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Oil prices fall on rising Covid infections in Asia, inflation fears

New Delhi: Oil prices fell this week on renewed demand concerns as coronavirus cases in Asia rise and on fears rising inflation might lead the US Federal Reserve to raise interest rates, which could limit economic growth.

Brent crude futures fell 85 cents, or 1.2%, to $67.86 a barrel at 1005 GMT. It settled 1.1% lower after briefly climbing above $70 earlier in the session.

US West Texas Intermediate (WTI) crude futures dropped 90 cents, or 1.3% to $64.59 a barrel, following a 1.2% fall.

Brent’s rise to $70 was driven by optimism over the reopening of the U.S. and European economies, among the world’s biggest oil consumers. But it later retreated on fears of slowing fuel demand in Asia as Covid-19 cases surge in India, Taiwan, Vietnam and Thailand, prompting a new wave of movement restrictions.

“Thge trade proved again that $70 signals irrational exuberance,” said Vandana Hari, energy analyst at Vanda Insights.

Uncertainties over inflation also prompted investors to reduce exposure to riskier assets like oil.

“There is a wider risk-off play that’s going on,” said Westpac senior economist Justin Smirk.

Smirk said speculation that the Federal Reserve might raise rates because of inflation fears weighed on the outlook for growth and in turn on commodities demand.

“The Fed’s very serious (about holding rates low), but the market’s speculating about earlier movement,” he said.

The Fed has indicated that interest rates will stay at their current low levels through 2023 though futures markets show investors believe rates may start to be raised by September 2022.

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Business Latest News

5 businesses that bore the maximum brunt in 2020

Intro: The Covid-19 pandemic rattles industries after industries as it surged across the world. Here’s a look at the biggest losers in 2020 and a preview of what 2021 may bring

1. Travel and hospitality

Going on vacation wasn’t an option for most during the pandemic. The cruise industry was battered as Carnival (CCL), Royal Caribbean (RCL) and Norwegian (NCLH) were forced to suspend voyages for much of 2020 and into 2021. The news wasn’t much better for hotel chains, which were hammered by a decline in demand for both leisure and business travel.

What’s next: The industry is hoping for a rebound as would-be travelers look to hit the road in 2021 once vaccines are widely available, but it’s not clear whether business travel will approach pre-pandemic levels at a time when video conference calls are the way.

Adding insult to injury for the big hotels, Airbnb soared when it went public in December. 

2. The oil industry

The oil industry had a miserable 2020. Plenty of industries grappled with plunging prices in 2020, but oil is the only major commodity that went negative. The unprecedented trip below zero in the spring was caused by an epic collapse in demand during the pandemic and a price war between Saudi Arabia and Russia.

The S&P 500’s energy sector is down by more than 30% this year, making it easily the worst performer in the stock market.

What’s next: The oil industry certainly will benefit as the US economy reopens in 2021 and people start flying and driving more. But coronavirus vaccines won’t fix oil’s bigger threat: a climate crisis that is causing investors to dump fossil fuels.

3. Banks

This was easily the worst year for America’s banks since the Great Recession. Lenders suffered tens of billions of dollars in losses as they braced for loan defaults and share prices spiraled lower. Even big banks such Citigroup (C) and Bank of America (BAC) are finishing the year sharply lower, and Wells Fargo (CBEAX) remains a hot mess

What’s next: The silver lining is that the US banking system just endured a real-world stress test — and it passed. If Wall Street’s V-shaped recovery spreads to Main Street, banks stand to be winners in 2021. 

4. Airlines and Automakers

The airline industry had awful years in the past, but none were as devastatingly horrendous as 2020. US air travel came to a virtual halt in April. Traffic rebounded modestly late in the year, despite climbing Covid-19 cases, but the number of passengers screened by TSA at US airports was still down 63% compared to a year ago during the holiday travel season.

Similarly, the auto industry suffered a body blow from the pandemic in its early months, as factories shut down and demand for cars fell sharply.

Job losses soared and car companies reduced shifts for millions of autoworkers.

What’s next: More losses are expected in the fourth quarter and into 2021. Air travel isn’t expected to recover for several years, even as the vaccine raises hopes for the end of the pandemic. 

Many commuters are concerned about using public transit or ride-hailing services such as Uber. That could boost the auto industry recovery in 2021. 

5. Movie industry

The coronavirus pandemic forced theaters shut around the world, leading US box office sales to plummet nearly 80%, according to Comscore, It also pushed more people stuck at home to streaming. Netflix and Disney+ thrived while the $43 billion global theater global business was ravaged.

What’s next: With traditional studios including Disney and Warner Bros. going all-in on their streaming ventures, theaters find themselves in a perilous position. But the biggest question in Hollywood is will consumers return to the cineplex once vaccines hit critical mass?

(File photos)
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Business India

Oil giant BP to lay off 10,000 employees globally

New Delhi: Amid the coronavirus pandemic and its severe impact on the oil market, British Petroleum has decided to lay off 10,000 employees from its workforce globally by the end of the year.

The total people to be laid off represent 15 per cent of the 70,000 strong global workforce of the oil giant.

BP’s CEO Bernard Looney, in an email, told the employees that the job cuts were essential to help the company to tide over the global collapse in oil demand on the back of the coronavirus pandemic.

“You are already aware that, beyond the clear human tragedy, there has been widespread economic fallout, along with consequences for our industry and our company,”said Looney’s mail.

He noted that the oil price has plunged well below the level the company needs to turn a profit.

“We are spending much, much more than we make — I am talking millions of dollars, every day. And as a result, our net debt rose by $6 bn in the first quarter,” the CEO said.

BP has a significant stake in India. With several investments and employing around 7,500 people in the oil, gas, lubricants and petrochemicals businesses, BP is one of the largest international energy companies in India.

In addition to its gas value chain alliance with Reliance Industries Lts, BP’s activities include Castrol lubricants, the licensing of competitive petrochemical technologies, oil and gas trading, clean energy projects through investment in Lightsource BP, IT and procurement back office activities, staffing and training for BP’s global marine fleet, and the recruitment of skilled Indian employees for its global businesses.

India Gas Solutions Private Ltd, a 50-50 joint venture to source and market gas in India, is also part of BP’s gas value chain alliance with RIL.

Last December, BP and RIL signed a definitive agreement relating to the formation of their new Indian fuels and mobility joint venture.

The Competition Commission of India in April has approved the joint venture between RIL and the British energy major in the retail fuel segment.

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