Middle Eastern politics begin to affect oil prices again

For months, the big story behind plummeting oil & gas prices has been the U.S. and Canadian on-shore shale boom. The resulting supply glut has caused WTI crude to fall from about $107 on June 20th, to a low of about $45 recently. Meanwhile, Saudi Arabia and OPEC have held firm to their Thanksgiving weekend decision to continue pumping at a steady rate. Finally, lackluster demand from emerging countries like China hasn't had enough kick to cause prices to rebound significantly.

So… OPEC countries have been the "steady" ones in all this.

In recent days, however, focus has turned to the Middle East (of all places). Can you imagine? Middle Eastern geopolitics affecting oil prices? It's been awhile since the Mid-East has been the center of attention.

Today, two major developments are in the spotlight; namely, Saudi Arabia's military action in Yemen, and the Iran nuclear talks.

Conflict in Yemen

Last week, Saudi Arabia launched air strikes against rebels attempting to increase their power in the government of neighboring Yemen. This conflict has the worrisome potential of escalating into a full-on regional war between Sunni and Shia Muslim factions – which could spiral into a wide-ranging war without borders.

Saudi Arabia, a Sunni nation, has become virtually surrounded by Shiite enemies, many of whom are backed by Iran. Of course, the Middle East/North Africa region produces about one-third of the world's petroleum (at around 30 million barrels per day), according to data from the U.S. Energy Information Administration at EIA.gov. Historically, episodes of instability in the Mid-East have often added a "geopolitical risk premium" to oil prices.

This Sunni vs. Shia conflict has the potential to continue indefinitely, adding a risk premium to oil prices for a long time. Oil prices jumped 5% last Thursday alone, the day the airstrikes began. Since then, oil has shed about 7% over the 3-day period leading up to today's deadline in the Iran nuclear talks. Which brings me to the second issue.

Iranian nuclear deal

As I write this, negotiators have once again, moments ago, failed to reach the framework of a deal to end sanctions on Iran in return for cuts to the Iranian nuclear program. The so-called "P5+1" nations (U.S., Britain, France, Germany, Russia, and China) have apparently so far been unable to overcome obstacles to reaching an understanding with Iran’s negotiators. However, all parties are vowing to continue the talks. This marks the third time talks have been extended.

Should an agreement eventually be reached, Iran has the potential to bring more oil production onto the world’s markets. Estimates range from 500,000 barrels per day within 6 months, to 1.2 million within 18 months.

In terms of impact on oil prices, of course, these talks have been a well-known issue for several months, and oil markets seem to have spent the last few days specifically pricing in the possibility of a deal (as mentioned earlier).

Of course, today's deadline was simply to achieve the "framework" for a deal. The deadline to finalize the specifics comes at the end of June. In any event, any increased flow of Iranian oil to global markets is probably at least a few months out, but markets are already trying to figure out how to price in whatever is going to eventually happen.

This uncertainty may contribute to some near-term volatility, although probably modest. An earlier nuclear deal between Iran and the P5+1 countries in late-November 2013 caused only a slight wiggle in oil prices, which fell only about 3% over the ensuing 3 days. The 2013 deal didn't remove sanctions on Iran but, was viewed as symbolic of further progress yet to come. See this CNBC article from 11/24/2013 for more.

Conclusion

In the near-term, none of this is likely to kick oil prices out of a certain range, in my view.

The Iranian talks still seem to be headed toward an eventual end to sanctions, whether in stages or all at once. If that should occur, the additional 1 million barrels or so of Iranian production will come online again at some point. Information will trickle in gradually, in spurts over a period of months, but the added supply won't shock or surprise markets. The near-term result could be a temporary $5 per barrel fluctuation, at most, in my view.

As for the Middle Eastern conflict, a worst-case scenario would be, of course, nothing any of us ever want to think about. If the conflict escalates into a long, drawn-out war (which seems to be a real possibility), the Mid-East "risk premium" may materialize again and remain in place for a long time. Of course, higher oil prices might be the least of our worries in such a nightmarish state of affairs. At any rate, markets are certainly not pricing in anything of the sort, as of this writing. Stay tuned.

In the meantime, I expect oil prices to be driven primarily by the same supply-and-demand factors that have reigned since last June.

Best,

Adam Feik

INO.com Contributor - Energies

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Measure exempting power generation from VAT filed

Sen. Sergio Osmeña III INQUIRER FILE PHOTO / NINO JESUS ORBETA

The sale of electricity and other power generation and transmission-related transactions should be exempt from the 12-percent value-added tax (VAT) to ease the burden on Filipino consumers, according to Sen. Sergio Osmeña III.

“The VAT on electricity is another burden on the already over-taxed shoulders of our people, especially those whose incomes are barely enough to cover their basic needs. Thus, in light of the unabated price increases in fuel, food and other commodities, Congress is duty-bound to find ways to provide economic relief to the Filipino people,” Osmeña said .

Osmeña, who chairs the committee on energy, has filed a bill seeking to amend the National Internal Revenue Code by adding power-related transactions to those exempted from the VAT.

Under the bill, the exemption would apply to the sales of electricity by generation, transmission and distribution companies and electric cooperatives; services of franchise grantees and electric utilities; and the sale or importation of machines and equipment to be directly used by the buyer or importer in the generation, transmission and distribution of electricity.

In his explanatory note, Osmeña pointed out the Philippines had one of the highest electricity rates in Southeast Asia.

He noted that in February, the 5.24-centavo increase in generation charge per kilowatt hour plus the 12-percent VAT raised electricity rates by 52 centavos per kilowatt hour. Thus, a household consuming 200 kWh per month paid VAT amounting to P188.55.

He said the amount was substantial to the average working Filipino, since the price per kWh could range from P5.49 to P12.10.

But there are other factors adding to the Filipino consumer’s burden, according to the senator. He said the VAT was not only imposed on the generation of consumed power, but also in the transmission and system loss charges.

“Thus, when it comes to electricity cost, Filipinos suffer most than those in Southeast Asia,” he added.

He called on his colleagues to hasten approval of the measure.

As for concerns the VAT exemption on electricity would put a dent on government collections, Osmeña said the upside was that the spending power of Filipinos would be raised.

“With regard to the foregone revenue that may be suffered by the government, it can be offset by the increased purchasing power of all households and businesses. The resulting cheaper production costs will then parlay to a more robust and equitable economy for the country,” he said.

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Banks’ property exposure hit P1.2T

Bangko Sentral ng Pilipinas. INQUIRER.net FILE PHOTO

BANK funds exposed to the real estate sector rose by more than a fifth last year, outpacing the growth in loans of all types, despite regulatory restrictions on the flow of liquidity to avoid fueling an asset bubble in the industry.

Documents from the Bangko Sentral ng Pilipinas (BSP) showed that the banking sector’s exposure to the property industry was driven by the steady demand for financing from home and office builders.

Authorities keep a close watch on the real estate sector to “foster the strength of individual banks as well as the systemic stability of the Philippine banking industry,” the BSP said in a statement.

Last year, the exposure of universal, commercial and thrift banks to real estate sector rose to a record high of P1.22 trillion, up 21 percent year-on-year. Banks are exposed to real estate through loans and investments in securities issued by property companies.

Lending to real estate companies reached the equivalent of 18.58 percent of all the industry’s total portfolio, up from 17.82 percent the year before but still under the 20-percent cap set by regulators.

In 2013, loans extended by universal and commercial banks grew by 16.8 percent, BSP data showed.

The rise in the banking sector’s exposure to real estate has fueled fears of an unsustainable inflation in property prices in the country—a condition referred to as a “bubble.”

If this bubble is popped, which would see prices collapse, banks might tighten their hold on cash. This credit crunch could slow the circulation of money in the economy, leading to anemic growth.

The BSP has responded to these fears by imposing new regulations that aim to keep price increases at a more manageable pace.

Last year, the BSP started stress tests to determine the industry’s capability to absorb default levels of up to a quarter of all real estate loans.

BSP Governor Amando M. Tetangco Jr. had said that the industry as a whole had enough capital to absorb these losses, based on simulations by regulators. Results of these tests are confidential due to the sensitive nature of the issue.

Also last year, the BSP restricted the acceptability of real estate assets as collateral for loans, making bank-financed home or office projects and purchases more expensive.

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Powerful ‘Superfriend’

THOSE familiar with the legal travails of the Bangko Sentral ng Pilipinas (BSP) know how much headache bank regulators have had in the many years that they have been trying to go after businessman and former banker Jose Go, whose Orient Bank collapsed in the 1990s.

Well, it now seems that that headache is no longer exclusive to the BSP.

We learned recently that United Coconut Planters Bank (UCPB) has been struggling with its own issues in going after some assets presently under the control of Go, who is also a former “mall magnate.”

Here’s the story.

In 2005, UCPB initiated the filing of three cases for unlawful detainer with damages (meaning that certain properties are being held by another party without a legal right to do so) against a Go-controlled firm called Superfriend Holdings Inc. with the Metropolitan Trial Court of Makati City.

The bank properties in question are the Gotesco Caloocan Annex, Manila Plaza and Gotesco Corporate Center—all owned by UCPB and leased by Go, presumably with ownership changing hands after the latter ran into financial trouble.

In 2006, the court granted UCPB’s plea and ordered Go’s Superfriend Holdings to pay its rental arrears and to vacate the leased premises. But then, Superfriend Holdings appealed the decision with the Regional Trial Court of Makati City, which then sided with Go and reversed the other court’s decision.

So UCPB ran to the Court of Appeals, which, in 2009, agreed with the bank. It issued a resolution ordering the Makati RTC to “conduct proceedings without delay.” This time, the Makati RTC ordered Superfriend Holdings to return the three properties to UCPB and pay them back rentals totaling (as of 2011) P270.4 million and advances for expenses.

Naturally, Superfriend Holdings appealed the Court of Appeals’ decision … but was promptly shot down by the court. Well, maybe not that promptly, as this decision was made last year.

Soon after that, Superfriends filed a motion for reconsideration, which was again denied by the appellate court.

What’s next? As expected, Superfriend Holdings filed an appeal with the Supreme Court—its last ace, so to speak. Unsurprisingly, even the Supreme Court (through its second division) denied the appeal for lack of merit. The high tribunal also pointed out that this was clearly being done only to delay the execution of the earlier decisions of lower courts.

Well, a few months later Superfriends filed a motion for reconsideration, and instead of denying it outright—voila!—the high tribunal asked UCPB to comment on the motion of the Go firm.

Apart from the 10-year legal delay, it should be no big deal, right?

Well, here’s the thing: UCPB is now worried about this case because one of the Supreme Court justices was known to have been a borrower of Go’s Orient Bank in the 1990s. It is unclear whether this loan has been repaid or not since the bank had already collapsed.

And UCPB’s lawyers are also scratching their heads as to why this particular justice was involved in the decision when he is a member of another division of the Supreme Court.

Oh well. Daxim L. Lucas

PPP solution

THE AQUINO administration’s public-private partnership (PPP) infrastructure program has lately been thriving, thanks to the healthy participation of domestic conglomerates. But what about the foreign players?

Their minimal participation, thus far, was explained recently by San Miguel Corp. president Ramon S. Ang, who noted that foreign players indeed wanted to come in via partnerships with local counterparts—except the terms weren’t always attractive for Filipino companies.

Recounting San Miguel’s experience, Ang said they were continuously approached by foreigners for ventures. But a deal almost never happens because of the many requirements.

“They want a 20-percent return on their investment, they want exit mechanisms, put options,” Ang told a business forum organized by Euromoney last week.

He said San Miguel was fortunate to have enough resources to turn down such deals, but he noted that smaller companies might have no choice, and this could cause problems in the partnership or project itself moving forward.

The government, given the large size of future PPP deals, knows that foreign players will eventually have to enter, and for Ang, this is but an obvious consequence if local players are successful.

“If foreign companies see that Filipino companies are doing very well, making money, then naturally all foreign companies will come,” he said. Miguel R. Camus

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COL Financial net income dips by 13.6%

COL FINANCIAL Group Inc., a listed Internet-based stock brokerage, on Tuesday day reported that its profit slid in 2014 due to non-recurring expenses and less trading activity.

In a stock exchange filing, COL Financial said that net income fell 13.6 percent to P262.3 million in 2014 compared with that of the previous year. It attributed the decline mainly to the booking of P30.4 million in “non-recurring” expenses from the exercise of stock options.

In terms of recurring profits, the company said net income fell 3.6 percent to P292.7 million. COL Financial said the decline was slower than the 16.3-percent drop of the Philippine Stock Exchange’s value turnover, COL Financial said.

But the company pointed out that it managed to extend its market share in 2014 when it launched new products.

Its market share in terms of value turnover in the Philippine Stock Exchange (PSE) improved by 50 basis points to 4.1 percent, from 3.6 percent in 2013, the filing showed.

Market share in terms of local value turnover increased even more significantly to a fresh record high of 8.2 percent in 2014, from 7.5 percent in 2013. These gains allowed COL Financial to become the eighth “largest stockbroker in the PSE”—a notch higher from its 2013 ranking, the filing showed. The improvement in COL Financial’s market share is largely attributable to the strong growth of its customer base.

COL Financial’s customer base finally breached the 100,000 mark in 2014 to end the year at almost 113,000—36.8 percent higher than that of the previous year. Customer equity also expanded by 18.3 percent to P56.7 billion as of end 2014.

“COL’s record numbers in terms of customer base and share of value turnover could not have come at a more opportune time as we celebrated our 15th anniversary in 2014,” said COL President Dino Bate. “However, we are more excited about 2015 as we start with another leg of our business, our fund distribution business.”

The new service, he said, “will allow us to address the needs of more Filipino investors, particularly those who either do not have the time to actively manage their investments, are more conservative, or are looking to diversify their portfolios outside of stocks.”

Already, COL has signed agreements with six asset management companies: Sun Life Asset Management, ATR KimEng Asset Management, Philam Asset Management, Philequity Management, BPI Investment Management, and First Metro Asset Management.

The six companies together account for 92.1 percent of the assets under management of the mutual fund industry.

All the peso denominate funds of the six asset management companies—bond funds, balanced funds, equity funds, and money market funds—will be available for purchase at COL’s website once the fund distribution business is launched later this year. Miguel R. Camus

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Dollar loans secured from local banks grew by 16.5% in 2014

DOLLAR loans secured from local banks rose by more than a tenth last year as demand for cash remained strong due to the continued expansion of businesses in the country.

Central bank data released this week showed demand for foreign currency financing was strongest from public utilities, manufacturers and exporters.

“The expansion may be attributed to the continuing low interest environment, growth of the service and export sector, and positive business sentiment arising from strong macroeconomic fundamentals,” the Bangko Sentral ng Pilipinas (BSP) said Tuesday.

At the end of 2014, loans extended by banks’ foreign currency deposit units (FCDU) rose to $12.2 billion, up from $10.5 billion in December of 2013. This 16.5-percent growth closely tracked the increase in all types of loans extended by major banks, which rose 16.8 percent at the end of last year.

FCDUs refer to bank subsidiaries or affiliates that deal in foreign exchange, both in taking deposits and extending loans to clients. Foreign currency financing is needed by companies that import goods, or have dollar-denominated expenses such as payments for overseas loans or services subcontracted to foreign firms.

Seven of every $10 in outstanding loans secured from local banks, or $8.6 billion, went to Philippine companies. Major beneficiaries were public utilities, manufacturers, exporters and firms in the service industry.

The balance of $3.2 billion went to IT, real estate, and power generation firms, among others, the BSP said.

Regulators track the movement and usage of foreign currencies in the Philippines as part of efforts to ensure the steady supply of dollars in the economy, allowing local firms to smoothly conduct business with the rest of the world.

The bulk of the outstanding loans at the end of December or 63.1 percent were long-term obligations that would mature in over a year. The rest were short-term loans maturing in less than a year.

The rise in dollar loans was accompanied by higher foreign currency deposits in local banks. At the end of 2014, FCDU deposit liabilities were up 22.7 percent to $31.8 billion.

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Japanese group wins Bohol airport deal

THE DEPARTMENT of Transportation and Communications has awarded the construction contract for the new Bohol airport, which is scheduled to be completed in 2017.

The DOTC said in a statement Monday that the P3.36-billion airport- the first new airport project of the Aquino administration—went to the Japanese joint venture of Chiyoda Corp. and Mitsubishi Corp.

“Another world-class airport will soon rise on the island of Panglao, to cater to the steadily-increasing number of tourists in Bohol. It will be developed as an ‘eco-airport’ or one that features environmentally sustainable technologies, in line with the province’s eco-tourism branding,” Transportation secretary Joseph Abaya said in a statement.

Construction is set to begin before the end of summer. The airport is designed to accommodate one million passengers annually.

“In a country filled with tourist hotspots on islands separated by seas, it is vital to develop and modernize our airports not only to better service our passengers, but to also enable economic growth for our people,” he added.

The DOTC also announced updates on two other airport projects.

For the Kalibo International Airport, it announced that a new wing was opened ahead of the busy summer season, allowing the facility to accommodate another 800 passengers.

The department also announced the start of regular night flight operations at Laguindingan airport, the gateway airport to northern Mindanao.

After being fully equipped for night landing last October, the Civil Aviation Authority of the Philippines (CAAP) gave airlines the option to schedule their night flights at the airport. Evening flights formally opened on March 12, when Cebu Pacific Air operated round-trips from Cagayan de Oro to Cebu and Davao. It will now offer regular night trips to and from Manila.

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Need to build a second income stream

Question: I’m a young engineer working in Makati. I love my job, but my parents want me to start building my own business. I’m not business-oriented, and I don’t see the point of doing so since I have a stable job. Should I start building extra income opportunities anyway? I’m only 24 and still starting to build my career. -Kyle, asked on Facebook

Answer: I understand your dilemma, Kyle. It’s good to know that you are serious and focused about building your career. Most young people think that a job is the most stable income source, and feel like their monthly salary will be enough to sustain them forever. But if you lose your job for whatever reason, you will also lose your only source of income.

To protect yourself from being financially crippled, it’s good to start looking for another income stream, whether it’s your own business or investments. There are a number of ways to have multiple income streams and make you financially secure.

Financial experts recommend having savings or emergency fund intended for unfortunate incidents that are out of your control, such as a major illness or loss of a job. You can use your salary for your regular expenses, while the money you earn from your other income stream can be allotted for your emergency fund. This way, you have a financial safety net for any emergencies that require a large payout.

I recommend that you build three to six months of your living expenses in the emergency fund. Sudden loss of income is the most common reason for dipping into this fund, and it often takes weeks or months for anyone to find suitable employment after unexpectedly losing his job. If you are helping your parents with the household expenses, having an emergency fund will make sure everything is covered while you search for a new opportunity. A second income stream will also keep cash coming in to take care of needs that the emergency fund can’t cover.

If you’re already thinking of buying a home, a second income stream will facilitate the purchase. You can get a housing loan to finance most of the costs, but you need to submit bank statements, income tax returns, and other documents that will prove that you have enough income to pay for the loan. Showing evidence that you earn your money from different avenues may increase your chances of getting your loan approved.

First-time home buyers also make the mistake of thinking that the property’s selling price is the only expense they have to consider. However, there are a number of fees that come with buying property, such as property taxes, title transfer fees and insurance. Your second or third income stream can prepare you to meet all these expenses, which will then expedite the loan application and buying process.

If you aren’t even 30 yet, saving up for your retirement might be the last thing on your mind. But I highly recommend that you start saving up for it in your early 20s because time is still on your side. Money saved and invested when you’re 24 will enjoy four more decades of compounding interests or market gains. This means that the P1,000 pesos invested at age 24 is five times more valuable than P1,000 invested when you’re 44. Having a second income stream allows you to set this money aside while enjoying the material benefits of your full-time job’s salary.

Of all the clients I’ve advised, the ones who had the most money when they retired aren’t the people who earned the highest salaries. They’re the people who saved the most money. If you don’t start saving for your retirement while you’re young, you’re going to have to work extra years to make up for it or make more aggressive investments for a better rate of return. Neither of these situations is advisable. You should enjoy a comfortable retirement at the end of your career, and the best way to do it is to pay yourself and save up for your golden years.

For these reasons, developing multiple streams of income is something that each of us should start doing. The good news is that you don’t necessarily have to start your own business in order to do this.

One way to begin is by examining what you know and seeing if any of your skills are unusual or valuable to others. Do you know math well enough to tutor high school students? Are you skilled enough at a musical instrument to play gigs on the side? Monetizing your talents in this manner will not only benefit you financially—it’s also a way to level up your skills and grow your network.

Good luck, Kyle! Hope this helps. Join me and my friends, stock market expert Marvin Germo and entrepreneurship advocate Paulo Tibig for Money Talks Cebu on April 25, 2015. Visit http://ift.tt/1CIKqNA for details.

Randell Tiongson is a registered financial planner of RFP Philippines. He is the author of best-selling book “No Nonsense Personal Finance” and “Money Manifesto” and coauthor of Inquirer’s Money Matters book. To learn about estate planning and protection, attend Chartered Trust and Estate Planner (CTEP) program on April 25-May 30. For details, inquire at info@rfp.ph or text <name><email><CTEP> at 0917-3464126.

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If Q1 Is An Indication Of The Future, Then Q2 Is Going To Be Very Interesting

Hello traders and MarketClub members everywhere. We are rapidly approaching the end of the first quarter and zero hour in Geneva. It remains to be seen what agreement, if any, comes out of the nuclear agreement with Iran. I'm doubtful that they will get an agreement done today and that their request for a July 1st deadline is going to be a major hurdle as well. That is why I say Q2 could be very interesting.

Q1 saw the rise of the Arab coalition army and the fight for Yemen. Where that ends up and how it affects the market is a big unknown at this time. Rest assured, I will keep you abreast of how markets are acting and reacting to the global political news.

Today, I'm going to examine the trades I looked at on Friday with the "52-week high on Friday rules" and see how they worked out. These trades would have been exited today with either a profit or a loss, but you would be out of the trades.

I'll start with the two short positions. If you watched Friday's video, you would see that I looked at two stocks that were acting rather dismally. The first was Philip Morris International, Inc. (NYSE:PM) and the second stock was SanDisk Corp. (NASDAQ:SNDK). I did not take a position in Philip Morris because it rallied later in the day and closed higher for the day. The stock of Philip Morris did not close near its lows for the day, which is one of the rules when shorting a stock for the weekend. On the other hand, SanDisk did close near its lows, and I took a short position in this stock at $64.60.

On the other side of the coin I took long positions in the following stocks:

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) long @ $128.93

Kraft Foods Group Inc. (NASDAQ:KRFT) long @ $89.12

Novo Nordisk (NYSE:NVO) long from $53.83

Accenture plc (NYSE:ACN) long @ $93.90

All of these positions were exited on the opening Tuesday morning, as per the rules of this particular strategy.

Looking at how the markets performed in Q1, the S&P 500 and the Dow were pretty much flat, while the NASDAQ was actually a bit higher for the quarter.

Gold (FOREX:XAUUSDO) had some amazing swings in Q1, but is pretty much closing out Q1 flat. Be sure to check in tomorrow as I have a special report on gold that I think you'll find amazing in terms of what I expect in Q2.

Crude oil (NYMEX:CL.K15.E) continued to move down and everyone who drives a car in America were big winners at the pump.

The one bright spot in Q1 is the dollar which soared to its best levels in almost a decade against the euro. How this is going to affect exports and doing business overseas remains to be seen.

As always, I appreciate all of your feedback and comments that you leave on any of my videos and blog postings.

Q1 is over, roll on Q2, and don't forget my special report tomorrow on gold!

Every success with MarketClub,

Adam Hewison

President, INO.com

Co-Creator, MarketClub

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Private insurers eyed for state-owned assets

THE FINANCE department is looking at allowing private insurers to cover public assets and infrastructure, especially those owned by local government units (LGUs), according to the Insurance Commission.

Insurance Commissioner Emmanuel F. Dooc told the Inquirer that the Department of Finance (DOF) planned to enjoin private sector participation in insuring LGUs’ assets. “The Insurance Commission, as an attached agency of the DOF, is supportive [of such move],” he said.

According to Dooc, government assets were currently being insured by the state-run pension fund Government Service Insurance System (GSIS).

While the GSIS has been efficient in insuring government-owned buildings as well as infrastructure, Dooc said there was still room for private insurance firms to participate as most government assets remained underinsured.

Dooc said that since the private insurance sector, which is comprised of many companies, has more assets than the GSIS, it has a greater capacity to meet obligations.

The latest Insurance Commission data showed that the industry’s total assets stood at P1.02 trillion as of end-2014, the first time that their combined assets exceeded the trillion-peso mark.

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PSEi continues to rise

STOCKS edged higher to a new record high yesterday despite relatively lower volumes as equities abroad, led by Wall Street, gained after China indicated it could ease monetary policy.

The benchmark Philippine Stock Exchange index (PSEi) followed suit as it rose 0.52 percent, or 41.08 points, to 7,940.49. This was the 23rd all-time high for the PSEi, which has gained 9.3 percent so far this year. Yesterday’s rally fell short of an intra-day high of 8,007.98 achieved last March 30.

Data from the PSE showed that the broader all-shares index enjoyed gains as well as it rose 0.22 percent, or 9.96 points, to 4,560.17. Subsectors closed mixed with mining and oil extending losses yesterday by 1.51 percent. Services and financials also closed in the red while gainers were led by the industrial subsector, which rose 0.48 percent.

Volume was relatively low with 3.3 billion shares changing hands valued at P6.96 billion. PSE data showed that decliners outnumbered advancers, 117 to 66, while 37 companies closed unchanged.

Nickel Asia Corp. led the list of most actively traded stocks as it fell 10.45 percent to P24 a share. This was followed by Universal Robina Corp., which was down 0.71 percent to P222.40, and Metropolitan Bank and Trust Co., down 0.46 percent to P97.55 a share. Ayala Land Inc. gained 2.93 percent to P38.70 while Philippine Long Distance Telephone Co. was up 0.85 percent to P2,854 a share. Miguel R. Camus

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Xurpas acquires 31.51% stake in Singapore firm

LISTED technology firm Xurpas Inc. has bought a stake in Singapore’s MatchMe Pte. Ltd. in line with its strategy to expand its games portfolio in the country and overseas.

Xurpas said in a Philippine Stock Exchange filing Tuesday that it had acquired a 31.51-percent stake in MatchMe for $1.4 million.

The deal with MatchMe—which is into the development, licensing and operation of a mobile and web based, real-time, multiplayer platform for mobile games—would allow Xurpas access to larger markets overseas.

Under the agreement, Xurpas will be granted the license and right to use, integrate, publish, distribute, market and promote the MatchMe platform and its related game content.

It also gives Xurpas exclusive right to use MatchMe for telco deployment in the Philippines, Indonesia and Thailand, the statement showed.

“MatchMe is a truly unique offering, potentially allowing millions of players to play against each other on any device, anytime, anywhere. The platform allows us to provide a unique game playing experience to consumers in the Philippines, the rest of Southeast Asia, and worldwide,” said Nico Nolledo, president and CEO of Xurpas, said in the statement.

“We’re delighted to have such a strong and strategic partner as Xurpas onboard,” commented Hal Bame, co-CEO of MatchMe.

“The shared synergies and goals between our companies ring true on a variety of levels, not the least of which is bringing entertaining and competitive experiences to mobile and web-based gamers throughout Southeast Asia and beyond,” he said.

Nolledo said the deal would be financed using proceeds from the company’s initial public offering in late 2014, which raised P1.24 billion.

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Berkshire Hathaway buys 2 small Virginia newspapers

Warren Buffet. AP file photo

OMAHA, Neb. — Warren Buffett’s company has added two small Virginia newspapers to its collection of more than two dozen small and medium-sized newspapers.

Berkshire Hathaway Media Group said Tuesday that it had acquired The Martinsville Bulletin in Martinsville and the Franklin News-Post in Rocky Mount from Haskell Newspapers.

Terms of the deal are not being disclosed. Berkshire Hathaway owns 31 daily newspapers and dozens of weeklies in 10 states, including several in Virginia such as the Richmond Times-Dispatch and The Roanoke Times.

“We look forward to the opportunity to continue the tradition of community-minded journalism carried on by the Haskell family for nearly 70 years,” said Terry Kroeger, CEO of Berkshire Hathaway Media Group.

Berkshire said the Martinsville paper has a 12,250 daily circulation that reaches more than 60 percent of the community. The Franklin paper publishes 5,100 copies three times a week.

Berkshire’s recent newspaper deals, combined with Buffett’s history of letting acquired companies largely run themselves, has made the company a popular buyer of smaller newspapers.

Buffett has said he thinks newspapers will continue earning a decent return as long as they remain the primary source of information about their communities.

The Haskell family had owned the Martinsville Bulletin since 1948 and the News-Post since 1981.

“We are all pleased being with a company that puts such an emphasis on serving communities,” said Charles Boothe, publisher of the News-Post. “Local news content is a priority, and this move will benefit everyone at the paper and our readers.”

Newspapers remain a relatively small part of Berkshire Hathaway, which owns an assortment of more than 80 subsidiaries and holds major investments in companies like Coca-Cola Co., Wells Fargo and IBM.

Most of Berkshire’s newspapers are overseen by executives at the Omaha World-Herald as part of BH Media Group, but The Buffalo (N.Y.) News, which Berkshire has owned for decades, operates separately.

Berkshire Hathaway owns newspapers in Nebraska, New York, Iowa, Texas, Oklahoma, Virginia, North Carolina, South Carolina, Alabama and Florida.

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Gold And Silver: The Bulls Failed

Gold - Classic Chart

Another profitable week for the bulls ended and so did the upward momentum. Price elevated for a decent $40 from my last post and almost touched the $1223 resistance area on Thursday, but failed below $1220 and then quickly retraced down for $15 to a $1204 close.

The rule of the game is set so that if you don’t keep buying to push the market up, sellers will appear and you would be buying all the way down. Once weakness appeared, the bears took the ball and started their own game, pulling the price down from recent highs. Monday brought more selling pressure to the game and the price is now below the first support level at $1190 (former resistance, highlighted in green). If we close below $1190, then I would not rule out price reaching $1170/$1131 supports. Sellers can benefit from the trade lower, with a stop set just above $1200 and take profit put above $1131. $20 of risk versus $55 of profit, a sound ratio.

Gold – Elliott Wave Chart

As I assumed in my last post, Gold has finished shaping wave “a” right within the set targets between $1195 and $1223, at $1219.82 high. Then the price retraced and, I think, now is the time for wave “b” to show up. Wave “b” can retrace to levels between 38% and 138% of the wave “a”, but usually stops around the 61.8% level. All of it is put in the above daily chart and price is already below the 38.2% Fibonacci level. The next levels are $1172 (61.8%), $1142 (100%) and 1113 (138%).

Overall, we are still in an a-b-c correction phase and wave “b” is not impulsive. So the sale should be short and cautious, with a tight stop above $1200 and you should watch the market closely and move your stop lower with the falling price. Take profit either by trailing stop or take profit to escape from losses.

Wave “c” is ahead in the opposite direction...it can be scary, fast, destroying, so be prepared. Fingers crossed!

Silver

Silver lives the same story as Gold does these days. Bullish action is over after two successful weeks. The metal failed at a $17.39 high, just below resistance located at the $17.43 level (previous high as of February 13th). And the Gold selloff repeated with Silver as price closed ₵33 deeper below the peak.

Those who implemented the idea to buy above $16.87 could have scored a nice ₵50 per troy ounce of Silver last week.

This time, the risk/reward ratio speaks for itself. Sellers are favored with a target around the local low at $15.27, with $1.5 of potential profit versus the risk set above $17.43 in the amount of $0.7 of potential loss. Move your stop with the falling price and enjoy falling risk at the same time.

I will update you next week with developing price action.

Lucky and Intelligent Trades!

Aibek Burabayev

INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Oil Might Be Down, But It's Not Out – Here's The Long Term Play

The energy market has been a meat grinder for investors during these last nine months. Just look at the nosedive oil prices have taken:

Chart courtesy of StockCharts.com

Oil might have led the way, but it took down energy as a whole as well. A quick look at the Energy Select Sector SPDR ETF (XLE) reveals a couple of interesting notes investors should be paying attention to.

Chart courtesy of StockCharts.com

In mid-October, the 50-day moving average crossed below the 200-day moving average, a bearish signal that correctly predicted a further precipitous decline in the energy sector. However, notice how the lines have flattened out and now appear to be reversing course. While it hasn't yet broken out with a clearly bullish signal, it's a good sign that energy might have finally bottomed.

A famed banker Nathan Rothschild said,"buy when there’s blood running in the streets."

But before I'm willing to say that we've finally turned the corner on oil, I want to check out the technical charts as well as the fundamentals.

Oil's biggest driver isn't going to be the global economy

Right now, we're in a supply glut, but the long term overall global demand for oil isn't going anywhere. As drillers continue to cut back and stack rigs, that supply will begin to lessen and bring prices back into balance. Since October of 2014 when the total rig count peaked, the number of active rigs has dropped 49%.

Current oil supply is expected to peak around 480 million barrels this summer but then begin trending lower from there. By January of 2016, current supply levels will equal the 5-year supply average but will continue to fall as rigs start to come back online but won't be producing at full strength yet. According to the EIA, by this time next year, the supply of oil will be 50 million barrels fewer than the 5-year average.

Analysts at Deloitte expect an average price for oil of $62 per barrel for 2015 and increase to the $75 to $80 range after that. With oil currently trading below $50, that means prices are artificially low right now.

The biggest negative impact on oil isn't oversupply issues though – it's the strength of the U.S. dollar. Thanks to the ECB's and BOJ's devaluation policies, the dollar has gained in value as a safe haven asset for investors. When the dollar corrects lower, oil should be the primary beneficiary.

An undervalued oil stock that could be a potential gold mine for investors

When an industry has been thrown into chaos like the oil industry is in, it always helps to follow in the footsteps of giants like Warren Buffett. Consider buying Exxon Mobile (XOM).

Chart courtesy of StockCharts.com

This mega-cap $350 billion oil and giant conglomerate is an energy staple with a solid business and consistent growth. It also looks incredibly undervalued right now. It's trading at just 11.5 times earnings compared to the oil and gas industry average of 16.4 times earnings with an estimated EPS growth rate for the next 3 to 5 years of 3.4%. The oil and gas industry is only expected to grow earnings at 1.1%.

It offers a dividend of 3.30% to help protect investors from downside risk and has raised it for 32 consecutive years making it one of the most reliable dividend paying stocks in the market. Through stock repurchases, Exxon has reduced share count by 4% as well.

Exxon has a strong balance sheet with very little long-term debt liabilities – just $17 billion while current assets stand at around $53 million. Year-to-date the stock is down about 9% but offers plenty of upside potential. It looks oversold too with an RSI reading approaching the critical 30 range. Negative news looks to be already priced into this stock so any recovery in oil prices should send Exxon higher

Check back to see my next post!

Best,

Daniel Cross

INO.com Contributor - Equities

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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Trade groups buck BIR disclosure rule

SEVERAL business groups are opposing a requirement taking effect this year for the mandatory disclosure of tax-free investments to the government, a move that may violate the public’s right to privacy and deposit secrecy.

In a position paper, groups representing big corporations, the financial industry and professionals such as accountants criticized the finance department’s decision to make the submission of so-called supplemental information returns (SIR) mandatory for this year’s tax season.

Last year, SIR submissions were optional.

“Among the income items required to be reported in the SIR are passive income items/receipts which are tax exempt, or have been subjected to final withholding taxes, as well as the final taxes withheld for each type of income,” the position paper read.

Examples of tax exempt income to be declared are proceeds of life insurance policy, return of premium retirement benefits, pensions and gratuities, and “personal/real properties received through gifts, bequests and devises.”

The position paper was signed by the Philippine Chamber of Commerce and Industry (PCCI), the Employers Confederation of the Philippines (Ecop), the Financial Executives Institute of the Philippines (Finex), the Management Association of the Philippines (MAP), the Philippine Exporters Confederation, the Philippine Institute of Certified Public Accountants (Picpa) and the Tax Management Association of the Philippines (TMAP).

Many of the items included in SIRs already have their own reporting requirements. This makes SIRs redundant, making it an additional burden to taxpayers. And since these items were either tax-free or have already been subjected to other government imposts, revenues would not increase, the groups said.

“Erroneous declarations in the SIR could also expose the taxpayer to penalties of perjury, just like other tax returns,” the PCCI said.

The PCCI added that one of the attractions for choosing investments with tax-free or net of tax yields was the exemption from the hassle of accounting for and reporting of income received from such investments in the case of individual taxpayers.

The PCCI said the requirement to account for and report such income—just like in the case of the mandatory SIR disclosure— negated that advantage.

For 2015, the Bureau of Internal Revenue (BIR) has a tax collection target of P1.72 trillion or 73.6 percent of all state revenues.

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PSEi touches 8,000 in intraday trade

STOCKS breached the psychological 7,800 level before paring gains at the closing bell, still ending at a new record high Monday.

The benchmark Philippine Stock Exchange index (PSEi) ended Monday’s session at 7,899.41, up 0.27 percent or 21.45 points. This was the 22nd time the PSEi closed at a new record high in 2015, with year-to-date gains now at 9.3 percent. Earlier in the session, the PSEi posted a new intraday high of 8,007.98.

“Despite the pullback at the end of the session, breaking the 8,000 mark was an indication of the confidence level that investors have on the market,” PSE president Hans B. Sicat said in a statement.

Sub-sectors closed mixed. Mining and oil led losers as it declined 1.15 percent, followed by property, down 0.59 percent. Gainers were led by holding companies, which rose 0.52 percent, and financials, up 0.41 percent.

A total of 1.1 billion shares changed hands for P9.5 billion.

PLDT led the list of most actively traded stocks, although it closed unchanged at P2,830 a share. Miguel R. Camus

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Max’s posts ‘pro-forma’ net loss of P56M in ’14

MAX’S Group Inc., a listed restaurant group best known for its chain of fried chicken outlets, posted a “pro-forma” net loss in 2014 following expenses related to the acquisition of Pancake House Inc. through a P4-billion deal.

Max’s said in a stock exchange filing Monday that its pro-forma full-year losses in 2014 amounted to P56 million. Excluding one-time costs and extraordinary expenses, Max’s said its pro-forma core net income in 2014 would have been P154.1 million. Revenues during the period hit P9.55 billion, it said.

“The Max’s Entities-Pancake House integration came with the challenges that are typical of transactions of this scale and magnitude,” the company said in its filing.

“Last year was a transformative and preparatory period for the company, anchored on a series of market-moving transactions, beginning with the acquisition of Pancake House Group, post-integration activities and capped off by a successful follow-on offering,” Dave Fuentebella, chief financial officer of Max’s, said in a statement.

He noted that the company’s expenditures in 2014 included marketing costs, write-off of doubtful accounts receivables, one-off fees and expenses for kitchen upgrades, repairs and maintenance, along with the revamping of new and key branches of Pancake House, Teriyaki Boy and Dencio’s.

The company underwent a comprehensive revamping program to align its portfolio of brands and consolidate operations—which included enhancing top brands and discontinuing underperformers and upgrading service platforms, the disclosure said. This revamping program is currently underway.

For 2015, Max’s “expects to benefit from considerable cost savings” as it plans to realize a significant portion of these initiatives, said Robert Trota, president and CEO of Max’s.

The company is also expanding its business with plans to roll out 80 to 90 stores in the Philippines and abroad in 2015. It ended last year with 540 stores, up 5 percent.

“We are bullish about growth prospects moving forward as we see consumer buying power improving in the Philippines and across Asia in the next couple of years,” Trota said in the filing.

“Operational integration is on track with the company’s overall development strategy and we look forward to unlocking the potential of a larger group and to propelling our brands to the next phase of growth,” he added.

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Alsons forecasts profit growth in 2015

THE Alcantara family’s Alsons Consolidated Corp. (ACR) expects better profitability in core operations this year as it expands power capacity.

In a regulatory filing, Alsons said its net income attributable to the parent firm was expected to reach P613 million.

Alsons was mum, however, on its forecast for consolidated net income and core net income.

ACR also forecast revenue of P6.1 billion in 2015, coming mainly from the projected start of commercial operations of the first 105 megawatts of Sarangani Energy Corp.’s 210-MW coal-fired power plant in the fourth quarter of 2015.

For 2014, net income attributable to the parent firm from continuing operations was at P359 million (44 percent higher than the P249 million yielded in 2013).

ACR reported higher core net income, which excludes one-time gains/losses, of P727 million in 2014, 28 percent up from P569 million.

However, consolidated net income of P727 million was slightly down from P765 million due to the impact of discontinued operations, which earned income of P196 million in 2013.

In terms of revenue, ACR reported a 55-percent increase to P5.2 billion in 2014 from P3.3 billion in 2013.

The growth in 2014 revenue came mainly from the full-year operation of the 103-megawatt (MW) Mapalad Power Corp. diesel plant in Iligan City. The MPC plant was reacquired and rehabilitated in 2013, starting commercial operations in September 2013.

Apart from the MPC diesel plant, ACR’s operating power generation facilities are the Southern Philippines Power Corp.’s 55-MW plant in Alabel, Sarangani province and the 100-MW western Mindanao Power Corp. plant in Zamboanga CIty.

All three diesel plants have helped ease the power shortage in Mindanao.

ACR is developing coal-fired power facilities to help provide a stable source of baseload power for Mindanao and ensure long-term power security for the island.

These facilities are the 105-MW San Ramon Power Inc. plant in Zamboanga City and the 210-MW Sarangani Energy Corp (SEC) plant in Maasim, Sarangani.

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Ayala prepares to expand power, rail portfolio

CONGLOMERATE Ayala Corp. is readying potential power expansion projects beyond 2016—when it is expected to assemble a 1,000-megawatt attributable power portfolio—while citing its continued interest in new infrastructure deals like a Manila-Legazpi railway line despite the looming shift in administrations.

John Eric Francia, president and CEO of Ayala unit AC Infrastructure Holdings Corp., said in a briefing Friday that much of the focus was being placed on the power business, which will be a “significant” earnings contributor in five years.

The company already has six power projects, including a 540-MW coal-fired power plant in Kauswagan, Lanao del Norte, that starts construction this year, which brings its total attributable by capacity to about 700 MW, Francia said.

As noted, this will hit 1,000 MW by 2016 and Francia said another 500-MW in expansion projects could bring that attributable capacity to 1,500-MW.

He did not specify any timeline for expansion.

The move was in line with bringing up the contribution of the power business to over 10 percent of Ayala’s equity earnings on or before 2020.

“Hopefully, power will become a core business of AC [Ayala Corp.] at that point in time,” Francia said.

The company has also been making inroads in terms of new infrastructure projects launched under President Aquino’s public private partnership program in 2010.

Ayala won the administration’s first PPP deal, the 4-kilometer Muntinlupa Cavite Expressway (formerly Daang-Hari SLEX Link road), which Francia said would be completed by June this year, missing its first quarter 2015 deadline, partly due to right-of-way issues.

Francia said commercial operations at MCX can only begin after government issues the substantial completion certificate and Toll Operation Certificate.

The company continues to eye new infrastructure deals, but Francia noted that timing would be an issue and that the private sector would be more cautious in participating if a project cannot be awarded within the same administration.

“It’s going to be difficult for a project to cross over [during] a shift in administration by the middle of 2016 and if you look at history it takes anywhere between six and 12 months to successfully bid out and award large complex projects,” Francia said.

“You don’t want to keep it close to the shift in administration. I would argue that the second quarter [of 2015] is very critical for the government to really launch these large and complex projects,” Francia said.

Francia said the group was eyeing larger PPP deals on offer like the North South Railway project-South Line, which aims to link Manila to Legazpi City in Albay.

It earlier joined a consortium that includes the Aboitiz, SM and Megaworld groups for the massive P123-billion Laguna Lakeshore Expressway Dike project.

Apart from this, a tandem between Ayala and Metro Pacific Investments Corp. already won the automated fare collection system and Light Rail Transit Line 1 Cavite extension PPP deals.

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BDO takeover of top rural bank chain OKd

REGULATORS have approved Banco de Oro Unibank’s (BDO) takeover of the country’s largest rural bank, in line with the Henry Sy group’s aspiration to establish a bigger financial footprint in the Philippine countryside.

BDO, the country’s largest bank, said the Bangko Sentral ng Pilipinas (BSP) gave its go-ahead for the merger with the Consunji family’s One Network Bank (ONB).

The rural bank has total assets of P28.1 billion, net loans of P19.7 billion and a deposit franchise amounting to P17.9 billion as of the end of September 2014.

“The combination of ONB’s regional presence and BDO’s financial muscle is seen to create new opportunities for growth,” BDO said in a statement late last year when the planned acquisition was first announced.

“This partnership will enable ONB clients to access BDO’s strong balance sheet and expanded banking solutions, while providing BDO inroads to new market segments.

BDO said this was also in support of the BSP’s thrust to promote inclusive banking through countryside branching and lending.

The Consunji group’s entry into rural banking was prompted by an earlier desire of DMCI group chair emeritus David Consunji to provide financial access to people in agricultural areas.

BDO’s takeover comes amid the opening up of the local banking sector to more foreign participation, which should lead to higher competition.

This liberalization comes by way of two landmark laws passed in the last two years. In 2013, Congress passed a legislation that allowed foreign firms to take in majority stakes in rural banks. The law aims to help modernize the rural banking sector, which posted the highest amount of bad loans and bank closures every year.

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Disclaimer: The comments uploaded on this site do not necessarily represent or reflect the views of management and owner of INQUIRER.net. We reserve the right to exclude comments that we deem to be inconsistent with our editorial standards.

To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.

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The Secrets Of A Dead Mathematician

Good day, let me begin by welcoming the hundreds of new members who have just joined MarketClub in the last few weeks. I welcome you and wish you every success with MarketClub.

Today I would like to share with you one of the many lessons that are available to you as a MarketClub member.

Technical analysis has been around for a long time. It has been said that Japanese rice traders kept hand charts over 200 years ago to track the price of rice. More recently in the 50's, technical analysis began to gain acceptance, and the 70's could be called the golden age of technical analysis. Technical analysis is now widely regarded as mainstream, no longer do traders and investors think of technical analysis as Ouija boards and funny-sounding chart formations. Technical analysis is a serious tool that you can use to make money.

Fundamentals are important, but technical analysis, in my humble opinion, is more important because it provides you with timing which I think you'll agree is everything in life.

I'm going to be looking at one of my favorite indicators that can help you enter or exit a market on favorable terms. This tool also works extremely well with the market-proven Trade Triangle technology.

Today's lesson is on the Fibonacci Sequence.

Leonardo Fibonacci was a mathematician born in 12th century Italy. His study of Fibonacci numbers (a sequence of numbers where each number is the sum of the two previous numbers) is often applied in technical analysis to find support and resistance in stock charts.

This timeless lesson I learned many years ago when I was a member of the Chicago Mercantile Exchange trading in pits. It is one tool that has stood the passage of time and one that I still use today.

How this amazing 12th century Italian mathematician figured this out is way beyond my pay scale, but I can say without hesitation that it works.

Watch the lesson here and then leave a comment.

How To Use Fibonacci Retracements

The principle behind a Fibonacci retracement is that after a stock moves upward or downward, the price will often retrace or correct some of this movement. Many technical analysts believe that the amount of retracement will often correspond to one of the Fibonacci levels. The five horizontal lines represent percentages of 100%, 62%, 50%, 38% and 0% (with 62 and 38 being Fibonacci numbers).

The Fibonacci sequence works on intraday charts, daily charts, weekly and monthly charts. I do not know why it works in the financial markets. Through all my reading and research, I've never found a reason other than it works in nature.

I'm going to show you just how easy it is to use Fibonacci in your own trading.

This is one lesson you do not want to miss, it will open your eyes as to how and why markets move. One of the many benefits of Fibonacci retracements is that it will allow you to enter a position with very little risk. That is a big plus in today’s markets.

So enjoy and learn from this valuable lesson and yes, take a look at some charts after watching the video and apply what you learned using MarketClub's Fibonacci tool.

By all means, please feel free to share your findings on the blog with your fellow members. You can leave your comments and findings just below this post.

Every success with MarketClub,

Adam Hewison

President, INO.com

Co-Creator, MarketClub

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Gasoline, diesel, kerosene prices up during Holy Week

AP FILE PHOTO

OIL firms are increasing pump prices this week as traders turn to storage amid analyst predictions that the US oil supply glut will not last long.

Seaoil and other oil firms have announced that they will raise prices of gasoline (by P1.10 per liter), diesel (P0.60 per liter), and kerosene (P0.80 per liter) this week.

Eastern Petroleum and Phoenix Petroleum said they would implement similar price hikes for gasoline and diesel this week. Both do not carry kerosene products.

The price adjustment for most oil firms is at 12:01 a.m., Tuesday, March 31. However, Phoenix Petroleum is starting the adjustment a little later at 6 a.m.

Other firms have not made official announcements but are expected to implement similar changes since most of the fuel sold in the Philippines is imported and thus vulnerable to the same set of price factors.

With this week’s adjustments, gasoline prices will have had a net increase of P1.37 per liter while diesel prices have had a net decrease of P1 per liter since January 2015.

Industry players said it seemed like “a normal trading upswing” as industry analysts said expectations of a lingering supply glut in the

US have been “exaggerated.”

“It’s a smaller reversal than last week’s rollback” Eastern Petroleum president Fer Martinez said in a text message.

Last week, oil firms announced downward price adjustments of P1.10 per liter for gasoline, P0.95 per liter for diesel, and P0.90 per liter for kerosene.

Oil prices dropped dramatically in the second half of 2014 following mixed price signals in the first half.

Come early 2015, oil market analysts predicted continuing overall weakness in demand but also noted the rise in demand for oil storage as many firms sought to take advantage of the low oil prices to turn a profit when prices climb. SFM/AC

Disclaimer: The comments uploaded on this site do not necessarily represent or reflect the views of management and owner of INQUIRER.net. We reserve the right to exclude comments that we deem to be inconsistent with our editorial standards.

To subscribe to the Philippine Daily Inquirer newspaper in the Philippines, call +63 2 896-6000 for Metro Manila and Metro Cebu or email your subscription request here.

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Chaos in Yemen Could Undermine Dollar

Yemen, a country south of Saudi Arabia, and with an economic output roughly the equivalent to that of say, San Antonio, Texas, is sinking deeper into chaos. Though in the grand scheme of things in the Middle East, that chaos stems from a relatively small country, it is likely to have widespread ripples that could affect market sentiment, in general, and specifically, in the FX market. One might ask how on earth Yemen, a small country that is primarily desert and which is categorized as among the world’s poorest, could affect trends in the Dollar, the Euro and other currencies?

Yes, it’s Oil Again

The answer, as you might have guessed, and the only way that trouble in a small Middle Eastern country could have repercussions on global markets, is through Oil. Despite the fact that Yemen produces less Oil than Denmark and its direct effect on Oil supply is marginal, its location is critical. Yemen is situated on the banks of the Gulf of Aden, the 4th largest passage for Oil in the world and a key passage for seaborne Oil and gas from the Middle East. Analysts point out that with the country deteriorating into chaos, the risk of Oil tankers being hijacked by pirates grows much higher and thus heightens Oil supply risks. Now, while this might be a plausible risk scenario, it is not the real

reason why Yemen’s chaos is an issue in the global markets. The real reason is the potential geopolitical threat that chaos, which is currently contained within Yemen, could continue to heat up and then “boil” or spill over. That spillover could result in a military showdown between Saudi Arabia and Iran, the Middle East’s two largest oil producers. The Iranian government is actively assisting the rebels against the Yemen president, Abed Rabbo Mansour Hadi, who is an ally of the Saudis. And Saudi forces are actively engaged against the rebels in an effort to protect their own (Saudi) interests. Thus this potential for a spillover could, in reality, eventually devolve into a major conflict between Saudi Arabia and Iran which could jeopardize Oil supplies and thus impact Oil prices.

Back to the FX Market

So, back to the question, how can this mess impact sentiment in the FX arena? Quite simply, if this Middle East hotspot spills over, Oil prices could bounce higher and thus encourage investors to move into risk-on mode. “Risk-on” sentiment tends to favor currencies oriented closely with commodities, such as the Norwegian Krone and the Aussie, Kiwi, and Canadian Dollars, while at the same time being rather negative for the US Dollar. In other words, if things do de-escalate towards a risk of real war, Oil could surge further and possibly generate a shift towards commodities and away from the US Dollar, thus being a potential catalyst for a Dollar correction.

Why the Dollar is Vulnerable

The Fed had just laid out its plans to raise rates when all of a sudden the data suggested it wasn’t necessarily warranted and so a dovish Fed prevails. With the biggest hurdle to rising interest rates being low inflation, one might presume that higher Oil prices would raise inflation expectations and thus increase the chances for an interest rate hike. However, under the current circumstances, that presumption would be wrong.

For Oil prices to generate inflationary pressures they need to rise constantly and create a buildup of expectations for higher prices. Currently, Oil fundamentals remain weak since the market is oversupplied and given that there is still excess capacity in the Oil market the chances are that any surge in Oil prices would be temporary and would likely even out over the long term. Even if Oil does eventually stabilize above $60 a barrel, the chances are it won’t be on a constant upward trend because for that to happen, supply has to really turn tight. This is why the mere risk of war between Saudi Arabia and Iran could push Oil to settle higher but it would not necessarily initiate a long-term bullish trend.

Hence, any impact would be more of a short-term nature than a long term one, and inflation expectations won’t likely be affected. Investors would prefer to move into short term speculative bets, buying into riskier currencies while curbing bets on the Dollar, which could mean that the Dollar is expected to slide lower if Oil prices surge on the back of Yemen’s chaos. In the broader scheme of things, of course, this could be just another “excuse” for Dollar bulls to diverge away from the Dollar after a very lucrative year. But whatever their reasons or rationale, until investors get the long awaited Dollar correction they will become increasingly uneasy with their Dollar holdings.

Look for my post next week.

Best,

Lior Alkalay

INO.com Contributor - Forex

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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