.6 percent in May.

PCE also gives less weight to things like rent, vehicles and airline fares, which have contributed to the blistering pace of the CPI rise.

The Fed early this month announced the biggest hike in the benchmark lending rate in nearly 30 years, a three-quarter point increase that was the third step in its counteroffensive against rising inflation, which aims to cool demand.

Policymakers are watching the spending and inflation data closely and have signaled there is a good chance of another similar increase in late July, followed by more big steps in coming months.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, noted that the three-month average annual increase fell to the slowest pace since November, and “a sharp easing from the 5.7 percent peak in February.”

“A combination of slower wage gains, lower margin inflation, and the stronger dollar is beginning to drive a clear slowdown in core inflation,” he said. But “It has much further to go.

– Slower spending –

The signs of consumers pulling back will weigh on second quarter GDP growth, after the Commerce Department revised first-quarter consumer spending sharply lower, cutting it to 1.8 percent from 3.1 percent, as the economy contracted 1.6 percent.

The key driver of the slower consumption growth in May was the sharp drop in spending on big-ticket manufactured items, known as durable goods, which fell 3.2 percent in the month, the report said.

Economists note that reflects a pull back on vehicle sales.

Spending on services rose 0.7 percent in the month, the same as in April.

Rubeela Farooqi of High Frequency Economics said the Fed will stick to its efforts to tame prices.

“With the threat from durable inflation in focus, these data are not likely to change the rate trajectory, which remains firmly upward,” she said in an analysis.

Major oil producers led by Saudi Arabia and Russia stuck to a previously decided output boost on Thursday, despite calls for bigger increases to tame crude prices.

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

But a respite is not in sight.

In their monthly video conference, which lasted about an hour, the 23 members of OPEC+ agreed to add another 648,000 barrels per day in August, the same as for July.

Analysts had widely expected the move, calling the gathering of the Vienna-based Organization of the Petroleum Exporting Countries and their partners a “rubber stamp” meeting.

Jeffrey Halley, analyst at OANDA trading platform, said before the meeting that he did not expect surprises as “OPEC+ can’t even meet its present targets, and hasn’t for a long time.” 

The 13 members of OPEC, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as the coronavirus pandemic and the resulting lockdowns sent demand plummeting.

Since last year, they have been gradually increasing output again. In recent months, the United States and other top oil consumers urged OPEC+ to open the tabs more widely.

The group finally decided at its last meeting in early June to add 648,000 barrels per day to the market in July, up from 432,000 in previous months.

But the larger-than-expected boost failed to cool prices.

– Biden heading to Saudi Arabia –

Since Russia invaded Ukraine on February 24, the international benchmark, Brent North Sea Crude, has added around 17 percent, while the US benchmark WTI has jumped more than 18 percent.

Analysts have warned that only a recession may be able to bring down prices.

“The prices will likely push higher unless the recession fears take the upper hand,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank.

Several OPEC+ members have been failing to meet the output quotas, while Iran and Venezuela — and now also Russia — are blocked by sanctions. 

The United Arab Emirates said this week it was close to its oil output ceiling, ahead of a regional visit by US President Joe Biden, who is expected to lobby for increased production.

Biden will visit neighbouring Saudi Arabia, the world’s biggest oil exporter, as part of his tour next month, but analysts doubt it will convince OPEC+ to boost output.

On Monday, at the meeting of the G7 club of industrialised nations in Germany, French President Emmanuel Macron was caught on camera telling Biden details of a conversation with UAE leader Sheikh Mohamed bin Zayed Al-Nahyan.

According to Macron, Sheikh Mohamed said the UAE was at its “maximum” capacity and Saudi Arabia also faced a limit for raising production.

World stock markets mostly sank Thursday on intensifying recession fears, while oil prices receded before an OPEC output decision.

Frankfurt and Paris each tumbled 2.7 percent in early afternoon eurozone deals, and London shed 1.9 percent.

That followed a largely downbeat performance in Asia, although Shanghai rose after data showed a forecast-beating improvement in China’s services sector on easing Covid restrictions.

Crude futures drifted lower as major oil producers led by Saudi Arabia and Russia were Thursday expected to keep to a decision on a limited boost to output despite the risk of high oil prices may help push the global economy into recession.

– ‘Terrible mood’ –

Stock markets are “in a terrible mood across Europe”, said AJ Bell investment director Russ Mould.

“There really is a lack of good news for investors to cling onto, and the near-term outlook looks bleak.”

The threat of an extended period of elevated inflation and painful interest rate hikes has left traders fretting over the threat of a prolonged economic downturn, while the Ukraine war continues to sow uncertainty.

“Recession continues to be the primary concern at the moment… as countries continue to grapple with spiralling inflation and cost-of-living crises,” said Mihir Kapadia, head of Sun Global Investments.

The surge in inflation to multi-decade highs has forced central banks to swiftly raise interest rates, dealing a hefty blow to equities as companies faces higher borrowing costs.

The Federal Reserve is next month expected to announce a successive 75-basis-point hike in US interest rates.

There had been hope that policymakers would ease off their hikes as economies show signs of slowing, but analysts say some officials are less concerned about a recession than letting prices run out of control.

– Risk of ‘going too far’ –

Fed boss Jerome Powell, speaking at a European Central Bank conference Wednesday, hinted again that such hikes could lead to economic contraction.

“Is there a risk that we would go too far? Certainly there’s a risk,” Powell said.

“The bigger mistake to make… would be to fail to restore price stability,” he insisted.

ECB President Christine Lagarde stated this week that the guardian of the euro would go “as far as necessary” to fight inflation that was set to remain “undesirably high” for “some time to come”.

Wall Street’s Dow index closed up slightly Wednesday after plunging the previous session.

– Key figures at around 1100 GMT –

London – FTSE 100: DOWN 1.9 percent at 7,171.11 points

Frankfurt – DAX: DOWN 2.7 percent at 12,654.35

Paris – CAC 40: DOWN 2.7 percent at 5,867.61

EURO STOXX 50: DOWN 2.6 percent at 3,423.46

Tokyo – Nikkei 225: DOWN 1.5 percent at 26,393.04 (close)

Hong Kong – Hang Seng Index: DOWN 0.6 percent at 21,859.79 (close)

Shanghai – Composite: UP 1.1 percent at 3,398.62 (close)

New York – Dow: UP 0.3 percent at 31,029.31 (close)

Brent North Sea crude: DOWN 0.5 percent at $115.63 per barrel

West Texas Intermediate: DOWN 0.5 percent at $109.25 per barrel

Euro/dollar: DOWN at $1.0416 from $1.0442 Wednesday

Pound/dollar: UP at $1.2125 from $1.2124

Euro/pound: DOWN at 85.92 pence from 86.12 pence

Dollar/yen: DOWN at 136.38 yen from 136.59 yen

Production has been halted in the world’s biggest chocolate plant, run by Swiss giant Barry Callebaut in the Belgian town of Wieze, after salmonella contaminations was found, the firm said Thursday. 

A company spokesman told AFP that production had been protectively halted at the factory, which produces liquid chocolate in wholesale batches for 73 clients making confectionaries.

There have been no reports so far of any chocolate consumers infected by the salmonella, which causes salmonellosis, a disease that cause diarrhoea and fever but is only dangerous in the most extreme cases.    

“All products manufactured since the test have been blocked,” spokesman Korneel Warlop said. 

“Barry Callebaut is currently contacting all customers who may have received contaminated products. Chocolate production in Wieze remains suspended until further notice.”

Most of the products discovered to be contaminated are still on the site, he said.

But the firm has contacted all its clients and asked them not to ship any products they have made with chocolate made since June 25 at these Wieze plant, which is in Flanders, northwest of Brussels.

“Food safety is of the utmost importance for Barry Callebaut and this contamination is quite exceptional. We have a well-defined food safety charter and procedures,” the firm said.

Belgium’s food safety agency AFSCA has been informed and a spokesman told AFP it had opened an investigation. 

An AFSCA spokesman said investigators would “gather all the information in order to trace the contamination”.

The Wieze plant does not make chocolates to be sold directly to consumers, and the firm has no reason yet to believe that any contaminated goods made by clients have yet made it onto shop shelves.

– Green light –

The scare comes a few weeks after a case of chocolates contaminated with salmonella in the Ferrero factory in Arlon in southern Belgium manufacturing Kinder chocolates. 

Belgian health authorities said on June 17 that they had given the green light to restart the Italian giant’s factory for a three-month test period.

Swiss group Barry Callebaut supplies cocoa and chocolate products to many companies in the food industry, including industry giants such as Hershey, Mondelez, Nestle or Unilever. 

World number one in the sector, its annual sales amounted to 2.2 million tonnes during the 2020-2021 financial year. 

Over the past financial year, the group, which has a head office is in Zurich, generated a net profit of 384.5 million Swiss francs ($402 million) for 7.2 billion francs in turnover. 

The group employs more than 13,000 people, has more than 60 production sites worldwide.