8 factors behind the fall in oil prices

Updated 19 June 2017
0

8 factors behind the fall in oil prices

JEDDAH: The Organization of the Petroleum Exporting Countries (OPEC) and its allies from outside of the group last month extended a deal to curb their production by 1.8 million barrels per day (bpd) for another nine months, ending in March 2018. In spite of that agreement, oil prices are still weak and they are trending down for four weeks in a row.
Here are eight factors that are behind the current fall in oil prices:
1. High exports from OPEC: Despite the reduction in production from oil producers, the level of exports is still high as many tanker-tracking data showed. Morgan Stanley in a report on June 8 said that tanker-tracking data showed that waterborne exports increased strongly in May across the world, up by 2.2 million bpd from April and 3.3 million bpd from May 2016.
2. High global oil inventories: Saudi Energy Minister Khalid Al-Falih told Arab News’ sister publication Asharq Al-Awsat in an interview on June 19 that oil inventories globally are down following the deal. The Organization for Economic Co-operation and Development’s (OECD) oil stocks went down by 65 million barrels from their peak in July 2016. However, Al-Falih acknowledged that US stocks are falling less than expected. As for the market, the fall in inventories is too slow to trigger a price response. The International Energy Agency (IEA) estimates that oil stocks in the OECD are still at 292 million barrels above their five-year average. Energy researcher Bernstein estimates that US stocks must go down by 4 million barrels every week for it to go back to normal levels.
3. Concerns on gasoline demand: The outlook for US gasoline consumption this summer is a concern. Gasoline stocks rose 2.1 million barrels and gasoline inventories currently sit at 242.4 million barrels, or 9 percent, above the five-year average of 223 million barrels, according to the US Energy Information Administration (EIA) data.
4. Increase in the number of rigs: The number of US oil rigs is continuing to rise. Drillers added more oil rigs for a 22nd straight week, marking the biggest streak in at least three decades, according to weekly data from Baker Hughes released on June 16.
5. Worries about supply in 2018: The IEA said in its report on June 14 that supply from non-OPEC producers next year may offset cuts from OPEC and its allies. Oil demand is set to grow by 1.4 million bpd in 2018 but supplies outside OPEC will grow even faster, by almost 1.5 million bpd.
6. Oil prices in contango: Brent and West Texas Intermediate (WTI) crudes, down almost 15 percent since late May, are both trading in contango, with forward prices higher all the way into the next decade. Contango is a structure that normally denotes weak demand for spot cargoes as it means oil prices in the future are higher than today’s, thus it makes producers store crude for future sale.
7. Return of oil output from Libya, Nigeria: Libyan oil production this week is up by 200,000 to 300,000 bpd from early May. Nigeria is also pushing for an additional output of 200,000 bpd this month. The market is concerned that this will add to oversupply, but Al-Falih said on June 19 that the increase is within agreed limits set by the original deal last year.
8. Speculation: Al-Falih blamed volatility in oil prices on speculative trading as many are trading on headlines and on forecasts of supply growth from resources “that may not happen.”


EU to respond to any US auto tariff move: report

Updated 23 June 2018
0

EU to respond to any US auto tariff move: report

  • Trump threatened to impose 20 percent tariff
  • Shares in carmakers slip on trade war fears

PARIS: The European Union will respond to any US move to raise tariffs on cars made in the bloc, a senior European Commission official said, the latest comments in an escalating trade row.
US President Donald Trump on Friday threatened to impose a 20 percent tariff on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.
“If they decide to raise their import tariffs, we’ll have no choice, again, but to react,” EU Commission Vice President Jyrki Katainen told French newspaper Le Monde.
“We don’t want to fight (over trade) in public via Twitter. We should end the escalation,” he said in the comments published on Saturday.
The European Autos Stocks Index fell on Friday after Trump’s tariff threat. Shares US carmakers Ford Motor Co. and General Motors Co. also dropped.
“If these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US Build them here!” Trump tweeted.
The US Commerce Department has a deadline of February 2019 to investigate whether imports of automobiles and auto parts pose a risk to US national security.
US Commerce Secretary Wilbur Ross said on Thursday the department aimed to wrap up the probe by late July or August. The Commerce Department plans to hold two days of public comments in July on its investigation of auto imports.
Trump has repeatedly singled out German auto imports to the United States for criticism.
Trump told carmakers at a meeting in the White House on May 11 that he was planning to impose tariffs of 20 or 25 percent on some imported vehicles and sharply criticized Germany’s automotive trade surplus with the United States.
The United States currently imposes a 2.5 percent tariff on imported passenger cars from the EU and a 25 percent tariff on imported pickup trucks. The EU imposes a 10 percent tariff on imported US cars.
The tariff proposal has drawn sharp condemnation from Republican lawmakers and business groups. A group representing major US and foreign automakers has said it is “confident that vehicle imports do not pose a national security risk.”
The US Chamber of Commerce said US auto production had doubled over the past decade, and said tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”
German automakers Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States. BMW is one of South Carolina’s largest employers, with more than 9,000 workers in the state.
The United States in 2017 accounted for about 15 percent of worldwide Mercedes-Benz and BMW brand sales. It accounts for 5 percent of Volkswagen’s VW brand sales and 12 percent of its Audi brand sales.