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IPR in the ASEAN and plain packaging in the West

Last week, March 22, a global coalition of 62 market-oriented independent or nongovernment think tanks and institutes sent a letter to the World Health Organization (WHO) on the subject, “Five years of failure: Global coalition letter against plain packaging.” Three institutes from ASEAN countries were among the signatories: the Center for Indonesian Policy Studies (CIPS) in Jakarta, the Institute for Democracy and Economic Affairs (IDEAS) in Kuala Lumpur, and Minimal Government Thinkers (MGT) in Manila, my think tank.

The statement was circulated well in social media particularly by signatory-institutes. The paper noted,

“After Australia implemented the policy, other industries have been targeted around the world: alcohol, sugary beverages, fatty foods, even toys. These industries employ millions and any regulation that would deny key IP assets would have a devastating global economic impact. The trademark value alone of only twelve companies associated with these sectors is estimated to be more than $1.8 trillion.

The costs of plain packaging are enormous: the loss of the innovation incentive, the mutilation of established international IP law, the market carve-out to illicit actors, including terrorists. We urge the WHO and governments around the world to stop infringing on intellectual property rights with plain packaging policies.”

This coming April 18, IDEAS will hold a public forum on “Intellectual Property Rights in the ASEAN Economic Community: Challenges and Potentials” to be held at Intercontinental Kuala Lumpur. The forum will partly cover an emerging big issue in international trade — the proliferation of illicit products.

The proliferation of illicit trade and smuggling is ironic in a period of overall tariff reduction and trade liberalization in the ASEAN and many other regions in the world.

brain

What explains this irony?

It is non-tariff barriers (NTBs) or non-tariff measures (NTMs). After all, these require additional permits, sanitary and phytosanitary measures (SPS), and technical barriers to trade (TBTs).

And, as mentioned in the letter, the emerging attack on IPR — plain packaging, abolition of trademark and logo, abolition of corporate branding, initially for tobacco products. Then advocates will move to other “unhealthy” goods like alcohol, sugary drinks, confectionery and candies, and so on.

Australia is the first country in the world to legislate and implement plain packaging or standardized packaging in December 2012. The estimated consumption of illicit and smuggled tobacco products was 12.2% of overall tobacco consumption in 2011 and 11.5% in 2012.

When plain packaging was implemented, the estimated illicit consumption went up: 13.5% in 2013, 14.5% in 2014, 14.1% in 2015, 13.9% in 2016 (source: KPMG, March 2017. “Illicit Tobacco in Australia, 2016 Full Year Report”).

Removing the trademark, logo and brand via plain packaging is less of an assault on tobacco companies with long years of corporate existence but more of an assault on a country’s tradition of protecting private property rights.

Below are some numbers showing average wealth and IPR protection in 15 economies, ASEAN + five in Northeast Asia. Data sources are (a) IMF’s World Economic Outlook (WEO) for GDP per capita, (b) Property Rights Alliance (PRA) International Property Rights Index (IPRI) 2017 Report, and (c) World Economic Forum (WEF) Global Competitiveness Report (GCR) 2017-2018.

The GCR is composed of 12 pillars and pillar #1 is about Institutions; among the sub-pillars there is IPR protection (see table).

IPRI

These numbers show that countries with high per capita GDP whether in current or nominal prices or in purchasing power parity (PPP) values are also those with high scores and global ranking in intellectual property rights (IPR) protection. And countries with low per capita income also have low scores and ranking in IPR protection. The exception to this trend is Brunei in the IPRI Report, and South Korea in the GCR.

High and rising taxes and now plain packaging as measures to discourage smoking is successful only in reducing smoking of legal and branded tobacco products. Not mentioned by advocates is that these measures are highly favorable to producers and distributors of illicit, fake, non-branded, and cheap tobacco products.

Since brand and product differentiation is effectively abolished, producers and manufacturers, old and new players, will only compete in pricing. So more cheap tobacco will be introduced and this will encourage more smoking.

To further reduce smoking incidence, governments and NGOs should continue public education about the dangers of smoking. But almost all smokers already know the dangers of smoking, the same way that cliff and plane jumpers, high wall/rock climbers, motorcycle stunt drivers, extreme bicycle downhill riders, deep sea scuba divers, MMA/UFC fighters, etc. know the dangers of their sports and passion but they keep doing it anyway, repeatedly.

People own their body, not governments or health NGOs. There is a limit to state nannyism and very often, such nannyism results in adverse, unintended consequences.

Governments should instead focus on protecting private property as a way to encourage more economic prosperity.

 

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

minimalgovernment@gmail.com.

Quezon City gov’t closes Dimple Star bus firm’s office

QUEZON CITY Mayor Herbert M. Bautista on Monday personally served the order closing down the main office of Dimple Star bus terminal in Cubao. This comes after President Rodrigo R. Duterte directed the bus firm’s closure after one of its units fell off a ravine in Occidental Mindoro, which killed 19 and injured 21.

“We don’t want another tragedy to happen. Both the national and local governments have been trying to implement measures to minimize the risks on the road. The public should also do its share by not patronizing colorum and noncompliant buses,” Mr. Bautista said. The mayor also inspected other bus terminals in the area. — Minde Nyl R. dela Cruz

Storm Jelawat stays on track away from land

TROPICAL STORM Jelawat, which will be locally named Caloy when it enters the Philippine area, has maintained its strength but has been moving slower at 20 kilometers per hour (kph) more than a 1,000 kms east of the country.

Weather bureau PAGASA, in its 11 a.m. bulletin today, March 26, said Jelawat is expected to become a tropical storm by Tuesday morning, with the center located 945 kms east of Guiuan, Eastern Samar. It is forecasted to move northeast with maximum sustained winds of 65 kph near the center. Jelawat has remained on its recurving track and is not expected to make landfall in the country.

Tagum City organizes boat owners for livelihood, marine protection plans 

THE TAGUM CITY government is giving a boost to its coastal communities by organizing boat owners for systematic monitoring and implementation of livelihood programs. The program started with the recent registration of all local seacraft, both motorized and non-motorized (locally known as banca de bugsay) and identifying those used for passenger services, fishing, and other activities. The registration was undertaken in partnership with the Department of Environment and Natural Resources, Smartseas under the World Wide Fund as well as the police and coast guard.

In a statement released last week, the city government said the registration is intended to “protect our fisherfolks against various forms of abuse from fellow fisherfolks and the authority (and) serve as a means to monitor the docking areas of the boats.” During the registration, authorities also urged the coastal community members to be vigilant and assist in monitoring illegal fishing activities, other environmental threats, and terror attacks. Meanwhile, members of the city council announced plans to develop and promote tourism activities and other livelihood projects for the fishing communities. There are currently 185 motorized and non-motorized boats officially registered, which will be painted a uniform apple green with an orange stripe.

Security concerns

Last week, I was drawn to various conferences that swirled around unending security issues. I’ll share some of the more important ones and try to capture the essence of the discussions at the Philippine Army’s Senior Leaders Conference; the Philippine Council for Foreign Relations’ forum on national security; and the Maritime Forum’s assessment of the risks in our EEZ.

In light of terrorism’s global footprint and struggle for a cohesive regional response to it, three key aspects grabbed everyone’s attention: the Human Security Act of 2007, cybersecurity and “whole-of-nation” solutions where the government and society remain unable to close the gaps and align with its purposive regional neighbors whose internal security policy and operations, cybersecurity architecture and socioeconomic-political stability are firmly in place.

The Human Security Act of 2007 is a deflated Internal Security Act. It’s misaligned with our regional neighbors’ policies. We need to scale it up and be supportive of our law enforcers. An amended counterterror law should enable practitioners to arrest, search, seize and detain on mere suspicion like our regional neighbors do. Their quarantine could last several months (it varies from country to country), not a mere 3 days and a ludicrous penalty of P500,000 on our law enforcers for every day a suspect remains in detention after 3 days.

The UK today is like a police state based on laws enacted by the British Parliament since 2000 that empower law enforcers to act swiftly and decisively against terrorists. Security forces are raiding homes; seizing evidence; patrolling the streets; stopping vehicles to search it, drivers and passengers for dangerous tools of the trade; and arresting based on suspicion alone. Ironically, it’s reminiscent of president Marcos’s conduct of martial law, unlike President Duterte’s watered down martial law powers based on the 1987 Constitution.

In Israel, security is the government’s and society’s duty and responsibility to prevent terrorists from influencing its national agenda. Its strategy consists of: a.) intelligence; b.) military and paramilitary actions; c.) commercial aviation security; d.) defense against weapons of mass destruction; and, e.) reinforcing society’s psychological fortitude. Israel’s counterterrorism system employs preemptive strikes; destroys terrorist infrastructure; eliminates command echelons; and attacks weapons stockpiles, logistics, development centers and safe houses.

In cybersecurity, an invisible cyberattack group traced to China has, for years, been hacking government, military, media, private sector, dissident and social sites to collect information, pollute data, and destroy technology-based strategic infrastructure. We haven’t been spared based on official records. China’s Information Warfare (IW) and Information Operations (IO) include computer network warfare (in concert with electronic warfare) to disrupt, disable, degrade, or deceive an enemy’s command and control, and cripple its ability to make informed and timely decisions.

Western countries have long accused China of aggressive espionage. Although various attacks on corporate and infrastructure computer systems have been traced to computers in China, they’re unsure if the attacks are state-sponsored due to difficulties in tracking real identities in cyberspace. What’s known, though, is China’s policy direction on IW and IO that are generally focused on information defense and offense covering 5 major elements:

• Substantive Destruction

• Electronic Warfare

• Military Deception

• Operational Secrecy

• Psychological Warfare

It’s DICT’s job, in collaboration with other affected sectors of society, to evaluate our risks and vulnerabilities, assess defensive options and apply tailored solutions against extractive and destructive attacks on our information, communications and infrastructure systems. Attending Black Hat conferences to gain new insights and obtain fresh approaches to cybersecurity is an important element in countering terrorism. Intelligence-sharing, data privacy and completed staff work cannot be overemphasized.

We’ve had a dual insurgency since 1969: the CPP-NPA-NDF and secessionist fronts. The latter overlap with foreign and local jihadist groups linked to criminal syndicates and political warlords. They exploit our weak institutions, endemic corruption, bad governance, and tattered values. Problems persist because, historically, we either evade solutions that affect vested interests; or address symptoms rather than the root causes. Good governance — national and local — and responsible citizenship are essential to a “whole-of-nation” approach for lasting peace, inclusive growth and sustainable development.

In addition, divisive elements lobby for a Bangsamoro nation with a Constitution and system of governance that rivals and challenges the inviolability of the Republic; usurps the powers of the Executive and authority of our uniformed and civil services; and primes it for future withdrawal from the Philippines. An expanded ARMM law that truly decentralizes and empowers within the confines of the Constitution is the only way out of a bad proposal. We all want peace but not at the expense of the Republic. There must only be one Philippines for all its citizens!

Another issue affecting our national interest is the AFP’s modernization. Had the government seen to it that the AFP and other armed instrumentalities were provided the wherewithal year on year, from the time the US bases left in 1991, we could’ve built our capacity to detect and deter aggressive intrusions in our EEZ. The loss of our security cover, and our negligence to fill the vacuum, emboldened predators to challenge our national interests to advance theirs. At this late stage, we still lack the mind-set and aptitude needed to build credible deterrence.

The US and China are locked in strategic competition for prestige, wealth, and power in the Indo-Pacific theater. We’re strategic real estate caught between a rock and a hard place: a Mutual Defense Treaty with the USA, and an independent foreign policy wanting to expand relations with China and Russia that the US labels as strategic competitors. China, Russia, and the USA continue to circle each other in multiple arenas that may one day turn to mortal blows. It’s in our national interest to ramp up preventive diplomacy while preparing for the worst.

A nation divided cannot win.

We lack the patriotic fervor of other nations to solve persistent problems and reinforce the elements of our national power. To survive, we need to change our attitudes and behavior to what we should finally become — a diverse society united in common purpose for a dynamic Philippines.

 

Rafael M. Alunan III served in the Cabinet of President Corazon C. Aquino as Secretary of Tourism, and in the Cabinet of President Fidel V. Ramos as Secretary of Interior and Local Government.

rmalunan@gmail.com

map@map.org.ph

http://map.org.ph

Shaping up

THE NEW BOHOL AIRPORT, located in Panglao Island, takes shape with 80% of the construction work done, according to Department of Transportation (DoTr) Secretary Arthur P. Tugade who visited the site on Monday, March 26. The airport, designed to accommodate two million passengers on its opening year, is scheduled to be operational by August 2018.

In my humble opinion

In the spirit of this week, we take a breather from irony, satire, ridicule, cynicism, and irreverence. We shift to matters of the spirit, the non-alcoholic kind. This reflection is intended for corporate chiefs who have no time to meditate. But this Easter break will give them time to look at their navels and ponder the meaning of life, between golf games and frolicking in the beach.

If individuals can be enriched by spiritual insights, can’t corporations change their sinful ways too?

Business virtues, in the realm of stock volatility, declining market share, ebbing revenue streams, and yes, disruption seem to be getting scarce. Good works include transparency (I can see you through the glass wall, reading the newspaper), proper handling of suppliers (You get paid after we get paid), fair treatment of employees (We are willing to listen to you, only if you don’t talk), good investor relations (We have the nicest power point presentations), and corporate philanthropy.

But have we ever come across corporate humility?

When was the last time a CEO admitted he was merely a servant of the stockholders and employees and should drive a cheaper car? Isn’t the annual stockholders’ meeting intended to trumpet achievements (breakthroughs have become routine) and bashing competition with pie charts that show what a small slice they’re left with? They can’t even have a snack after we ate their lunch.

Bragging for a corporation is not considered an aberration. Anyway, it’s called “projecting a positive image”. A whole PR department is tasked with making chest-thumping a way of life. So, is it possible to introduce humility in the corporate culture?

When launching a new service, bring down the hype. This is a product you may not need, dear customers, but it’s a profitable one for us. You may find some fault with it as we have not yet ironed out all the kinks, but the invitations for this launch have already been printed and sent out. We welcome feedback from you if this thing blows up in your face.

Admit mistakes. Humility accepts failure. We are far from perfect. Not all corporate missteps should be projected as intentional strategy and explained away as pilot projects from which lessons were learned. Yes, we allowed your data to be massaged by an outside therapist.

Your annual report need not be a litany of spectacular achievements. It is not inappropriate to acknowledge missed goals or projects that did not pan out as expected. (It’s been moved to the end of days.) You can even praise your competitors — they make us run faster.

A corporate chief who easily moves among his employees with humility is rare. More often, he is announced by his EA (straighten your head band, he’s in the elevator) and those he passes through are expected to drop what they’re doing to symbolically wave palms at the passing of the messiah. And, they usually don’t line up with the others at the buffet table?

It is not exceptional for a CEO to have a personal publicist raise his profile. This may include discreetly lobbying for awards, getting time in lifestyle talk shows, maybe a feature in a glossy about what a well-rounded personality he is. The favorite accolade to accord him is “Renaissance Man.” This Florentine construct combines business success with a passion for the arts. This guy speaks 7 languages (badly), including Urdu, writes haikus for relaxation, sings a passable “Nessun Dorma” a cappella, and joins “iron man” training when not busy with the dozen corporations he manages.

Creating a distinctive and interesting personality to stand out in the clutter of corporate chiefs is a full-time job for a publicist. It includes whimsical photos in unusual situations. (Here he is screaming in terror riding the slingshot.)

Bragging is too ingrained in the corporate culture. Humility is a forgotten virtue. Lives there a CEO who will confess he no longer understands his job after meeting his EBITDA target? What happens to a CEO who says — I head this company not because I’m talented but because I can help others? Will he see his last paycheck on Thursday?

Humility all too often eludes the CEO. It comes not when he’s at the top, but after he is forced out of his perch. By then, humility becomes a form of self-pity — ashes to ashes, dust to dust. Anyway, it’s never too late to be humbled.

 

A. R. Samson is Chairman and CEO, TOUCH xda

ar.samson@yahoo.com

Nation at a Glance — (03/27/18)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Lagarde urges rainy-day fund for euro area to aid against shocks

IMF Managing Director Christine Lagarde urged Europe to pursue further integration, including on spending, saying a closer union of euro-area countries would help counter rising populism and protectionism globally.

“A more unified euro area can be a compass to prosperity for the region and a beacon of hope to the world,” Lagarde said in a speech Monday in Berlin.

The IMF chief said the euro zone has made progress on a capital-markets and banking union, two areas in which the fund is calling for greater integration. But she also encouraged the currency union’s members to push toward setting up a “central fiscal capacity” that would establish a “rainy-day fund” that members finance through annual contributions.

With the U.K. leaving the European Union, Lagarde’s proposal comes as Germany, France and other members debate how to strengthen the 19-country euro area. While the notion of a central fiscal authority is “politically difficult,” monetary policy did too much of the “heavy lifting” during the last financial crisis and budget austerity worsened the problem, Lagarde said.

Trump Tariffs

The world also is digesting a series of hawkish U.S. moves on trade. President Donald Trump’s plan to impose tariffs on Chinese products shook markets last week, as investors worried the move would spark a wider trade conflict with China. Beijing responded swiftly with tariffs on $3 billion in U.S. imports.

Lagarde has been urging countries to avoid being sucked into a global trade war that could undermine the broadest world recovery in years.

“Policy makers need to work constructively together to reduce trade barriers and resolve trade disagreements,” Lagarde said this month, after Trump announced tariffs on steel and aluminum. “Economic history clearly shows that trade wars not only hurt global growth, but they are also unwinnable.”

Trump has welcomed the turmoil, declaring on Twitter that “trade wars are good, and easy to win.”

Lagarde has had some pointed words this year for Germany over the nation’s trade surplus. In January, the IMF chief encouraged Chancellor Angela Merkel’s government to step up public spending to lift growth, saying that Germany’s current-account surplus is too large. The U.S. trade deficit with various nations has been a source of consternation for Trump since his election in 2016.

Global Outlook

The IMF will update its global forecast at its annual spring meeting in Washington. In January, the fund raised its outlook for world expansion to 3.9 percent this year, the fastest rate since 2011, when the world was bouncing back from the financial crisis.

However, the IMF has been warning policy makers to guard against the next recession, even as it hails the broadest global recovery in years. — Bloomberg

What the world’s governments are saying about cryptocurrencies

Getting your head around cryptocurrencies was hard enough before governments got involved. But now that policy makers around the world are drawing up fresh regulations on everything from exchanges to initial coin offerings, keeping track of what’s legal has become just as daunting as figuring out which newfangled token might turn into the next Bitcoin.

The rules can vary wildly by country, given a lack of global coordination among authorities. And while that may change after finance chiefs discuss digital assets at the Group of 20 meeting in Buenos Aires this week, for the time being there’s a wide range of opinions on how best to regulate the space. Below is a rundown of what major countries are doing now.

Asia

Most of the world’s cryptocurrency trading takes place in this tech-savvy region, with Japan playing a dominant role after it introduced a licensing system for digital-asset exchanges last year. In Hong Kong, regulators have adopted a more hands-off approach while at the same time warning crypto platforms to refrain from trading anything that qualifies as a security without permission. Singapore’s deputy prime minister has called cryptocurrencies an “experiment,” adding that he doesn’t see a strong case to ban trading. Taiwan authorities are taking a wait-and-see approach, while the Philippines plans to roll out rules for ICOs by year-end.

China, once a global hub for cryptocurrency trading, now leads the world in cracking down. It has outlawed digital-asset exchanges and ICOs, blocked online access to overseas trading platforms and cut off power to Bitcoin miners. South Korea, which became a hotbed of cryptocurrency activity last year, is also tightening oversight as it works on a comprehensive set of regulations, though it has allowed exchanges to keep operating for now. In India, where crypto-mania has been relatively subdued, the government has said it doesn’t consider digital currencies to be legal tender and will take measures to curb their use.

Americas

Most cryptocurrency trading in the U.S. takes place in a legal gray area, a point highlighted by the nation’s two top market watchdogs in testimony to Congress in February. Still, the Securities and Exchange Commission has been scrutinizing everything from ICOs to cryptocurrency hedge funds and trading venues. How exactly it plans to crack down on the industry remains to be seen.

In Canada, regulators have said that ICOs may be treated as securities and that products linked to cryptocurrencies should be considered high-risk. At the same time, the country’s stock exchanges have become popular destinations for crypto-related stocks and exchange-traded funds. Brazil’s market regulator, meanwhile, has barred funds from investing in cryptocurrencies because they aren’t classified as financial assets.

Europe, Middle East and Africa

The European Commission is still reviewing the bloc’s regulatory framework for cryptocurrencies. The European Securities and Markets Authority, which coordinates standards across member states, has proposed restrictions on derivatives tied to virtual currencies for retail investors, and is also assessing how the EU’s new MiFID II rules apply to digital assets. One regulation that’s already in the pipeline: platforms that exchange virtual currencies for conventional money will soon have to verify the identity of their customers.

At the national level, Germany has cracked down on trading venues that lack permission to offer brokerage services and French authorities have said that online platforms for crypto-derivatives should face tough reporting and business conduct standards. In the U.K., a parliamentary committee is looking at how to police digital currencies.

Russia’s finance ministry unveiled draft legislation in January that would ban cryptocurrency payments while allowing ICOs and the exchange of virtual currencies into the traditional sort. To make the rules permanent, the ministry may have to overcome opposition from the nation’s central bank.

It’s mostly a gray area for cryptocurrency regulation in major African economies. South Africa’s markets regulator doesn’t oversee virtual currencies or digital-asset exchanges, though the central bank has said it will investigate an “appropriate policy framework and regulatory regime.” In Zimbabwe, where digital currencies are traded on exchanges and used for remittance payments, the monetary authority has warned about the risk of “money laundering, terrorism financing, tax evasion and fraud.”

It’s a similar story in Kenya, one of Africa’s most tech-savvy nations. There, Bitcoin and other cryptocurrencies have grown in popularity even as officials have warned against trading them. In Nigeria, cryptocurrency markets aren’t regulated, but the central bank, which likens Bitcoin trading to gambling, has said that will probably change. — Bloomberg

PHL stocks decline on US-China trade war fears

By Arra B. Francia, Reporter

LOCAL EQUITIES edged lower on Monday due to lingering fears of a trade war between the United States and China.

The bellwether Philippine Stock Exchange index (PSEi) gave up 0.48% or 38.42 points to close at 7,932.38 today.

The broader all-shares index also dropped 0.57% or 27.49 points to 4,796.67.

“Philippine markets continued to slide after the Trump administration announced 25% tariffs on approximately $50 billion of imports from China over the weekend,” Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a mobile phone message.

US President Donald J. Trump’s imposition of new trade regulations against China follows a seven-month investigation into intellectual property theft, a concern that has long surrounded US-China trade relations.

The looming trade war also pulled down Wall Street’s major indices last Friday, with the Dow Jones Industrial Average closing 1.77% or 424.69 points lower at 23,533.20. The S&P 500 index decreased 2.1% or 55.43 points to 2,588.26, while the Nasdaq Composite index lost 2.43% or 174.01 points to 6,992.67.

Back home, the industrials sub-index was the lone sector that managed to eke out gains, adding 0.34% or 38.85 points to 11,288.27. The rest ended in negative territory, led by services that shed 1.54% or 25.99 points to 1,653.99, and property that declined 0.76% or 27.81 points to 3,601.25.

Financials also dropped 0.60% or 12.51 points to 2,040.64; mining and oil slumped 0.25% or 27.14 points to 10,799.89; while holding firms fell 0.20% or 15.81 points to 7,907.60.

Trading thinned on Monday as just 1.75 billion issues valued at P6.34 billion switched hands from Friday’s P8.65 billion.

“Players may have executed their trades last week, ahead of the shortened Easter trading. The average traded value last week hit P10.7 billion versus P8.8 billion year to date,” Papa Securities Corp. Deputy Research Head Arabelle C. Maghirang said in an e-mail.

Decliners outpaced advancers, 138 to 65, while 41 issues were unchanged.

Regina Capital’s Mr. Limlingan said investors are repositioning their portfolios ahead of the long weekend, as the PSE will be closed on Thursday and Friday for the Lenten break.

“Funds are winding down their portfolio as part of their window dressing ahead of the long weekend. To safeguard against volatility, many are keeping to cash to perhaps protect their funds’ net asset values,” he said.

Foreign investors were still on selling mode, unloading a net P708.18 million on Monday, although lower than Friday’s net sales of P1.07 billion.

“The market continues to trend downwards…We peg our first support level at 7,800, second at 7,700. Resistance levels are at 8,050 and 8,400,” Papa Securities’ Ms. Maghirang said.

Oil erases gains as traders shrug off rising Middle East tension

Oil fell, erasing earlier gains, as investors shrugged off concerns over geopolitical risks after Saudi Arabia intercepted ballistic missiles fired by Houthi forces in Yemen.

Futures in New York fell as much as 0.6 percent. Prices had earlier risen as much as 1 percent on speculation a worsening of the situation with Yemen will lead to supply disruptions in the oil-rich Middle East. Meanwhile in China, the country began trading its first ever crude-futures contract on Monday as the world’s biggest oil buyer seeks to wield greater power over pricing and challenge benchmarks in the U.S. and Europe.

Oil last week posted its biggest weekly advance since July after President Donald Trump appointed John Bolton as national security adviser, signaling the U.S. may be turning to a harder line on OPEC producer Iran. On top of concerns over that country, if supplies from Saudi Arabia also get disrupted, the oil market may see a supply shortage as U.S. output won’t be enough to cover a decline in barrels from the Middle East, according to Japan Oil, Gas & Metals National Corp.

“The Yemen attack froze investors’ blood and raised prices,” Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National Corp., said by phone from Tokyo. “But the view now is that the situation hasn’t really changed yet as Saudi Arabia intercepted the missiles, so investors are taking profit.”

West Texas Intermediate crude for May delivery fell as much as 42 cents to $65.46 a barrel on the New York Mercantile Exchange, erasing an earlier 67-cent gain. The contract traded at $65.60 at 3:47 p.m. in Tokyo. Total volume traded was about 72 percent above the 100-day average.

Brent for May settlement dropped as much as 31 cents to $70.14 a barrel the London-based ICE Futures Europe exchange. The contract advanced $1.54 to $70.45 on Friday, the highest level since late January. The global benchmark traded at a $4.67 premium to WTI.

China’s yuan-denominated futures for September settlement traded at 429.8 yuan a barrel ($68.16) on the Shanghai International Energy Exchange at a midday trading break. Futures attracted more volumes than at least one global benchmark during Asian hours.

Oil prices in New York and London jumped earlier after rebels in Yemen targeted various airports in Saudi Arabia. The Kingdom said it intercepted seven ballistic missiles fired at Riyadh and other cities by Houthi forces in Yemen, marking an escalation from previous rocket launches at the kingdom.

Meanwhile, in the U.S., drillers added four working rigs last week, bringing the total to 804, the highest since March 2015, according to Baker Hughes data released Friday. That’s the eighth increase in nine weeks. — Bloomberg

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