Oil rises on expected OPEC cuts, but surging US supply drags

US output has surged by almost a quarter since the start of the year. (Reuters)
Updated 16 November 2018

Oil rises on expected OPEC cuts, but surging US supply drags

  • Prices were mainly supported by expectations OPEC would start withholding supply soon
  • US output has surged by almost a quarter since the start of the year

SINGAPORE: Oil prices rose on Friday amid expectations of supply cuts from OPEC, although record US production dragged.
US West Texas Intermediate (WTI) crude oil futures were at $56.84 per barrel at 0353 GMT, up 38 cents, or 0.7 percent, from their last settlement.
Brent crude oil futures were up 48 cents, or 0.7 percent, at $67.10 per barrel.
Prices were mainly supported by expectations the Organization of the Petroleum Exporting Countries (OPEC) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.
OPEC’s de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5 percent of global supply, sources told Reuters this week.
However, Morgan Stanley warned a cut by the Middle East dominated producer group may not have the desired effect.
“The main oil price benchmarks — Brent and WTI — are both light-sweet crudes and reflect this glut,” the US bank said.
“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”
Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said that “OPEC cuts are inherently temporary (because) all they can do is shift production from one period to another.”
While OPEC considers withholding supply, US crude oil production reached another record last week, at 11.7 million bpd, according to US Energy Information Administration (EIA) data published on Thursday.
US output has surged by almost a quarter since the start of the year.
The record output meant US crude oil stocks posted the biggest weekly build in nearly two years.
Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.
This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.
“Oil bulls, us included, have capitulated and we no longer see oil climbing to $95 per barrel next year,” Bank of America Merrill Lynch said in a note.
While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.
“We expect 2019 oil demand to reach 101.1 million bpd,” natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100 million bpd this year.
At the same time, the firm said production outside North America was set to disappoint.
Add OPEC’s expected supply cuts, and Goehring & Rozencwajg said “those investors who are able to adopt a contrarian stance ... and stomach the volatility ... are being presented with an excellent investment opportunity” to buy into oil after the recent slump.
Bank of America agreed, saying “we believe oil is oversold and will likely bounce up from the current levels, as OPEC+ dials back production in December.”

Argentine economy minister resigns amid deepening crisis

Updated 4 min 15 sec ago

Argentine economy minister resigns amid deepening crisis

  • The country’s peso ended the week having shed 20 percent of its value against the US dollar

BUENOS AIRES: Argentina’s Economy Minister Nicolas Dujovne resigned after a week of economic tumult caused by President Mauricio Macri’s defeat in a primary poll ahead of a general election.

Dujovne will be replaced by Hernan Lacunza, economy minister for Buenos Aires province, Argentine media reported.

The country’s peso ended the week having shed 20 percent of its value against the US dollar as both Fitch and S&P cut the South American country’s long-term credit rating, citing increased uncertainty and a rising risk of default.

Dujovne said, in a letter posted on the website of La Nacion newspaper, he was “convinced that, under the circumstances, the (government’s) management needs significant renewal in the economic arena.”

He leaves in the middle of a deepening economic crisis following last Sunday’s primary elections in which market-friendly Macri was dealt a huge blow in his bid for re-election when he polled 15 points less than center-left Peronist candidate Alberto Fernandez.

The primaries serve as a bellwether for general elections in October. Dujovne’s announcement marks the first change in Macri’s Cabinet since voters went to the polls.

Fitch, which downgraded Argentina’s credit rating two notches to “CCC,” said the center-right’s defeat “increases risks of a break from the policy strategy of the current administration of Mauricio Macri guided by a program with the IMF.”

Fernandez, now the clear favorite to unseat Macri, has questioned the reform program backed by a $56 billion rescue package from the International Monetary Fund.

Standard & Poor’s dropped Argentina’s rating a single grade from “B” to “B-.”

“My resignation is consistent with a government and political space that listens to the people and that acts accordingly,” Dujovne said, in a clear message to the Argentine electorate.