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Prospects Weekly: For the first time in four decades, the US Department of Commerce has authorized exports of minimally processed crude oil

Global Macroeconomics Team's picture
The US Department of Commerce has authorized exports of minimally processed crude oil, which could help reduce unprecedented levels of crude oil stocks in the U.S. and may narrow the 7 percent discount that U.S. oil trades to international (Brent) prices. In South Asia, weak economic growth has taken a toll on corporate and bank balance sheets. Tighter monetary and regulatory policies in the larger economies in East Asia have contributed to the slowdown in credit growth.
 
For the first time in four decades, the US Department of Commerce has authorized exports of minimally processed crude oil. In its June ruling, the US Department of Commerce issued export permits to two oil companies for wellhead condensate oil (minimally processed crude oil). Although the ruling has been viewed as "technical", it has been interpreted as a first step towards relaxing the four-decade long ban on oil exports. The ban, a response to the 1973 Arab oil embargo, applies to crude oil but not to refined products. The export permits were issued to independent oil production companies instead of refining companies. Exports of minimally processed crude oil, which may begin as early as August, are expected to be limited initially but may reach one million barrels per day (mb/d) within a year (compared with total US oil production of 8.4 mb/d in April 2014, up from 5.5 mb/d in 2010). This could help reduce unprecedented levels of crude oil stocks in the U.S. and may narrow the 7 percent discount that U.S. oil trades to international (Brent) prices.
In South Asia, weak economic growth has taken a toll on corporate and bank balance sheets. In South Asia, weak economic growth has taken a toll on corporate and bank balance sheets. Stressed bank loans (including restructured loans) exceed 10 percent of loans in Bangladesh, Bhutan, India, and Pakistan. In Bangladesh, they are concentrated in state-owned banks, which account for about a third of banking sector assets. Though reported nonperforming loans are a small share of total loans in Nepal, there is anecdotal evidence of substantial “ever-greening” of problem loans by banks. Recognizing and fully provisioning for problem loans in South Asian countries would increase capital needs (and possibly require fiscal support), but is essential for the banking system to be able to foster the resumption of the investment cycle. Institutional reforms, including strengthening human resources, systems, and NPL management and capitalization would also help to improve financial intermediation and availability of credit for the private sector.
Tighter monetary and regulatory policies in the larger economies in East Asia have contributed to easing credit growth. In an effort to rein in credit growth, China has tightened regulations and instructed local governments to reduce their demand for new project financing. Banks have become reluctant to lend to firms in sectors with overcapacity and domestic bond issuance has slowed after widely publicized defaults. Despite a decline in credit growth, the stock of aggregate financing remains high and about one quarter consists of shadow banking products. In Indonesia, monetary tightening between June and November raised financing cost. In Thailand, political tensions depressed economic activity and business confidence, thus dampening demand for credit.

 

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