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Armenia-Azerbaijan clashes add to oil market anxiety

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People greet soldiers with Azerbaijani and Turkish flags on Sept. 27, 2020 in Tartar, Azerbaijan as clashes continue at Azerbaijan-Armenia contact line.

Resul Rehimov | Anadolu Agency | Getty Images

Deadly clashes between Armenia and Azerbaijan are unlikely to result in major disruptions to energy production and supplies, analysts say, despite the region being a critical corridor for pipelines transporting oil and gas to the global markets.

“There is not really much anticipation that this will boil over into something more serious for oil and commodity markets,” Edward Bell, a senior director at Dubai-based Emirates NBD bank, told CNBC.

“If the geopolitical premium is not already in the price, I don’t think we’re going to see much reaction here on in,” Bell added, despite a worry that recent clashes could impact production or pipeline facilities, which have been subject to illegal taps, attack and sabotage during periods of heightened tension in the past. 

The clashes between the two former Soviet republics in the South Caucasus are the latest flare-up of a long-running conflict over Nagorno-Karabakh, a breakaway region of Azerbaijan run by ethnic Armenians. 

At the weekend, Armenia said Azerbaijan had carried out an air and artillery attack on Nagorno-Karabakh, but Azerbaijan said it had responded to Armenian shelling, according to NBC News, which has not been able to independently confirm the number of injuries or fatalities. 

Critical pipelines on watch as conflict evolves

Azerbaijan is the 24th largest crude oil producer in the world and a significant producer of natural gas, which both account for more than 90% of Azerbaijan’s exports. Its pipelines make it a strategic gateway to oil and gas in the Caspian and a growing source of energy security for Europe.

Azerbaijan has three crude oil export pipelines. The largest is the 1,768-km-long Baku-Tbilisi-Ceyhan (BTC) pipeline, which transports crude and condensates through Azerbaijan, Georgia and Turkey. It has two main gas export pipelines, including the 693 km South Caucasus Pipeline (SCP) that transports gas from the Shah Deniz field through Georgia to Turkey parallel to the BTC crude oil pipeline, according to the IEA.

Even so, Bell says the risk of further military action might not be enough to prompt a commodity price spike. 

“I think oil markets have become very attuned and very good at pricing in what is an actual disruption to output that would prompt prices going higher,” he said, suggesting that even a brief interruption to output or disruption to a pipeline would easily be recovered given the vast amount of spare crude and gas production capacity elsewhere around the world.  

A lower for longer recovery?

Crude oil traded in a tight range with a positive bias on Monday. Brent and WTI both fell 2% last week, with investors growing increasingly anxious that oil demand will fail to recover if countries reintroduce further Covid-19 restrictions.  

“The risks are to the downside at the moment,” said Bell, who expects prices to continue on a similar trajectory in the fourth quarter of this year.

“Market sentiment is somber due to surging infection rates and escalating U.S.-China tension,” analysts at ANZ said. “New Covid-19 case numbers are accelerating in major U.S. states, renewing fears of mobility restrictions challenging the ongoing oil demand recovery in the last quarter,” ANZ added. 

More crude is also being exported from Libya, which opened several export terminals and said production could rise significantly before the end of the year.

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Asia-Pacific stocks mixed as investors monitor coronavirus developments

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Stock futures rise slightly as traders monitor stimulus talks, debate ahead

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An artist name Theodore Tsinias who wrapped himself next to the Charging Bull to show his attention about world’s behavior amid Covid-19 pandemic in Lower Manhattan, New York City, United States on May 25, 2020.

Tayfun Coskin | Anadolu Agency | Getty Images

U.S. stock futures rose on Thursday night as Wall Street weighed the potential for additional fiscal stimulus, news on the earnings and coronavirus treatment fronts while awaiting the final U.S. presidential debate.

Dow Jones Industrial Average futures were up by 44 points, or 0.2%. S&P 500 futures gained 0.1% and Nasdaq 100 futures traded higher by 0.2%.

Intel shares fell more than 9% in after-hours trading following the release of mixed quarterly numbers for the chip maker. The company’s earnings were in line with analyst expectations, but revenue from its data center business fell short of analyst estimates.

Meanwhile, Gilead Sciences gained 4% after the Food and Drug Administration approved the company’s drug, remdesivir, for use as a treatment against the coronavirus.

The Dow and S&P 500 each gained 0.5% during regular trading while the Nasdaq Composite advanced 0.2% after House Speaker Nancy Pelosi signaled she and Treasury Secretary Steven Mnuchin were making progress in their fiscal stimulus negotiations.

“If we were not making progress, I wouldn’t spend five seconds in these conversations. … This is not anything other than I think a serious attempt. I do believe that both sides want to reach an agreement,” Pelosi said.

However, Pelosi also tempered expectations over Democrats and Republicans reaching a deal before the election, saying it could take “a while” for a bill to be written and signed.

Traders have been keeping an eye on Washington in recent weeks as they gauge the prospects for new coronavirus aid to be pushed through. Several market experts and economists, including Federal Reserve Chairman Jerome Powell, think it is imperative that lawmakers reach a deal on another stimulus package.

“Governmental powers are still trying to put together another economic relief package,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “However, despite the July expiration of unemployment benefits provided by the CARES Act, here, two-and-a-half months later, U.S. economic momentum is remarkably healthy.”

Paulsen’s comment came after the release of much better-than-expected U.S. unemployment data on Thursday.

Thursday’s moves came ahead of the second debate between President Donald Trump and former Vice President Joe Biden. The debate is set to start at 9 p.m. ET and will be the last one before the Nov. 3 presidential election.

Biden holds a lead in most national polls heading into the debate as the possibility for a so-called Blue Wave grows. Some market experts a Democratic sweep could lead to a pop in equity prices in the short term. However, legendary hedge fund manager Paul Tudor Jones warned Thursday that this scenario could pressure stocks in the long term.

“I think under a blue wave, and the Biden tax plan, financial assets over the long run suffer a great deal,” he said on CNBC’s “Squawk Box.”

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