Oil in bear market as supply rises, demand outlook weakens

Washington has granted exemptions to Iran’s biggest buyers which will allow them to continue buying limited amounts of crude for at least another six months. (AFP)
Updated 09 November 2018
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Oil in bear market as supply rises, demand outlook weakens

  • ‘Oil prices ... are now officially in a bear market, having declined 20 percent from their (October) peak’
  • ‘A slowdown in the global economy remains the key downside risk to oil’

SINGAPORE: Oil markets stabilized on Friday but remained weak as rising supply and concerns of an economic slowdown pressured prices, with US crude down by around 20 percent since early October.
US West Texas Intermediate (WTI) crude oil futures were at $65.73 per barrel at 0629 GMT, 6 cents above their last settlement. WTI is set for a fifth weekly fall, down 4 percent so far this week.
Front-month Brent crude oil futures were at $70.84 a barrel, 19 cents above their last close. Still, Brent is poised for an almost 3 percent drop for the week, its fifth straight week of decline.
Both Brent and WTI have fallen by around 20 percent from the four-year highs they reached in early October.
“Oil prices ... are now officially in a bear market, having declined 20 percent from their (October) peak,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
Analysts said the main downward price pressure came from rising supply, despite the US sanctions against Iran that were imposed this week, as well as concerns over an economic slowdown.
“As OPEC exports continue to rise, inventories continue to build which is putting downward pressure on oil prices,” analysts at Bernstein Energy said.
“A slowdown in the global economy remains the key downside risk to oil,” Bernstein added.
Traders said a glut in the refining sector, where a wave of unsold gasoline has pulled down profit margins into negative territory, may also lead to a slowdown in new feedstock crude orders, as refiners scale back operations to work down excess supply.
“The global gasoline glut reached Singapore this week, where gasoline cracks collapsed. Refining margins contracted across all regions, with gasoline cracks now near or below zero in all regions,” US investment bank Jefferies said in a note on Friday.
The decline in oil prices over the past weeks follows a rally between August and October when crude rose ahead of the re-introduction of sanctions against Iran’s oil exports on Nov. 5.
The sanctions, however, are unlikely to cut as much oil out of the market as initially expected as Washington has granted exemptions to Iran’s biggest buyers which will allow them to continue buying limited amounts of crude for at least another six months.
China National Petroleum Corp. (CNPC) said on Friday it was still taking oil from Iranian fields in which it has stakes.
“Our main cooperation with Iran is upstream investment. Lifting equity oil is recouping our investment there,” Hou Qijun, deputy general manager for CNPC, said on the sidelines of an industry event in Shanghai.
Bernstein Energy expects “Iranian exports will average 1.4-1.5 million barrels per day (bpd)” during the exemption period, down from a peak of almost 3 million bpd in mid-2018.


American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

Updated 15 November 2018
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American Airlines ‘unaware’ of some Boeing 737 MAX functions until last week

  • The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets
  • ‘Safety remains our top priority and is a core value for everyone at Boeing’

WASHINGTON: American Airlines Group Inc. said on Wednesday it was “unaware” of some functions of an anti-stall system on Boeing Co’s 737 MAX until last week.
Boeing and the US Federal Aviation Administration (FAA) issued guidance on the system last week after a Lion Air jet crashed in Indonesia on Oct. 29, killing all 189 people on board.
The FAA warned airlines last week that erroneous inputs from the system’s sensors could lead the jet to automatically pitch its nose down even when autopilot is turned off, making it difficult for pilots to control.
The system was designed to prevent the jet from stalling, according to information provided by Boeing to airlines.
“We value our partnership with Boeing, but were unaware of some of the functionality of the Maneuvering Characteristics Augmentation System (MCAS) installed on the MAX 8,” an American Airlines spokesman said.
“We must ensure that our pilots are fully trained on procedures and understand key systems on the aircraft they fly.”
Indonesian investigators said on Monday the situation the crew of a doomed Lion Air jet was believed to have faced was not contained in the aircraft’s flight manual. US pilot unions were also not aware of potential risks, pilot unions said.
The FAA and Boeing are evaluating the need for software or design changes to 737 MAX jets in the wake of the Lion Air crash, the regulator said on Tuesday.
The American Airlines spokesman said his airline was continuing to work with Boeing and the FAA and would keep pilots informed of any updates.
A Boeing spokeswoman said the manufacturer could not discuss specifics of an ongoing investigation but it had provided two updates for operators around the world that re-emphasize existing procedures to deal with situations relating to MCAS.
“We are confident in the safety of the 737 MAX,” she said. “Safety remains our top priority and is a core value for everyone at Boeing.”