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Morning Bid Europe- That's a lot to digest
Wayne Cole gives us a look at what the future holds for European and global markets. The 'new quarter' in Asia has been marked by a lack of confidence, partly because the market is digesting the gains from the previous quarter and partly because the U.S./Iran talks have not progressed. Tehran has reportedly refused to meet with President Donald Trump's son in law?Jared Kushner or his envoy Steve Witkoff, who arrived for high-level talks at Doha. The Strait of Hormuz is a very difficult issue. It's unclear how to resolve it. Asian stock markets have been mixed. This follows a quarter in which the Nikkei soared 37%, while the Kospi soared 68%, and the Taiex rose 45%. These gains are dependent on the AI trade working well, but economic data is providing fundamental support. The sentiment among Japan's major manufacturers reached a level not seen since 2018. Manufacturing activity also had its best quarter in 2014 as new orders surged. South Korea's trade numbers were astounding. The country experienced the fastest growth in exports in almost 50 years, in June. Shipments of semiconductors increased by nearly 200%. South Korea is now the fourth country to have a monthly value of exports exceeding $100 billion after Germany, China, and the U.S. The Wall Street stock futures are slightly in the red following a strong session overnight, led by the usual suspects. This season, which begins the week of July 13, is expected to be a 'bonanza for earnings from these same companies. Goldman Sachs analysts note that the consensus for earnings per share is a 22% increase over a year ago. AI infrastructure stocks will contribute to nearly 60% of the S&P 500's EPS growth. Micron and Nvidia, together, are expected to account for more than 40%. Earnings will need to be high enough to counter the appeal of higher bond rates and the possibility of an increase in the cash rate. The yields on 10-year Treasury bonds?rose almost 9 basis points in a selloff on Tuesday that was not triggered by any obvious factor. Investors could be bracing themselves for a surprise tomorrow in the payroll numbers on the upside, further reducing the odds of a Federal Reserve increase. The chance of a move in September is between 67% and 88%, depending on how you calculate Fed Fund Futures. Today, Fed Chair Warsh will be speaking in Sintra. We'll see whether he adheres to his "no-forward guidance" mantra. There's also a new 40-year high for the dollar/yen, 162.82, and no signs of Japanese intervention. The yen is not falling on the crosses. Perhaps Tokyo is willing to wait. There are no major chart levels until the dollar reaches Plaza Accord level?around 240.00 yen. This is a huge gap to fill. The following are key developments that may influence the markets on Wednesday. - Fed 'Chair Kevin Warsh speaks at the ECB Forum on Central Banking, Sintra, Portugal, alongside European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, as well as Bank of Canada Governor Tiff MacKlem. - EU CPI June, EU and US Manufacturing PMIs June US ISM Manufacturing Survey and Auto Sales for June
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Sources say that Kawasaki Heavy intends to raise $1.2 Billion via new convertible bonds and shares.
According to sources with knowledge of the matter, Kawasaki Heavy Industry is preparing to issue new shares and convertible bond to fund capital expenditures. The company plans to raise 200 billion yen (US$1.23 'billion). Sources said that the company would decide the details for the issuance this week. One of the sources stated that shares and convertible bonds would be sold to primarily overseas institutional investors. The plan to raise money has not been announced earlier. Kawasaki Heavy stated in a press release that it was considering different capital strategies, including the issuance of new shares and bonds. However, nothing had been decided. Sources declined to name themselves as the information was not publicly available. Kawasaki Heavy shares were down by 7% in Tokyo, as investors worried about the possible dilution effect. Kawasaki Heavy invests in a range of areas, including gas turbines and robots used in chipmaking equipment, and in the hydrogen supply chain. This is in line with the government's plans to strengthen key sectors, as well as the nation's defences. As interest rates increase, Japanese companies are increasingly turning to convertible bonds. These bonds can be converted later into shares at a fixed price, avoiding immediate dilution. LSEG data show that eight Japanese companies raised $7 billion by issuing convertible bond as of June 17. This is the highest amount in over two decades. This year, companies are issuing convertible bonds include?Nippon Steel - the largest corporate bond issue in Japan's history - and JX Advanced Metals. A banker revealed that several more companies plan to issue convertible bonds. Growing Defense Spending Prime Minister Sanae Taichi targets?more 370 trillion yen through fiscal 2040 in 17 strategic sectors, including AI?and chips. CEO Yasuhiko Hashimo of Kawasaki Heavy has stated that this ambition offers opportunities for his company. Kawasaki Heavy has announced that it is working with Nvidia on integrating AI and robotics. Last month, the company also announced a Silicon Valley development hub. It signed an agreement last week with Airbus for a possible Japanese version of the Eurodrone defense drone. Kawasaki Heavy manufactures aircraft, missiles, and submarines. It is expected to benefit from Japan’s military expansion in the face of increased regional tensions. The company expects its business profit will reach a record of 170 billion yen for the current fiscal period. ($1 = 162.2400 yen)
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Prices of oil rise after breakdown in Iran-US talks
Prices of oil rose on Wednesday due to concerns that a breakdown in negotiations between the U.S. and?Iran? for a final deal to end their conflict could extend the supply disruptions throughout the Middle East. Brent futures increased 33 cents (0.45%) to $73.28 per barrel at 0339 GMT. U.S. West Texas Intermediate crude (WTI), however, rose 34 cents (0.49%) to $69.84 per barrel. "Hormuz is still reopening, but it's patchy and unpredictable. It's also not completely transparent." "Hormuz continues to reopen but it's patchy, unpredictable, and not fully transparent," Vandana said. Jared Kushner, the son-in law of Donald Trump, and Steve Wittkoff, the envoy, arrived in Doha on Tuesday for "high-level" talks, which the White House called them. Iran and Qatar, however, said that they would be meeting with mediators rather than Iranians. Qatar reported that Sheikh Mohammed bin Abdulrahman al-Thani, the Prime Minister of Qatar, was one of those who met with Witkoff & Kushner. Brent dropped?by about $45 per barrel between the first quarter and the second quarter of this year. This was its biggest quarterly loss since the 2008 financial crisis. U.S. Crude Futures fell by about $31 in the first quarter of this year, their biggest quarterly loss since 2020 when the COVID-19 Pandemic wiped out global oil demand. The declines came after progress in ending the Middle East conflict. They were a retreat from the gains that had been made earlier due to the hostilities. A poll on Tuesday showed that analysts have cut their 2026 oil price forecasts after five consecutive monthly increases. This is the first time they've done so since the Iran War began. The reopening of Strait of Hormuz has eased fears of prolonged supply disruptions. JD Vance, U.S. Vice-President, said that Iran will not be able to charge?tolls for ships passing through the Strait. He told The Michael Knowles Show: "This won't end with the Iranians collecting tolls from ships traveling through the Strait." Vance claims that the oil flow through the Strait has been restored to its pre-war level. Market?sources cited data released by the American Petroleum Institute on Tuesday that showed U.S. crude inventories had fallen again last week. Gasoline stocks were also down. Sources, who spoke on condition of anonymity, said that crude stocks dropped by?6.1million barrels during the week ending June 26. The Energy Information Administration is scheduled to release official U.S. crude oil stock data at 10:30 am EDT (1430 GMT), on Wednesday. Reporting by Mohi Narayan from New Delhi, and Georgina McCartney in Houston. Editing by Shri Navaratnam
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Oil prices rise as Iran's refusal of US envoys to meet Iran dims ceasefire hope
The oil prices rose on Wednesday morning as investors reacted to the news that Iran will not be meeting with U.S. ambassadors. This puts further pressure on the interim truce agreed between both countries in the four-month long war. Brent futures increased 50 cents (0.69%) to $73.45 per barrel at 1208 GMT. U.S. West Texas Intermediate crude rose 63 cents (0.91%) to $70.13 per barrel. The White House said that Jared?Kushner, the son-in law of Donald Trump, and Steve Witkoff, the envoy, arrived in Doha on Tuesday for "high-level" talks, but Iran and Qatar stated they would only meet with mediators and not the Iranians. Qatar reported that Sheikh Mohammed bin Abdulrahman al-Thani, the Prime Minister of Qatar, was one of those who met with Witkoff. Brent dropped by $45 between the first and second quarters this year. This was its biggest quarterly loss since 2008. ?U.S. Crude futures fell by around $31, the largest quarterly drop since 2020 when the Covid-19 pandemic ravaged global oil demand. The declines came after progress in ending the Middle East Conflict, and a retreat from the gains that were made earlier as a result of the hostilities. A poll on Tuesday showed that analysts have reduced their oil price forecasts 2026 for the first since the Iran War began. This comes after five consecutive monthly increases. The reopening of the Strait of Hormuz has eased fears of prolonged supply disruptions. JD Vance, U.S. Vice-President, said that Iran will not be able to collect tolls from ships passing through the Strait of Hormuz. He told The Michael Knowles Show: "This won't?end with the Iranians collecting tolls." Vance claims that the oil flow through the Strait has been restored to pre-war levels. Market sources cited data released by the American Petroleum Institute on Tuesday, which showed that U.S. crude inventories dropped again last week, while gasoline stocks declined as well. Sources, who spoke on condition of anonymity, said that crude stocks dropped by 6.1 million barrels during the week ending June 26. The markets are awaiting official U.S. crude oil stock data to be released by the Energy Information Administration at 10:30 am EDT on Tuesday. (Reporting and editing by Shri Navaratnam in Houston)
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McGeever: Why Trump's tariffs have a lot of bark but little bite
Donald Trump's favourite word is "tariff". His continued use of the term last year sparked fear in the markets as his administration unilaterally implemented the most protectionist trade policies since 1930. The 'bark' was worse than the bite. Just over a month has passed since Trump declared "Liberation Day" and the average U.S. Tariff rate is lower in April 2025 than most feared. At just under 10% the daily effective rate of pre-substitution is still four times higher than it was at the end 2024. Tariffs are barely a factor on the financial markets. This is partly because investors are more concerned about real wars than trade wars. The economic impact of Trump’s tariffs is also not as bad as many people feared. This could be because the trade war coincided a technological boom. Perhaps that is too simplistic. It may be years before the full impact of the redrawing of geopolitical and trade alliances in the world is known. Unexpected negative shocks could be on the way. The fact that STATISTICALLY INSIGNIFICANT tariffs have had a muted impact on the economy over the last year is partly explained by a simple fact: Actual levies were lower than statutory rate. This is the main argument of a Brookings Institution article by Pablo D. Fajgelbaum of the University of California, and Amit Khhandelwal of Yale University. By December of last year, 57% or so of U.S. imported goods were still duty-free. This includes the majority of goods imported from Canada and Mexico, under the United States-Mexico-Canada Agreement (USMCA). The Trump administration is expected to announce on Wednesday it will not be extending the 32-year old North American Free Trade Zone. However, that only starts the clock for another review, as the pact does not expire until 2036. Tariffs at the border are usually lower than headline rates due to other factors, including legal loopholes or special agreements. China is the only major trading country that has offered a firm and sustained response to Trump's tariffs. Hyperscalers invested hundreds of billions of dollars in chips and infrastructure to boost global trade. According to the Brookings article, the net effect of tariffs has been only between minus 0.1 and plus 0.1% of GDP until December. The findings are in line with the analysis of The 'Budget Laboratory at Yale. The report estimates that tariffs will cause the U.S. to be 0.1% less prosperous in the long term, which is the equivalent of $30 billion in 2025 dollars. Other words, statistically significant, but not at all in the near future. Markets vs Real Economy Try telling that to U.S. customers, who are forced to pay 90% of Trump's Tariffs. In an April Federal Reserve report, the paper found that tariffs are solely responsible for the excess inflation of core goods from January 2025. The same paper, however, also indicated that the tariff pass-through is now essentially complete. It was, in other words, a price change that happened only once, as the Trump Administration had claimed. If true, this would be good news for Americans whose personal savings rate, which has fallen to the lowest level in four years due partly to higher prices, is now below 3%. Also, there's another side of the story. Tariffs are taxes that fall on the person who pays them. Usually, this is the consumer. They are a direct source of revenue for the government, reaching $264 billion in 2017. This is more than three times the revenue in 2024 and represents 0.83% GDP, which is the highest since over a century. Theoretically, the revenue generated by the tax cuts or increased spending should be able to offset some of the impact on consumers. SLOW BURN? But investors shouldn't become complacent. Although trade uncertainty has decreased, it is still very high. According to the Tax Foundation, the U.S. tariff policies have changed more than 50 times since Trump's second term began. There's no reason to think that this is the end, especially given Trump's willingness to use tariffs to threaten foreign policy negotiations. Investors have mostly ignored these concerns. "Markets are actually quite disconnected from what is happening in the real economic," says Rebecca Harding, trade economist and author of "The World at Economic War", a book published at the end of last year. The cost of doing international business and the difficulty in establishing new routes will continue to rise as trade uncertainty increases. Small and medium-sized businesses (SMEs) will struggle to keep up with the demands. It's clear that the predictions of tariff doom by many economists have been wrong, but it could be just a question of timing. Brexit is a cautionary tale. The UK economy didn't immediately crash after Britain voted to exit the European Union in 2016. 10 years later, the damage to the economy is still being felt. It is still unclear whether the slow-burning economic impact of tariffs on the U.S. will be similar. However, it's worth asking. You like this column? Check out Open Interest, your new essential source for global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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South32 sells certain aluminum assets to Alcoa up to $5.6 billion
South32, an Australian company, announced on Wednesday that it had agreed to sell the'majority' of its aluminium assets for up to $5.6 billion. Alcoa acquired the individual interests of the diversified mining company in Australia's Worsley Alumina, South Africa’s Hillside Aluminium and Brazil's MRN Bauxite Mine, Brazil Alumina Refinery, and Brazil Aluminium Smelter. South32 said that the U.S. aluminium giant will also assume rehabilitation provisions of around $1.2 billion. Matthew Daley, the new CEO, said that "our business will be simpler, with a portfolio of upstream operations with higher margins, reduced complexity, and greater resilience." This will allow for a leaner and lower-cost operation model, which will provide ongoing value through an anticipated US$125M reduction per year in?overhead cost as new support structures will be implemented. The transaction should be completed in the second half of 2027. Alcoa stated in a separate press release that it expects the 'deal to generate synergies of approximately $900 million through optimization across complementary assets. (Reporting by Shivangi Lahiri in Bengaluru; Editing by Vijay Kishore)
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US Issues Emergency Order for PJM Interconnection As Heatwave Approaches
U.S. Department of Energy declared an emergency on Tuesday across the nation's largest grid. They cited soaring supply and demand risks as extreme heat gripped the region. The energy secretary stated in an order under Section 202 (c) of Federal Power Act that a statutory crisis exists in the PJM Interconnection region 'due to a mixture of surging demand for electricity and?limited production capacity. PJM sent a formal request to the Federal Energy Regulatory Commission on June '29, warning that an "imminent emergency in electricity reliability" was imminent due to forecasts of temperatures?of 95 degrees Fahrenheit and higher. PJM projects "peak?loads" of approximately 159.563 megawatts(MW) on the 1st July 2026, and approximately 162,860 MW for July 2nd 2026. These levels increase the risk of grid instability due to supply shortages. Grid operator also warned that certain generation units may be restricted by a state or environmental permit. The DOE said the order was necessary to ensure a sufficient supply of electricity and protect public safety. PJM Interconnection is responsible for a 'large swath of eastern United States. Officials warned that if extreme weather conditions were not addressed, they could cause a system stress severe enough to affect the ability to meet the electricity demand.
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Oil drops the most since years, and stocks end quarter with huge gains. Gold and yen are also down.
Brent oil saw its biggest quarterly decline since 2020, as traders closely monitored a fragile truce between the United States of America and Iran. The U.S. Dollar posted its fourth consecutive quarterly gain against a basket, pushing the yen down to a low of 40 years, as expectations of U.S. rate hikes changed dramatically. The greenback gained more than 1% against the currencies of emerging markets as a group throughout the second quarter. The Strait of Hormuz reopened slowly and randomly on the energy markets as the hostilities between Iran and the U.S. dwindled into a fragile truce, resulting in a drop of almost 40% of the Brent oil price over the last three months. The equities rally continued for the third quarter as a seemingly unstoppable boom of artificial intelligence stocks drove South Korea's KOSPI to 68%, and Taiwan's benchmark index to 45%. The Nasdaq composite added more than 21%. The MSCI All-World Index gained 14.5% during the third quarter, and reached a new high in early this month. This is its best performance quarterly since 2020. The performance of emerging market stocks was 23% higher for the quarter. The STOXX 600 index in Europe, which does not have as many AI beneficiaries than many Asian or U.S. indices, finished the quarter up 10%. Oliver Pursche is a senior vice president at Wealthspire Advisors, located in Westport, Connecticut. He said, "Despite all the geopolitical issues, the U.S. economic performance and corporate earnings remain strong." We've had an excellent first half of the season, better than many expected." The Dow Jones Industrial Average closed the day up 136.46, or 0.26% to 52,319.20. This was a record high. The S&P500?rose 58.93, or 0.79% to 7,499.36, and the Nasdaq Composite?rose 393.58, or 1.52% to 26,213.72. The MSCI index of global stocks rose by 8.32 points or 0.75% to 1,120.37. The STOXX 600 pan-European index rose by 0.88% while the FTSEurofirst 300 index in Europe rose by 23.73 or 0.93%. Emerging market stocks gained 16.86 points or 0.99% to 1,723.79 while Japan's Nikkei rose 594.21 or 0.86% to 70,062.32. Dollar Up The dollar was the biggest winner among developed currencies this quarter, with a gain of 1.3% compared to a basket. Emerging market currencies also gained 1.3% against the dollar this quarter. As markets price in more likely Federal Reserve rate increases, the dollar has gained support. The U.S. economy is growing, inflation in the U.S. remains above target and nine out of 19 Fed policymakers expect a rate increase by the end of the year. The dollar has strengthened since the Fed meeting. This is due to the widening of growth differentials between the U.S. The dollar has strengthened further since the (Fed) meeting, supported by widening growth differentials that we've started to see between the?U.S. Kevin Warsh is the new Federal Reserve chair and he will address the gathering on Wednesday. Gold's 14% drop in a quarter, the largest since 2013, was partly due to the dollar's increase. The yen also fell to its lowest point in over 40 years as it traded around 162.57 to the dollar on Tuesday night. The yen fell to its weakest point in 40 years, trading at 162.57 per dollar late on Tuesday. Traders were worried about a potential Japanese intervention. Finance Minister Satsuki Catayama issued another warning. Katayama’s comments "avoided verbal escalation which often precedes an buying effort and instead reiterated that authorities are ready to respond at anytime," said Karl Schamotta. Chief market strategist at Corpay. Brent crude futures settled at $72.92 a barrel, 0.3% less than the previous day. The contract has seen its third consecutive monthly decline. It was down more than 20% in June, and 38% for the entire quarter. U.S. crude dropped 31% this quarter, but both Brent and WTI have risen close to 20% year-to-date. The market may not have priced in a risk premium, but the increased number of ships leaving the Gulf has created a temporary surge of new supply. This was said by UBS analyst Giovanni Staunovo. Morgan Stanley has said that it models a global oil surplus of 4.8 millions barrels per day by 2027. (Reporting from Rodrigo Campos, in New York, and Amanda Cooper, in London. Additional reporting by Karen Brettell and Alun John; Additional reporting by Niket Nishant and Dhara Ranasinghe; Editing and editing by Alexander Smith and Matthew Lewis; Nick Zieminski, Cynthia Osterman and Alexander Smith.
NEWSMAKER - The Saudi oil prince's grip on power is put to the ultimate test by UAE's shocking OPEC withdrawal
Saudi Energy Minister Prince Abdulaziz bin Salman is now faced with a new OPEC challenge on top of dealing?with the biggest ever disruption in global oil supplies. Saudi Arabia, and the other members of OPEC's group of oil producing countries, are now unable to use their spare capacity in times of crisis due to the Iran war. The sudden departure this week of OPEC’s fourth-largest 'producer' last 'year, the United Arab Emirates - taking with them spare capacity second only in the kingdom's - poses a daunting test for the new royal Saudi oil minister whose approach has shifted away from careful diplomacy and towards more unilateral decision making.
"The UAE has been chafing within OPEC for many years, but never received a fair hearing about its...quota. Now the chickens are coming home to roost," Jim Krane said, a Rice University Baker Institute fellow.
Prince Abdulaziz, also known as ABS or ABS, is OPEC+'s OPEC+ leader. His power comes from Saudi Arabian oil reserves and spare capacity. He is not a former energy minister, but a royal who has the support of his half-brother Crown Prince Mohammed bin Salman, de facto ruler.
ABS won a price battle with Russia in 2020, when Moscow refused to reduce production at first as demand dropped. Later, ABS told a Saudi documentary that it was a question of "to be or not to - who's the boss?of this industry."
He has also consistently ignored former U.S. president Joe Biden’s calls for increased production. ABS, who is now 66 years old, was granted unprecedented powers by OPEC in 2022. They trusted him to call any meeting at any time as their chairman.
His demand for market discipline will now meet a "new reality". If the Strait of Hormuz reopens and Gulf oil production returns to normal, the Saudi prince will no longer be able to control an unrestrained UAE that accounted for 12% of OPEC's production last year.
Requests for comment from the Saudi government's communications office, Saudi energy ministry, and UAE energy and foreign ministers were not answered.
There is little room for debate
During the oil market crash in 2020 caused by a pandemic, ABS demanded a historic OPEC+ agreement on production cuts. This led to days of marathon talks until a diplomatic deal was reached involving the United States taking a portion of Mexico's output restrictions, the lone holdout.
The two OPEC+ delegates stated that the commitment to unity had become more intense since then.
The pair reported that Saudi officials typically notify ministers of smaller OPEC+ producers about the final agreement the night before meetings. One of the delegates said that at a recent meeting, the calls were made first to Alexander Novak from Russia, and then to representatives of the six other countries who had committed to voluntary reductions.
Saudi Arabia is the main culprit for output reductions, according to several delegates. The source said that, despite the fact that it was a departure from previous practice, the lack of consultations on major decisions is still a nuisance. She also noted that OPEC+ marginalised its role in the technical expert assessments by late 2022.
The delegate, who spoke on condition of anonymity, said: "We appreciate His Royal Highness's efforts to lower the price of oil."
While recent events have raised questions about OPEC's future and its alliance with Russia one of the delegates, and another source who is familiar with group thinking, told us that the crisis will ultimately strengthen the cohesion and make decision-making easier.
RIVALRY Saudi Arabia's and the UAE’s geopolitical competition erupted at the beginning of the year when fighting broke out between opposing Yemeni factions supported both by Riyadh & Abu Dhabi.
Abu Dhabi?demanded a greater output quota in 2021. This was the culmination of a long-simmering dispute between OPEC and Abu Dhabi. After public grievances, a deal was reached to increase oil production by 300,000.
Sky News Arabia reported at the time that "It's unreasonable to accept more injustice and sacrifice. We have been patient."
ABS, a frustrated ABS, told Al Arabiya "a little bit of rationality and a little bit of compromise will save?OPEC+", stating that he "never saw such a request" in the 34 years he has attended OPEC meetings.
Since 2019, the UAE's quota has increased by around 500,000 bpd or 0.5% of worldwide demand, more than any other member. This included an increase in the UAE's goal for June 2023 when Angola, Nigeria and others saw theirs reduced. Angola quit months later in anger.
Although the Saudis made concessions, the UAE still left the group on Tuesday.
WIDDENING LOSSES
The UAE's output and exit targets are of little significance to oil markets as long as the Strait remains effectively closed.
The UAE, however, has been able to maintain some supplies via the Gulf of Oman. Saudi Arabia was able to redirect 60-70% exports via a 1981 pipeline constructed during the Iran-Iraq War to the Red Sea.
Mazrouei, who was barred from reporting on the OPEC meeting last year by other media outlets, said that the UAE would be ready to increase capacity a further 20%, to 6 million bpd, after 2027 – half the Saudi capacity – a challenge to ABS’s efforts to reign in overproduction.
(source: Reuters)