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OPEC+ cuts ahead of winter fan global inflation concerns

Concerns over tight oil supplies and soaring inflation have intensified after the OPEC+ group of nations announced its largest supply cut since 2020 ahead of European Union embargoes on Russian energy. The move has widened a diplomatic rift between the Saudi-backed bloc and Western nations, which worry higher energy prices will hurt the fragile global economy and hinder efforts to deprive Moscow of oil revenue following Russia’s invasion of Ukraine.

Global crude futures jumped this week, returning to three-week highs, after the Organization of the Petroleum Exporting Countries and their allies, including Russia, agreed to slash output by 2 million barrels per day just ahead of the peak winter season. This is likely to drive spot prices higher, particularly for Middle East oil, which meets about two-thirds of Asia’s demand, industry participants said, adding to inflation concerns as governments from Japan to India fight the rising cost of living while Europe is expected to burn more oil to replace Russian gas this winter.

“We are concerned about a resurgence in international oil prices, which have shown some signs of calming down since the second quarter,” a spokesperson at South Korea’s largest refiner SK Energy told Reuters. Another South Korean refining source said the supply cut could drive prices back to levels seen in the second quarter. South Korea, Asia’s fourth-largest economy and a manufacturing powerhouse has seen costs skyrocket due to surging commodity prices. Brent hit $139.13 a barrel in March, the highest since 2008 after the Ukraine war sparked fears of Russian oil supply loss.

ACTUAL CUTS

Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million BPD, a response to rising global interest rates and a weakening world economy. That move triggered a sharp response from Washington, which criticized the OPEC+ deal as shortsighted. The White House said President Joe Biden would continue to assess whether to release further strategic oil stocks to lower prices.

“Saudi, UAE (the United Arab Emirates), and Kuwait are likely to take up most of the burden of cuts,” said Tilak Doshi, managing director of Doshi Consulting, who was previously with Saudi Aramco. “It’s a slap on Biden’s face by OPEC+,” he said, adding that ties between Russia and Saudi seem increasingly tight. While the SK Energy spokesperson expects the U.S. reserves release to accelerate ahead of the U.S. midterm elections in November, RBC Capital analysts said follow-on sales would likely be more incremental. “We are unlikely to see another blockbuster release in the near term,” the bank added.

The OPEC+ cuts compound supply concerns as European Union sanctions on Russian crude and oil products take effect in December and February, respectively. Industry participants estimate the loss of Russian crude at between 1 and 2 million BPD, depending on how Moscow reacts to the G7’s price cap on Russian oil. That policy is aimed at ensuring Russian oil continues flowing to emerging economies but at lower prices to reduce Moscow’s revenues.

“The market is still underpricing the actual loss,” said a Singapore-based crude oil trader who declined to be named due to company policy. The move by OPEC+ prompted warnings from oil-importing emerging markets, some of which have become particularly vulnerable to price shocks amid recent global supply snags. Sri Lanka is battling its worst economic crisis since its independence from Britain in 1948, with a plunge in its currency, runaway inflation, and an acute dollar shortage to pay for essential imports of food, fuel, and medicine.

President Ranil Wickremesinghe warned Sri Lanka will have to pay even more for fuel as richer countries stock up for their own needs. “This is not just an issue faced by us but several other South Asian countries,” he told parliament on Thursday. “Global inflation is going to hit us all next year.”

Eqwires Research Analyst

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Nifty, Sensex surge 2% on strong global cues as bulls return to D-St; ‘market trend bullish, buy on dips

Bulls fuelled a pullback rally on Tuesday as Indian equity markets reversed the previous session’s losses to gain over 2 percent on the back of positive global cues. Frontline indices witnessed a massive buying interest today as Sensex zoomed nearly 1300 points and Nifty 50 settled above 17250. The BSE Sensex closed 2.25 percent higher at 58,065, while Nifty50 ended 2.29 percent up at 17,274. “Nifty smartly broke out upwards after sideways consolidation. It will now face resistance in the 17291-17401 band while the 17176-17196 band will offer support in the near term,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

S Ranganathan, Head of Research at LKP securities

“Indices surged over 2% buoyed by positive global cues and encouraging quarterly updates on advances and collections from banks during the second quarter. Ahead of the festive season, the street is optimistic about retail demand across segments and we saw financials lead from the front today. Participation of the IT sector today lent ammunition to the Bulls as almost all sectoral indices ended in the Green as we near the end of the Navratri festival. Positive tailwinds at home amidst gloom elsewhere in the globe left bears stranded today as the Sensex vaulted past 58K.”

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities

“On the backdrop of strong global cues, the benchmark indices bounce back sharply. Technically, after a sharp intraday correction, the index bounces back sharply. Post gap up opening, indices held the level of 17100/57500 and managed to close above the same. They also formed a higher bottom formation on intraday charts which indicates a continuation of the uptrend in the near future. The short-term market structure is positive, but we could see range-bound activity in the near future due to temporary overbought conditions. For the traders now, 17200-17150/57800-57600 would be the key support zone whereas 17400-17425/58300-58400 would act as an important resistance zone for the index.”

Palak Kothari, Senior Technical Analyst, Choice Broking

“On the technical front, the Nifty has been trading with the support of above 89-DMA as well as given closing above 200 DMA which points out bullish momentum in the counter. Furthermore, the Nifty has given a breakout of rectangle pattern on an hourly chart which suggests strength for the upside. The support for nifty has shifted around 17000 levels while on the upside 17400 levels may act as an immediate hurdle crossing above the same can open the gate for 17500-17650 levels. On the other hand, Bank nifty has support at 38500 levels while resistance at 39800 levels. Overall, the Nifty has closed above the 17200 level and looking bullish for the upcoming session. Every dip should be considered as buying opportunity.”

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IKIO Lighting files IPO papers with Sebi to mop-up funds

Manufacturer of LED lighting solutions IKIO Lighting Ltd has filed preliminary papers with capital markets regulator Sebi to raise funds through an initial public offering (IPO).

The IPO consists of a fresh issue of equity shares worth up to Rs 350 crore and an offer-for-sale (OFS) of up to 75 lakh equity shares by promoters — Hardeep Singh and Surmeet Kaur, according to the draft red herring prospectus (DRHP).

Proceeds from the fresh issuance worth Rs 50 crores will be used for debt payment, Rs 236.68 crore will be used in the company’s wholly-owned subsidiary, IKIO Solutions, to set up a new facility at Noida, Uttar Pradesh, and for general corporate purposes.

IKIO Lighting is a manufacturer of light-emitting diode (LED) lighting solutions. It is primarily an original design manufacturer (ODM) and designs, develops, manufactures, and supplies products to customers who then further distribute these products under their own brands.

It has four manufacturing facilities with one located in the SIDCUL Haridwar industrial park in Uttarakhand and three in Noida in the National Capital Region.

IKIO Lighting’s revenue from operations surged by 55.47 percent to Rs 331.84 crore for the financial year 2022 from Rs 213.45 crore for the financial year 2021. However, profit after tax grew 75.37 percent to Rs 50.52 crore from Rs 28.81 crore during the period.

Motilal Oswal Investment Advisors is the sole book-running lead managers to the issue. The equity shares are proposed to be listed on the BSE and NSE.

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