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Turkey currency crisis pulls oil down, sparks sell-off in emerging markets

And there are fears it's only going to get worse as U.S. sanctions push the country toward a full-blown financial meltdown

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Oil fell as Turkey’s economic strife sparked an emerging-market sell-off, fuelling fears of broader market turmoil.

Futures fell as much as 0.7 per cent in New York on Monday. In Turkey, an economy that’s larger than the Netherlands or Taiwan, bonds and stocks dropped along with the currency as investor confidence plunged. Meanwhile, OPEC raised production and the strengthening dollar diminished the buying power of developing economies.

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Turkey’s currency has been a casualty of a deepening crisis spurred by the administration’s growth-at-all-costs agenda and a worsening spat with the U.S., which has sanctioned the country. Turkish policy makers have now made their first move to bolster the financial system, promising to “take all necessary measures,” though there was no mention of higher interest rates.

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The currency has lost about a quarter of its value against the dollar since the U.S. sanctioned two ministers in President Recep Tayyip Erdogan’s government in a spat over the continued detention of an American pastor in Turkey, pushing the economy toward a full-blown financial meltdown.

“The key risk to oil is the contagion risk to other emerging markets, especially those representing a major share of demand growth,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S. Traders “are most certainly looking for Turkey to contain the situation and come up with viable solutions.”

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West Texas Intermediate crude for September delivery slid 38 US cents to US$67.25 a barrel at 9:53 a.m. on the New York Mercantile Exchange. Total volume traded was about 39 per cent below the 100-day average.

Brent for October settlement declined 29 US cents to US$72.52 a barrel on the London-based ICE Futures Europe exchange, and traded at a US$5.98 premium to WTI for the same month.

Iran Sanctions

Oil earlier rose amid supply concerns as Iran’s foreign minister said the OPEC nation won’t meet with the U.S. at the United Nations General Assembly in New York in September. The Trump administration has forecast that international buyers will cut Iranian imports by as much as 1 million barrels a day once renewed sanctions take effect, according to people familiar with the matter.

In America, the number of working oil rigs rose by 10 to 869 last week, the highest level since March 2015, Baker Hughes data showed. Producers have recently announced billions of dollars of new investments in the Permian Basin and elsewhere as they chase oil prices near three-year highs.

Other oil-market news:

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The Organization of Petroleum Exporting Countries boosted crude production by 41,000 barrels a day in July, despite sliding output in Libya, Iran and Saudi Arabia, the group said in its monthly report.

Five Caspian Sea states reached a breakthrough agreement on sovereign rights to the sea, paving the way for new oil and gas extraction — and pipelines — after more than two decades of disputes.

Hedge funds cut bets on rising prices for WTI and Brent, and total positions in both benchmarks shrank for a fifth straight week — the longest stretch of declines since 2016.Royal Dutch Shell Plc said its head of global manufacturing, a business that includes refineries and chemicals plants, will step down at the end of August.

Bloomberg.com

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