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Trump requested Saudi oil support before Iran nuclear decision

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A day before U.S. President Donald Trump withdrew from the Iran nuclear deal, one of his senior officials phoned Saudi Arabia to ask the world’s largest oil exporter to help keep prices stable if the decision disrupted supply.

Riyadh, Tehran’s arch rival, has long been a close Washington ally, but direct pressure on a member of Organization of the Petroleum Exporting Countries (OPEC) over oil policies is rare. Washington last pressed Saudi Arabia to increase output in 2012.

Riyadh has said that even though prices have spiked to over $80 per barrel, the highest since 2014, the market has yet to recover from a long slump. Until the phone call, Saudi officials had been saying it was too early to raise output.

Riyadh took this line partly because higher crude prices could help the stock market float of a stake in state oil giant Saudi Aramco expected to take place in 2019, Saudi industry sources had told Reuters.

So there was shock among some of Saudi Arabia’s fellow OPEC members when it issued a supportive statement hours after Washington imposed new sanctions on Tehran. It said it was ready to raise output to offset any supply shortage.

Three sources familiar with the matter said a senior U.S. administration official had called Saudi Crown Prince Mohammed bin Salman before Trump’s announcement to make sure Washington could count on Riyadh, the de facto OPEC leader.

One of the sources said the call took place on May 7. The other two did not specify a date for the call.

Washington was worried that the sanctions would curb deliveries from Iran and push oil prices up, the sources said.

A White House spokesperson declined to comment on whether a call took place.

A senior Saudi official did not confirm the call but said: “We were made aware of the decision on the JCPOA (Joint Comprehensive Plan of Action) before the announcement…We always have conversations with the U.S. about the stability of the oil market.”

The Saudi statement in May threatened to undermine a deal between OPEC and its allies led by Russia to curb output by about 1.8 million barrels per day (bpd), starting from January 2017, to reduce a supply glut and boost prices. The deal is due to expire at the end of 2018.

OPEC will meet on June 22 and needs a consensus of all members to officially change its output policy. Iran’s oil minister, Bijan Zanganeh, said last week he did not agree on the potential need to increase global oil supplies.

An OPEC source familiar with Saudi thinking said that Riyadh and Washington had discussed their oil policies before the U.S. announcement on Iran.

“You need to work with your partners in dealing with any potential effect on supply,” that OPEC source said.

Allies ‘upset’

The sudden shift in Riyadh’s public position came as a surprise to its Gulf allies, who coordinate OPEC policies closely.

Some Gulf countries were “upset that there was no prior consultation with them”, a separate source said. They felt Riyadh had come under pressure from Washington and they had not been consulted before public comments by Saudi Energy Minister Khalid al-Falih.

Falih traveled to Russia’s economic forum in St Petersburg last month and said the kingdom was prepared to gradually ease oil output curbs to calm consumers’ worries.

The shift has also irked some producers outside the Gulf.

“Some people felt they were not properly consulted before the comments in St. Petersburg,” a second OPEC source said.

Since the original international sanctions were lifted in January 2016, Iran has struggled to raise production above 4 million barrels per day. This is due to a lack of new projects.

Iran would benefit less than Saudi Arabia from an increase in supplies if it cannot raise output, as well as receive a lower price for existing production.

A third OPEC source said it would be against the OPEC charter to raise output just because Washington had requested it. “For some OPEC members, this is too much,” the source said.

More pressure

U.S. reliance on Saudi crude imports has decreased in recent years, in part as domestic shale output has risen, but Saudi Arabia remains an important source of U.S. supply.

The U.S. imported 748,000 bpd from Saudi Arabia in March 2018, having reached a post-1970s peak of more than 2 million bpd during 2003, according to figures from the U.S. Energy Information Administration.

Reuters reported in late May that OPEC and its allies could raise production by about 1 million bpd from July to address any potential oil shortages.

The sources say Riyadh’s shift in stance was prompted by pressure by Washington and other consuming countries but does not reflect concern in Saudi Arabia that there is a supply deficit.

In late April, Trump in a tweet criticized OPEC for high oil prices. India and China also raised concerns about high oil prices in separate calls with Falih.

“The thinking before was to continue with the OPEC deal until the end of the year,” a fourth OPEC source said. “But then Trump and the Iran nuclear deal happened and consuming nations started to complain. Consumers are very important for us.”

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Shares of Japan’s Sony after firm raises annual profit forecast

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A man walks past the logo of Japans Sony displayed at the company’s showroom in Tokyo on October 28, 2020.

KAZUHIRO NOGI | AFP via Getty Images

SINGAPORE — Shares of Sony surged in Tokyo on Thursday, a day after the Japanese electronics giant raised its annual profit forecast.

Sony shares in Japan were up 6.3% in Thursday afternoon trade even though Japan’s broader index, the Nikkei 225, was lower by around 0.3%

On Wednesday, Sony raised its forecast for its annual operating income by 13% to 700 billion yen (approx. $6.7 billion). It came as the firm announced a operating profit of about 317.8 billion yen (around $3.04 billion) for the three months ended Sept. 30.

Jefferies Asia’s Atul Goyal told CNBC on Thursday that he’s “extremely bullish” on Sony. The firm owns the stock and currently has a “buy” rating on Sony, with a price target of 13,230 yen per share — more than 50% higher than where the price currently sits.

… this is one of the best companies that we have seen in our coverage.

Atul Goyal

Managing Director, Jefferies Asia

Sony is set to release its next generation video game console, PlayStation (PS) 5, which would come on the back of the blockbuster success of PlayStation 4.

“It is looking very solid, very strong for PlayStation 5 and the whole cycle that lies ahead of us for the next 5 to 6 years,” Goyal, a managing director at Jefferies Asia, told CNBC’s “Squawk Box Asia” on Thursday. He highlighted Sony’s claims that the company received as many preorders in 12 hours for the PS5 as it did in 12 weeks for the PS4.

“You would hear shortages of PlayStation 5 because there’s more demand than supply,” the analyst said.

It’s not due to supply disruptions as “they have been able to recover from the … supply-side shortages that they were facing early on because most of the assemblies are happening in China and most of the supply chains have recovered almost entirely in China.”

“Demand is so strong for the product that that will keep the news flow that this product is sold out in most places for a while,” Goyal added.

Coronavirus impact

The video game sector has been among the few that have benefited from more people staying at home as a result of the coronavirus pandemic. That has raised questions over the sustainability of that bounce in a post-pandemic environment.

“The increase of gaming that we have seen partly is because of stay home, not just working from home, but vacationing from home where people are not traveling, and even the weekends you stay home,” Goyal pointed out. “This increase, part of that will be reverted as and when Covid goes away, and in my base case it doesn’t go away entirely until the end of 2021.”

Still, he said some of these habits that have changed as a result of the pandemic “could last longer.”

“We’re not factoring in (the) next five, six years of Covid-driven earnings increase. What we are factoring is Playstation 5-driven upside, driven by digital sales,” the analyst added.

Looking beyond Sony’s gaming business, which accounts for a sizable chunk of its operating income, Goyal said the firm’s music business is “also spectacular” while its image sensing business is also set to recover.

“All in all, this is one of the best companies that we have seen in our coverage,” he said. “Businesses in these three areas are all duopoly or oligopoly, and Sony’s a leader in all of them, with meaningful growth ahead.”

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Boeing (BA) earnings Q3 2020 results: Another rough quarter

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Dow futures sink 500 points as Wall Street grapples with rising Covid cases

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U.S. stock futures fell sharply early Wednesday as investors feared an increase in coronavirus infections could halt the recovering economy.

Dow Jones Industrial Average futures fell 500 points, 1.8%. The loss pointed to a drop of more than 480 points at the open. S&P 500 futures lost 1.4% and Nasdaq 100 futures fell 1%. The Dow is already down 3% on the week, giving up its gain for October.

Daily U.S. coronavirus cases have risen by a record average of 69,967 over the past week, data compiled by Johns Hopkins University showed. Meanwhile, coronavirus-related hospitalizations are up 5% or more in 36 states, according to data from the Covid Tracking Project.

This uptick has led some countries to reinstate certain lockdown measures. In the U.S., the state of Illinois has ordered Chicago to shut down indoor dining.

Stocks that would be hurt most by lockdowns or a slowdown in the economy reopening were hit in premarket trading. Shares of Delta Air Lines fell 2.5% in premarket trading. Royal Caribbean shares lost 3%.

“Uncertainty about COVID-19-related mobility restrictions and US politics mean we should expect volatility to remain elevated for the balance of the year,” said Mark Haefele, chief investment officer for global wealth management at UBS, in a note. “However, we continue to see upside over the medium term.”

“With ten vaccine candidates in late-stage trials globally, our central scenario is that restrictions can start to be lifted by 2Q21, helping corporate earnings recover to pre-pandemic highs by around the end of 2021,” he said.

Dimming hopes for another fiscal stimulus before the election have also weighed on the market.

The Dow fell more than 200 points during regular trading Tuesday and the S&P 500 slipped 0.3%. The Nasdaq Composite, meanwhile, advanced 0.6%. Tuesday’s divergent market action came as names that would benefit from people staying at home — such as Amazon and Zoom Video — rose broadly while stocks dependent on the economy reopening declined.

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