Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

Trade and geopolitical tensions are competing to influence the price of oil. (Reuters)
Updated 19 August 2018
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Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

  • Oil prices have moved in narrow band since June
  • Brent/WTI spread widens over week

Brent crude finished the week at $71.83 per barrel while WTI dropped to $65.91 as the Brent/WTI spread widened to $5.92 per barrel.
Oil prices fell as a result of market sentiment impacted by hypothetical fears over lower global economic growth.
Brent crude price fell below $72 for the first time since mid-April 2018.
Oil prices have moved in a narrow band since early June 2018.
The Brent price had been hovering between $73 and $78, until it dropped to nearly a four-month low at the middle of the week, then recovered by the week’s closing.
Oil fell after both OPEC and the International Energy Agency’s (IEA) monthly oil market reports forecasted lower growth in oil demand.
This was claimed to be a result of the major downside risk on economic growth amid US-China trade tensions.
These are reportedly impacting emerging economies across Asia as a strengthening dollar weakens their local currencies, and thus reduces purchasing power for transport fuel.
On the other hand, the IEA reported that oil consumption for plastics and other petrochemicals will keep demand growing and elevated for decades as this is driven by population growth and urbanization.
After oil inventories in the US fell to the lowest level since February 2015, last week, the US Energy Information Administration (EIA) reported an unexpected significant build up in US commercial crude oil inventories of 6.8 million barrels. This brought oil inventories slightly back above the five-year average.
The drawdown in US refined products inventories came on the back of US refineries running at a record capacity. On average they refined 18 million barrels per day for the first time, in order to meet high gasoline demand for the summer season.
This was an increase of 383,000 barrels per day on the previous week’s average.
Analysts are also making much about Saudi Arabia’s output cuts for July 2018. Last month the Kingdom lowered output by 200,000 barrels per day to 10.288 million bpd. My perspective on this is that it has nothing to do with potentially lower economic growth as a result of trade disputes between the US and China, nor emerging market turmoil.
Instead, as the world’s swing producer, the Kingdom must track the output of other OPEC nations and adjust its production accordingly. This is exactly what happened after Libyan oil output recovered and exceeded one million barrels per day for the first time since last June. Consequently, Saudi Arabia reduced production.
Saudi Arabia, as the only swing producer, changes its crude oil production to meet fluctuations in market demand. In reality, it’s far too early to know what influence trade tensions will have on economic growth. It will take time for such impacts to materialize and weigh on the market fundamentals.


Google puts up $1B to ease housing headaches it helped cause

In this May 1, 2019, file photo, a woman walks past a Google sign in San Francisco. Google is making a $1 billion commitment to address the soaring price of housing in the San Francisco Bay Area, a problem that the internet company and its Silicon Valley peers helped create as the technology industry hired tens of thousands of high-paid workers. (AP)
Updated 19 June 2019
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Google puts up $1B to ease housing headaches it helped cause

  • A report by Working Partnerships called upon Google to build more than 17,000 homes in the area to help offset the anticipated price increases caused by the new campus

SAN FRANCISCO: Google is pouring $1 billion into easing the high-priced housing headaches that it and its Silicon Valley peers helped give the San Francisco Bay Area.
The pledge announced Tuesday by Google CEO Sundar Pichai consists of a $250 million investment fund and $750 million of company-owned land. It will be used to build at least 15,000 homes that will include low- and mid-income housing.
Google’s commitment eclipsed a recent $500 million pledge made by Microsoft to combat housing shortages in the Seattle area and a $500 million housing fund created by a consortium including Facebook.
Google is extending a helping hand as it draws up plans to expand into sprawling offices beyond its headquarters in Mountain View, California. That suburban city of roughly 80,000 people has been swamped with affluent tech workers since Google moved there shortly after its 1998 inception.
Since then, Google’s payroll has swelled from a few dozen workers to the more than 103,000 people now working for it and its corporate parent, Alphabet Inc. Nearly half of those workers are based in the Bay Area.
While Google has been expanding, so have a wide variety of other technology companies, including Apple, Facebook, Oracle, Salesforce and Netflix — all of whom also lavish their workers with six-figure salaries and stock options that can yield multimillion-dollar windfalls.
The high incomes have resulted in bidding wars for the limited supply of homes in the Bay Area that can only be afforded by the affluent, a group increasingly dominated by tech workers, while people employed in other lines of work struggle to make ends meet on more modest incomes.
That is making it impossible for people on the lower end of the economic spectrum to buy a home in the Bay Area, where a mid-priced house sold for $990,000 in April, according to the California Association of Realtors, a trade group. In 1999, a mid-priced home sold for $308,000.
It’s even worse in San Francisco, a city from which many tech workers ride company buses to the Silicon Valley suburbs. A mid-priced house in San Francisco sold for nearly $1.7 million in April, according to the realtors’ group, quadruple the price of 20 years ago.
Google’s next big project will be in the Bay Area’s most populous city, San Jose, where it plans to build a corporate campus consisting of offices and housing where 15,000 to 20,000 of its employees will work and live.
The project faced resistance from community activists worried about its effect on housing prices. Last week, a report by Working Partnerships called upon Google to build more than 17,000 homes in the area to help offset the anticipated price increases caused by the new campus. The report by the labor-union backed labor group envisions apartment rent increases of $235 million by 2030 if action isn’t taken.
“For several months, we have encouraged Google to make a bold commitment to address our region’s affordable housing challenge,” San Jose Mayor Sam Liccardo said in a statement applauding the company’s $1 billion pledge.