Oil prices fall further, WTI hits $ 15/barrel on low demand
Crude oil prices plunged on Monday with the West Texas intermediate (WTI) crude in the US falling below the $15 per barrel mark, the lowest level in 21 years.
 
The fall in oil prices comes on the back of weak demand amid the coronavirus crisis. The pandemic has almost brought the global travel industry to a halt, limiting demand for the commodity which has fallen by almost a third this year. Further, concerns regarding storage have also weighed on the markets as global storage is nearly full.
 
Currently, WTI crude is trading at $14.78 per barrel, lower by 19.5 per cent from its previous close.
 
Brent crude was at $27.66, lower by 1.5 per cent from the previous close.
 
The decline comes despite the recent output cut agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies. There were hopes that agreement would stabilise oil prices, but with Covid-19 pandemic continuing, there has been a large slip in demand that is not letting a pick up in oil prices.
 
The current market is oversupplied on shrinking demand creating a situation of free fall for crude.
 
Soon after the OPEC-Russia talks on production cut failed earlier last month, crude had fallen by more than 25 per cent, the largest fall since the 1991 Gulf War, to $34 per barrel on March 9.
 
The price of oil has now reached a point that it is increasingly becoming difficult for higher cost producers to remain in operation and rather look at declaring bankruptcy. A lot of US shale producers are in deep trouble and analysts expect that low oil price for few more months will result in a spate of bankruptcies in US.
 
With world demand now forecast to plunge by over 20 million barrels per day, a 30 per cent drop from last year, analysts say massive production cuts will be needed beyond just what has been agreed between the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers.
 
Global markets have been on a bear run including the financial markets for the past few weeks owing to the concerns of a significant impairing of the world economy due to the coronavirus crisis.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Ramesh Popat

    6 months ago

    our imports are at brent or nymex price or combo?! (to know india's benfit)

    COVID-19: Subdued Exports to Hit Textile Sector’s Recovery, says Ind-Ra
    Textile companies across the value chain could witness a top line contraction of 20%-25% in FY2021, on back of a muted domestic demand and sub-par exports during first quarter (1Q) of FY2021 due to the corona virus (COVID-19) related disruptions, says India Ratings and Research (Ind-Ra), in a note.
     
    The research report sees export demand taking a hit due to COVID-19, and thus affecting recovery in textile sector in India. India exported $28.36 billion worth of textiles from April 2019 till January 2020. The majority of domestic companies are facing massive order cancellations from the US and Europe, along with factory shutdowns, raw material shortage, delayed delivery of summer apparels. 
     
    "Average exports during 1Q typically stand at $8 billion-$10 billion, hence the industry is staring at an equivalent quantum of revenue loss from exports across the value chain because of the extended lockdown which would take at least an additional month to resume. Furthermore, the full-fledged resumptions of exports would mainly depend on the containment of pandemic in key export geographies. The US and Europe while being the worst hit geographies are also India’s major export markets for textile products, hence export recovery could take longer, especially given the discretionary nature of these products. Some US retail brands, which are socially conscious are not fully cancelling orders but curtailing the volumes and to an extent bearing the brunt that manufacturers are facing," the report says.
     
    According to Ind-Ra, prolonged grim exports and muted domestic demand could lead to consolidation in textile sector. It says, "The sector was already facing multiple headwinds in form of a flattening demand from key exporting countries, higher production leading to lower realisations and increasing competition from neighbouring countries such as Bangladesh, Pakistan and Vietnam." 
     
    Ind-Ra says it believes the COVID-19 related demand disruptions could substantially impact companies with weaker balance sheets and limited scale, should the recovery stretch beyond one quarter. 
     
    "In such a situation, we expect consolidation within sub-segments such as yarn producers, spinning and dyeing, since the industry is largely fragmented due to limited entry barriers. Also, any movement of orders out of China benefiting other competing countries would be limited in the short-run. China’s position as the largest exporter to the US may be challenged in the long-run, but will remain intact in the short run, given its strengths of scale, product integrity, price points and turnaround time in times of a shortening fashion cycle," the ratings agency added.
     
     
    Ind-Ra has analysed the impact of COVID-19 related disruption on its issuers rated A and above under two scenarios. It says, "The liquidity score for FY2021 for most issuers remains resilient to demand shocks, backed by the availability of cash reserves and unutilised bank limits. While some issuers have heavy concentration on exports, their existing strong credit profiles would provide sufficient buffers under our stressed scenarios." 
     
    "However, in a few A rated issuers, the liquidity scores contract closer to one, suggesting limited headroom available to honour debt obligations. A weak rupee is a silver lining in the current situation. However, the majority of these issuers on an average maintain a hedge of 50%-60% of the receivable exposure, thus the currency benefits to an extent be only moderate. In case of foreign currency debt, payments for the next 12 months are largely hedged, limiting any significant downside risk due to rupee depreciation," it added.
     
     
    The ratings agency believes material pressures on top line and hence earnings before interest, taxes, depreciation, and amortization (EBITDA), would stretch the deleveraging pace of textile companies. "Due to the higher fixed cost nature of the sector, the degree of operating leverage available to companies would significantly contract, limiting the fixed cost absorption," it says. 
     
    Among its A and above rated issuers, Ind-Ra expects the aggregate working capital requirement to remain limited, as a decline in commodity prices is likely to counter the incremental requirements of an elongated receivable cycle and higher inventory volumes. 
     
    "Hence, working capital related borrowings will inch up only moderately in FY2021. However, the benefit of a lower total debt in this scenario gets more than offset by the EBITDA loss, increasing the leverage levels. We expect the median gross leverage of the companies analysed to increase by 1.3-1.5 times as against its earlier assessment of a decline by around 0.5 times in FY2021. The ratios could revert to their FY2020 levels in FY2022, on the back of stabilised operations and a gradual revival of domestic as well as exports demand. While the working capital requirement would reduce, the working capital cycle is likely to elongate as collections from receivables would be delayed due to the typical cash flow pressures across the industry," Ind-Ra says.
     
    According to the ratings agency, government support would be critical for textile sector, especially after the COVID-19 pandemic.  
     
    It says, "The textiles industry being heavily concentrated in medium and small-scale enterprises, compared to large scale producers across the value chain, micro, small and medium enterprises (MSME) players are highly vulnerable to the business risks. Subsequently, the resumption of operations for MSME’s heavily hinges on working capital availability and orders from large scale companies as well as exports." 
     
    "The extension of rebate of central & state levies scheme for readymade garments and made-ups is a step in the right direction in this regard, along with the ad-hoc incentive of 1%. The scheme would assist export-oriented units in these segments to claim a rebate on input costs at different rates for different cost heads. Furthermore, the moratorium announced by the Reserve Bank of India will only shift payment obligations and that too with a higher interest burden. The material relief especially to the MSME units in the sectors would depend on the domestic as well as export recovery, complimented with a focused government aid," it added.
     
    Subsequently, Ind-Ra says, companies in its ‘BBB’ and below rating categories could become extremely vulnerable to handle such exogenous shocks while the A and above category issuers’ median gross leverage could increase by 1.3-1.5 times. However, the liquidity profile of the majority of these issuers would remain resilient, baring a few companies where liquidity buffers are already thin, it concluded.
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    Lockdown: Centre forms guidelines for refund of air tickets
    The Centre has formed guidelines on refund of air tickets which were booked during the first and the extended lockdown periods.
     
    In an office memorandum, the Ministry of Civil Aviation acknowledged the unusual situation that has arisen due to the lockdown and its consequential effect on the air passengers and airlines. At present, domestic and international commercial flights are banned since March 25, 2020, barring cargo operations. 
     
    To deal with massive cancellations, domestic airlines started to offer credit to the passengers in lieu of their booking amounts. These credits can be used to book tickets at a later stage, when the situation normalises. 
     
    However, discrepancies have occurred on the refund mechanism. The first phase of lockdown was supposed to have ended on April 14, but it has been extended till May 3. "If a passenger has booked a ticket during the first lockdown period... for travel during the same period for both domestic and international air travel and refund is sought by the passenger against that booking being cancelled, the airline shall refund the full amount collected without the levy of cancellation charge," the ministry said. 
     
    The guideline mandates airlines to make the refund within three weeks from the date of request for cancellation. 
     
    "If a passenger has booked a ticket during the first lockdown period... for travel during the second lockdown period for both domestic and international air travel and the passenger seeks refund on cancellation of the ticket, the airline shall refund the full amount collected without levy of cancellation charge." 
     
    Similarly in this case, the airlines have been mandated to make refunds within a period of three weeks from the date of request for cancellation.
     
    On Wednesday, senior officials from the Ministry of Civil Aviation via a virtual platform met airline CEOs on the issue. In hindsight, private airlines were accepting ticket bookings for travel post April 14, however, the earlier lockdown deadline got extended till May 3. Consequently, airlines adopted their previous strategy of providing a "travel credits" to passengers of the now cancelled flights to make another booking as and when the sector re-opens. 
     
    This system is complicated as ticketing agents and various payment channels are also involved.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User 

    COMMENTS

    MT

    6 months ago

    Rubbing our wounds with salt... Thank you DGCA 🙏🏻🙏🏻

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