Oil dips on emerging market woes, but Iran sanctions offer support

The Organization of the Petroleum Exporting Countries said on Wednesday it expected global oil demand to break through 100 million barrels per day for the first time this year. (Reuters)
Updated 06 September 2018
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Oil dips on emerging market woes, but Iran sanctions offer support

  • Looming US sanctions against Iran, however, prevented prices from falling further
  • US crude stockpiles fell last week as refineries boosted output amid strong consumption

SINGAPORE: Oil prices dipped on Thursday as emerging market woes weighed on sentiment, while a deadline neared for a potential new round of US tariffs on another $200 billion of Chinese goods.
Looming US sanctions against Iran, however, prevented prices from falling further as they are expected to tighten the market after being implemented from November, traders said.
US West Texas Intermediate (WTI) crude futures were at $68.60 per barrel at 0424 GMT, down 12 cents, or 0.2 percent, from their last settlement.
Brent crude futures fell by 5 cents, to $77.22 a barrel.
Emerging market weakness is weighing on global economic growth prospects, with Asian shares on Thursday heading for their sixth straight session of losses.
Meanwhile, a public comment period on possible US tariffs on another $200 billion of Chinese goods ends on Thursday, with expectations that US President Donald Trump will impose the additional levies.
“The prospects of increased supplies from OPEC and her allies, and weaker demand from China and other emerging markets could weigh further on oil prices going forward, or at least limit the upside potential,” said Fawad Razaqzada, market analyst at futures brokerage Forex.
“This is because of the US dollar’s strength, weighing heavily on emerging market currencies, including the yuan, which in turn has pushed up the costs of all dollar-denominated commodities,” he added.
For now, oil demand remains strong.
US crude stockpiles fell last week as refineries boosted output amid strong consumption, data from industry group the American Petroleum Institute showed on Wednesday.
Crude inventories fell by 1.17 million barrels to 404.5 million barrels in the week to Aug. 31, while refinery crude runs rose by 198,000 barrels per day (bpd), the data showed.
The Organization of the Petroleum Exporting Countries (OPEC) said on Wednesday it expected global oil demand to break through 100 million bpd for the first time this year.
Meanwhile, there are concerns that US sanctions against Iran, which will target the OPEC-member’s oil industry from November, will tighten global supply.
“The Brent forward curve has inverted to backwardation, signalling a tightening market that already feels the effects of declining Iranian exports,” US investment bank Jefferies said in a note on Thursday.
Backwardation describes a forward curve in which prices for immediate delivery are higher than those for dispatch later on. This signals tight market conditions as it gives traders an incentive to immediately sell oil instead of putting it into storage.
Front-month Brent crude is currently more than $3 per barrel more expensive than for September 2019.
“The strength of demand is a concern, but we believe supply side risks are more acute and expect that Brent prices will exceed $80 per barrel in the near term,” Jefferies said.


Siemens CEO pushes plans to boost Iraqi power infrastructure

Updated 7 min 53 sec ago
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Siemens CEO pushes plans to boost Iraqi power infrastructure

FRANKFURT: Siemens said its boss Joe Kaeser met Iraq’s prime minister on Sunday to discuss a proposal by the German company to expand the Middle East nation’s power production.
The German engineering group said it was proposing a deal to add 11 gigawatt (GW) of capacity over four years, saying this would boost the country’s capacity by nearly 50 percent.
It did not give a value, but such a contract would be worth several billion euros based on previous comparable deals.
Iraq has a wide gap between electricity consumption and supply. Peak demand in the summer, when people turn on air conditioners due to high temperatures, is about 21 GW, far exceeding the 13 GW the grid is currently provides, experts say.
Kaeser said in a statement after meeting Prime Minister Al-Abadi that they had “discussed the comprehensive Siemens roadmap to build a better future for the Iraqi people.”
“In Egypt, we have done the same and successfully built up the power infrastructure in record time with the highest efficiency,” he said.
In 2015, Siemens signed an 8 billion euro ($9.4 billion) deal with Egypt to supply gas and wind power plants to add 16.4 gigawatts of capacity to the country’s power grid, marking the group’s single biggest order.
The proposal for Iraq, first pitched in February, would include cutting Iraq’s energy losses, introducing smart grids, expanding transmission grids, upgrading existing plants and adding new capacity.
The group would also help the government secure funding from international commercial banks and export credit agencies with German government support, creating thousands of jobs in Iraq.
Siemens would donate a $60 million grant for software for Iraqi universities, it said.