Oil prices fall as US storm threat eases, but Iran sanctions loom

Prices had jumped the previous day as dozens of US oil and gas platforms in the Gulf of Mexico were shut in anticipation of damage from tropical storm Gordon. (Reuters)
Updated 05 September 2018
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Oil prices fall as US storm threat eases, but Iran sanctions loom

  • Prices had jumped the previous day as dozens of US oil and gas platforms in the Gulf of Mexico were shut in anticipation of damage from tropical storm Gordon
  • There was also a typhoon hitting Japan’s east coast overnight, with some damage to oil refineries in the Osaka region

SINGAPORE: Oil prices fell on Wednesday as a tropical storm hit the US Gulf coast with high winds and heavy rain, but the impact on production was not as strong as initially expected.
US West Texas Intermediate (WTI) crude futures were at $69.31 per barrel at 0517 GMT, down 56 cents, or 0.8 percent, from their last settlement.
International Brent crude futures fell 37 cents, or 0.5 percent, to $77.80 a barrel.
Prices had jumped the previous day as dozens of US oil and gas platforms in the Gulf of Mexico were shut in anticipation of damage from tropical storm Gordon.
However, the storm had shifted eastward by Wednesday, reducing its threat to producers on the western side of the Gulf.
Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA, said many crude futures traders were “caught long and wrong over the past 24 hours due to tropical storm buying frenzy,” adding that “prices pulled back considerably as the magnitude of the storm suggests production losses will be limited.”
There was also a typhoon hitting Japan’s east coast overnight, with some damage to oil refineries in the Osaka region, although operator JXTG said its operations were not significantly affected.
Innes said the price outlook for crude was still bullish, in large part because of US sanctions targeting Iran’s oil sector from November.
“With the anticipation of up to 1.5 million barrels per day affected by the US sanctions on Iran, one would expect prices to move higher in the weeks ahead.”
Other voices, however, cautioned on the risks to oil demand if turmoil in emerging markets starts hitting economic growth.
“My sense is that the big issue going forward, if this emerging market crisis morphs into something more troubling, is not just (oil) demand growth but total demand,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Emerging markets are a key driver of global oil demand growth, but several of them — especially Turkey and Argentina but also Indonesia and South Africa — have seen their currencies and stock markets come under pressure in recent months amid inflation, a strong US-dollar and escalating global trade disputes.
“If emerging markets get worse ... that will impact crude markets,” he said.
Striking a balance between maximizing revenue and keeping a lid on prices in order not to stall demand, top crude exporter Saudi Arabia is managing its own supply with a goal to keep crude prices in a range between $70 and $80 per barrel, OPEC and industry sources told Reuters this week.


Egypt stock market plunges as retail investors take flight

Updated 19 September 2018
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Egypt stock market plunges as retail investors take flight

  • Biggest index drop in Egypt since mid-2016
  • Saudi Arabia outperforms in Gulf

LONDON: Egyptian stocks tumbled to their lowest level this year on Wednesday as retail investors took flight.
A sharp rise in Suez Canal revenues, a major foreign exchange earner for the country, was not enough to quell investors concerns about the strength of the currency.
The main Egyptian stock index lost 3.8 percent which some fund managers blamed on generally negative sentiment toward emerging markets worldwide as well as more local speculation about possible currency devaluation.
“Our channel checks suggest the sell-off in the Egyptian market is local retail and institutions driven, on currency fears and speculation over a further round of devaluation,” said Vrajesh Bhandari, portfolio manager at Al Mal in Dubai, Reuters reported.
“Selling is further intensified as margin calls are triggered and technical support levels break down. The country canceled three consecutive Treasury auctions, citing investors’ unrealistic yield demands.”
Egypt’s Suez Canal revenues rose to $502.2 million in August up 6.7 percent from a year earlier according to official data released on Wednesday.
Elsewhere regional stock markets closed mostly lower with the exceptions of Abu Dhabi which edged 0.2 percent higher and Saudi Arabia, the best regional performer, which rose by 1.1 percent.
Saudi stocks are benefiting from the strong oil price which eased slightly yesterday but still hovered just under $79.
OPEC and some other oil producers including Russia will meet in Algeria on Sept. 23 to discuss how to allocate supply increases within their quota framework to offset the loss of oil exports from Iran following the introduction of sanctions by the US.
Those measures will come into force on Nov. 4 and data suggests that buyers are already retreating from Iranian crude purchases.
A key question for the oil price as well as regional stock markets in the weeks ahead will be the extent to which other Gulf oil exporters can compenaste for the loss of Iranian supplies by pumping more.