Investors flee amid fears of market glut after world’s ‘big three’ producers reveal near-record output

A gas station worker pumps fuel into a car at a gas station of the Venezuelan state-owned oil company PDVSA in Caracas. (Reuters)
Updated 05 November 2018
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Investors flee amid fears of market glut after world’s ‘big three’ producers reveal near-record output

Reuters NY: The oil market’s two-year bull run is running into one of its biggest tests in months, facing a tidal wave of supply and growing worries about economic weakness sapping demand worldwide.
After topping out at more than $75 and $85 a barrel just a month ago, both US crude and Brent benchmark futures have grappled with near-relentless selling. For a time, prices had some support on hopes that renewed US sanctions on Iran would force barrels off the market.
That changed in the last week. The world’s three largest producers — Russia, Saudi Arabia and the US — all indicated they were pumping at record or near-record levels, while the US said it would allow waivers that could allow buyers to keep importing Iranian oil, lessening the threat of a supply crunch.
Those factors, along with a spate of recent weak economic reports out of China and other emerging markets, have shifted the conversation back toward worries about oversupply, and pushed US futures to lows not seen since April, interrupting an upward move that had consistently found support during the rally’s modest pullbacks.
The structure of the US crude futures curve had for several months indicated expectations for tighter supply, but future-dated contracts now suggest investors think markets could be awash in oil over the coming months.
“The magnitude of recent selling is strongly suggesting that global oil demand is weaker than expected as a result of tariff issues, especially between the US and China,” said Jim Ritterbusch, president of Ritterbusch & Associates.
There has been an exodus among speculators as well. In the last two weeks, net bullish bets on oil have declined to the lowest level in over a year. Selling notably accelerated on Thursday after US West Texas Intermediate crude futures fell below $65 a barrel, a level that had stood firm in previous selloffs during the summer and fall.
The oil market ran higher in anticipation of this week’s formal re-imposition of sanctions against Iran by the US, and on concerns that supply from producers like Saudi Arabia would not be able to make up the difference.
However, the US government said on Friday it will temporarily allow several countries, including South Korea and Turkey, to keep importing Iranian oil when US sanctions come back into force, sparing them for now from the threat of US economic penalties.
Still, some analysts believe the current selloff has come too far, too quickly. Major OPEC producers won’t be able to add more supply should it become necessary, particularly with production in Iran, Venezuela and Libya still at risk.
“A loss of 1 million bpd (barrels per day) from Iran, further declines in Venezuela, coupled together with geopolitical disruption in Libya and Nigeria could easily wipe out what little spare capacity we have left,” Bernstein analysts said this week.
Output from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, rose to levels not seen in two years. US production hit a record 11.3 million bpd in August, and Russia’s output rose to 11.4 million bpd, a post-Soviet era peak.
For US crude, the key area to watch is between $64.45 and $64.80, where prices had found support in the past, said Fawad Razaqzada, analyst at futures brokerage Forex.com. If oil dips below this point, “the path of least resistance would be to the downside,” he said.
For Brent, Razaqzada is watching the range between $69.50 and $69.60 a barrel, and if it were to slip below that, we could see a much larger correction, he said.


Saudi banks, Dubai shares give Gulf markets a timely boost

Updated 24 January 2019
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Saudi banks, Dubai shares give Gulf markets a timely boost

  • The Dubai index was up by 0.9 percent with Emirates NBD, its largest bank, adding 2.1 percent and its largest listed developer Emaar Properties gaining 2.2 percent
  • Nasdaq-listed DP World increased 0.7 percent after increasing its stake in its Australia unit

DUBAI: The Dubai stock market snapped a three-day losing streak on Wednesday, boosted by its financial and property shares, while Saudi Arabia rose on the back of its banks.
The Dubai index was up by 0.9 percent with Emirates NBD, its largest bank, adding 2.1 percent and its largest listed developer Emaar Properties gaining 2.2 percent. Gulf Arab economies are expected to grow at a slower pace than previously forecast, a quarterly Reuters poll of economists found, as oil output cuts, lower crude prices and weaker global growth put pressure on regional economies. Amlak Finance rose 2.2 percent after announcing a renegotiation of restructuring terms with its financiers to allow more flexibility in adapting to “current market conditions.” Nasdaq-listed DP World increased 0.7 percent after increasing its stake in its Australia unit.
The port operator will spend at least $250 million buying back some shares in its Australian port terminals unit. Saudi Arabia’s index rose 0.8 percent, with nine out of 10 banks rising.
Al Rajhi Bank was up 0.6 percent and Samba Financial Group closed 1.7 percent higher. Petrochemical investor Alujain added 1.5 percent after an update on the fire at its affiliate’s plant.
The company said it now expects the NATPET plant to start operating all units by the end of September.
The Egyptian blue-chip index was up 0.2 percent with its largest listed bank Commercial International Bank gaining 4.2 percent.
The Egyptian Exchange on Wednesday canceled all transactions made the previous day in local firms Sixth of October Development and Investment Company (SODIC) and Madinet Nasr for Housing and Development (MNHD).
The move followed SODIC’s decision against a takeover of MNHD and involved their shares being suspended on Wednesday as the bourse reset prices. Global Telecom Holding jumped by 10 percent before trading on its shares were suspended, pending a statement from the company after VEON Ltd, a major shareholder in the firm, said it was considering taking it private.