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Oil price records biggest annual gain since 2009

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Oil prices fell at the weekend but still posted the biggest annual gains since 2009, spurred by the global economic recovery from the COVID-19 pandemic and producers’ restraint.

Brent, Nigeria’s oil benchmark, ended the year up 50.5 per cent, its biggest gain in years, while West Texas Intermediate (WTI) posted a 55.5 per cent gain, the strongest performance for the benchmark contract since 2009, when prices soared more than 70 per cent.

Both contracts touched their 2021 peak in October, with Brent at $86.70 a barrel, the highest since 2018, and WTI at $85.41 a barrel, the highest since 2014.

But during the weekend, Brent crude futures settled down $1.75, or 2.2 per cent, at $77.78 a barrel as WTI crude futures dropped $1.78, or 2.31 per cent, to $75.21 a barrel.

The oil market continues to be highly reactive to developments on the pandemic front, indicating that the industry is not out of the woods yet, but now close to pre-pandemic demand levels.
A Reuters survey of 35 economists and analysts forecast Brent crude would average $73.57 a barrel in 2022, about two per cent lower than the $75.33 consensus in November.

Easing production outages in Nigeria and Ecuador also weighed on prices earlier in the week as Nigeria struggled to ramp up production after a disruptive force majeure declared by Shell, amid ageing upstream infrastructure and sabotage.

Nigeria, going by the quota allocated by the Organisation of Petroleum Exporting Countries (OPEC) is expected to produce 1.683 million bpd in January 2022, but meeting that target would be an uphill task as it has maintained an average of 1.25 million barrels in the last few months.
However, the country appeared to have done a bit better going by the latest data for November, adding over 47,000 barrels per day in that month.

The unimpressive production figures have also negatively impacted the NNPC’s remittances to the federation account and by extension the monies shared by the federal, state and local governments this year.

For example, with a paltry N10.54 billion in November, the Nigerian National Petroleum Company (NNPC) was only able to remit 8.5 per cent of its projected N122.7 billion to the federation account, a joint pool of funds shared by the country’s three tiers of government.

The national oil company has blamed the inability to restart the oil wells shut down in 2020 when OPEC compelled member countries to cut production for the declining production.
But with oil hovering near $80, OPEC, Russia and allies, together called OPEC+, will probably stick to their plan to add 400,000 barrels per day of supply in February when they meet on January 4, four sources told Reuters.

The sources added that this is set to happen as demand concerns raised by the Omicron coronavirus variant eased and oil prices recover.
The alliance at its last meeting on December 2 stuck to the plan for a 400,000 barrels per day rise in January despite fears that a US release from crude reserves and Omicron would lead to an oil-price rout.

OPEC ministers are also set to discuss who will become the group’s new secretary-general to replace Nigeria’s Mohammad Barkindo, who is scheduled to leave at the end of July. Kuwait’s candidate, Mr Haitham al-Ghais, tipped to take over has widespread support, sources have said.

Russian Deputy Prime Minister Alexander Novak said last Wednesday OPEC has resisted calls from Washington to boost output further because it wants to provide the market with clear guidance and not deviate from policy.

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BUSINESS

Bitcoin set for worst quarterly drop in a decade

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Bitcoin is on track for its worst quarter in more than a decade, as more hawkish central banks and a string of high-profile crypto blowups hammer sentiment.

The 56% drawdown in the biggest cryptocurrency is the largest since the third quarter of 2011, when Bitcoin was still in its infancy, data compiled by Bloomberg show.

The decade in between those hallmarks saw several booms and busts, with cryptocurrencies’ market value swelling as they gained more widespread adoption and ultra-low interest rates spurred risk taking. But the current bear market stands out for the amount of crypto leverage that’s been unwound — and for the regulatory scrutiny being heaped on an asset class many central banks now consider a threat to financial stability.

Bitcoin slipped 1% to trade just below the $20,000 level on Thursday morning in London. Several altcoins did worse, with Solana and Polygon falling around 6%.

The drumbeat of bad news adds up to a stinging rebuke of the crypto ethos of unbridled speculation and free-wheeling innovation: A token that was supposed to be pegged to the US dollar collapsed, almost instantly erasing roughly $40 billion of market value. Several crypto lenders were forced to halt withdrawals, leaving depositors in the lurch. And most recently, a prominent crypto hedge fund was ordered into liquidation after running up unsustainable leverage to fuel its bets.

For all the gloom, some analysts are pointing to signs that the bottom may be near. The deleveraging that accelerated the rout in past months may not have much further to run, JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou said in a note published Wednesday. They also pointed to venture capital funding that “continued at a healthy pace in May and June.”

“Bitcoin has had good success over the last dozen years at making cyclical lows every 90 weeks,” Fundstrat technical strategist Mark Newton said. “Lows should be right around the corner according to this cycle composite, and one should be on alert in the month of July, looking to buy weakness for a healthy rebound, just as sentiment seems to be reaching a bearish tipping point.”

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Here’s what’s hot — and what’s not — in fintech right now

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Financial technology is the hottest area of investment for venture capitalists — $1 out of every $5 of funding flowed into fintech startups in 2021.

But with a recession possibly around the corner, investors are writing fewer — and smaller — checks. And they’re getting much more selective about the kind of companies they want to back.

According to CB Insights, global venture investment in fintech firms sank 18% in the first quarter of 2022.

That’s led to something of a rotation out of certain pockets of fintech that were hyped by venture capitalists last year, such as crypto and “buy now, pay later,” and into less sexy areas focused on generating stable streams of income, like digitizing payment processing for businesses.

So what’s hot in fintech right now? And what’s not? I went to the Money 20/20 Europe event in Amsterdam in June to speak to some of the region’s top startup investors, entrepreneurs and analysts. Here’s what they had to say.

What’s hot?
Investors are still obsessed with the idea of making and accepting payments less onerous for businesses and consumers. Stripe may be facing a few questions over its eyewatering $95 billion valuation. But that hasn’t stopped VCs from looking for the next winners in the digital payments space.

“I think we’ll see a next generation of fintechs emerge,” said Ricardo Schafer, partner at German venture capital firm Target Global. “It’s a lot easier to build stuff.”

Niche industry buzzwords like “open banking,” “banking-as-a-service” and “embedded finance” are now in vogue, with a slew of new fintech firms hoping to eat away at the volumes of incumbent players.

Open banking makes it easier for firms that aren’t licensed lenders to develop financial services by linking directly to people’s bank accounts. Something that’s caught the eye of investors is the use of this technology for facilitating payments. It’s an especially hot area right now, with several startups hoping to disrupt credit cards which charge merchants hefty fees.

Companies like Visa, Mastercard and even Apple are paying close attention to the trend. Visa acquired Sweden’s Tink for more than $2 billion, while Apple snapped up Credit Kudos, a company that relies on consumers’ banking information to help with underwriting loans, to drive its expansion into “buy now, pay later” loans.

“Open banking in general has gone from a big buzz word to being seamlessly integrated in processes that nobody really cares about anymore, like bill payments or top-ups,” said Daniel Kjellen, CEO of Tink.

Kjellen said Tink is now so popular in its home market of Sweden that it’s being used by about 60% of the adult population each month. “This is a serious number,” he says.

Embedded finance is all about integrating financial services products into companies that have nothing to do with finance. Imagine Disney offering its own bank accounts which you could use online or at its theme parks. But all the work that goes into making that happen would be handled by third-party firms whose names you might never encounter.

Banking-as-a-service is a part of this trend. It lets companies outside of the traditional world of finance piggyback on a regulated institution to offer their own payment cards, loans and digital wallets.

“You can either start building the tech yourself and start applying for licenses yourself, which is going to take years and probably tens of millions in funding, or you can find a partner,” said Iana Dimitrova, CEO of OpenPayd.

What’s not?
Got an idea for a new crypto exchange you’re just dying to pitch? Or think you might be onto the next Klarna? You might have a tougher time raising funds.

“The tokenization and the coin side of things we want to stay away from right now,” said Farhan Lalji, managing director at fintech-focused venture fund Anthemis Capital.

However, the infrastructure supporting crypto — whether it’s software analyzing data on the blockchain or keeping digital assets safe from hacks — is a trend he thinks will stand the test of time.

“Infrastructure doesn’t depend on one particular currency going up or down,” he said.

Investors see more potential in companies making it easier for people to access digital assets without all the knowhow of someone who trades cryptocurrencies and nonfungible tokens every day — part of a broader trend called “Web3.”

When it comes to crypto, “the areas that most interest us today are areas that we have an analogue experience to in classic industries,” said Rana Yared, a partner at venture capital firm Balderton.

As for BNPL, there’s been something of a shift in the business models VCs are gravitating toward. While the likes of Klarna and Affirm have seen their valuations plummet, BNPL startups focused on settling transactions between businesses are gaining a lot of traction.

“Growth in B2C [business-to-consumer] BNPL is slowing … and regulatory concerns could curtail growth,” said Philip Benton, fintech analyst at market research firm Omdia.

Business-to-business BNPL, on the other hand, is “starting from a very low base” and therefore has “huge” potential, he added.

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Treasury yields nudge lower as market participants track economic data, auctions

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U.S. Treasury yields nudged lower on Thursday as investors continue to assess the prospect of a recession.

The yield on the benchmark 10-year Treasury note was marginally lower to trade at 3.0612%, while the yield on the 30-year Treasury bond slipped to 3.1989%. Yields move inversely to prices.

As the second quarter draws to a close on Thursday, concern over a slowing economy and aggressive interest rate hikes from the Federal Reserve continue to dominate market sentiment.

Fed Chairman Jerome Powell on Wednesday said that policymakers would not allow inflation to take hold of the U.S. economy over the longer term.

Speaking at a European Central Bank forum, Powell said it’s important to arrest long-term inflation expectations so that they don’t become entrenched and create a self-fulfilling cycle.

“We’re strongly committed to using our tools to get inflation to come down. The way to do that is to slow down growth, ideally keeping it positive,” he said. “Is there a risk that would go too far? Certainly, there’s a risk. I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make … would be to fail to restore price stability.”

Market participants on Thursday will monitor a fresh batch of economic data. Initial jobless claims for the week ending June 18, personal income figures for May and consumer spending data for May will be released at 8:30 a.m. ET.

The core personal consumption expenditures price index — the Fed’s preferred inflation gauge — will be released at the same time, while the Chicago Purchasing Managers’ Index for June is scheduled to be published at 9:45 a.m. ET.

The Treasury will auction $35 billion in 4-week bills and $30 billion in 8-week bills on Thursday.

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