Oil recovers some losses after 6% plunge but markets remain wary

The International Energy Agency warned of unprecedented uncertainty in oil markets due to a difficult economic environment and political risk. (Reuters)
Updated 21 November 2018
0

Oil recovers some losses after 6% plunge but markets remain wary

  • Investors remained on edge, with the International Energy Agency warning of unprecedented uncertainty in oil markets
  • ‘The global economy is still going through a very difficult time and is very fragile’

SINGAPORE: Oil prices on Wednesday clawed back some of the previous day’s more than 6 percent plunge, lifted by a report of an unexpected decline in US commercial crude inventories as well as record Indian crude imports.
But investors remained on edge, with the International Energy Agency (IEA) warning of unprecedented uncertainty in oil markets due to a difficult economic environment and political risk.
International Brent crude oil futures were at $63.19 per barrel at 0239 GMT, up 66 cents, or 1.1 percent from their last close.
US West Texas Intermediate (WTI) crude futures, were up 66 cents, or 1.2 percent, at $54.09 a barrel.
Wednesday’s gains came after a report by the American Petroleum Institute late on Tuesday that US commercial crude inventories last week fell unexpectedly by 1.5 million barrels, to 439.2 million, in the week to Nov. 16.
Record crude imports by India of almost 5 million barrels per day (bpd) also supported prices, traders said.
Yet Wednesday’s bounce was small in the context of the general market weakness, which saw crude tumble by more than 6 percent the previous session amid a selloff in global stock markets.
“The global economy is still going through a very difficult time and is very fragile,” IEA chief Fatih Birol said on Tuesday.
“Rising global growth fears smashed oil markets and saw European and US shares slide,” futures brokerage CMC Markets said in a daily note.
With output surging and the demand outlook deteriorating, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of between 1 million and 1.4 million bpd to prevent a repeat of the 2014 glut.
“We would anticipate further weakness until the reaction from OPEC+ (Dec. 6) and the G20 summit is clearer (Nov. 30/Dec. 1),” said Ashley Kelty, oil analyst at investment bank Cantor Fitzgerald Europe.
Despite an expectation of OPEC-led cuts, Brent and WTI prices have slumped by 28 and 30 percent respectively since early October, and the entire structure of the forward price curve has changed.
The Brent forward curve was in steep backwardation in October, implying a tight market with prices for spot delivery higher than those for later dispatch. This makes it unattractive to store oil.
Since then, however, the curve has moved into contango for most of 2019, implying oversupply as higher prices further out make it attractive to store oil for later sale.
“Investors are becoming increasingly concerned that any potential production cuts by OPEC will be insufficient to cover the surplus in the market,” ANZ bank said on Wednesday.
“The list of reasons for the decline are pretty specific ... too much supply and a risk of slowing demand growth,” said James Mick, Energy Portfolio Manager with US investment firm Tortoise.
“Part of the supply issue has been surging US production,” he added.
US crude oil production has jumped by almost a quarter this year, to a record 11.7 million bpd largely because of a surge in shale output.


‘Don’t be too optimistic’: Huawei employees fret at US ban

Updated 26 May 2019
0

‘Don’t be too optimistic’: Huawei employees fret at US ban

  • This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei
  • Another critical partner, ARM Holdings, said it was complying with the US restrictions

BEIJING: While Huawei’s founder brushes aside a US ban against his company, the telecom giant’s employees have been less sanguine, confessing fears for their future in online chat rooms.
Huawei CEO Ren Zhengfei declared this week the company has a hoard of microchips and the ability to make its own in order to withstand a potentially crippling US ban on using American components and software in its products.
“If you really want to know what’s going on with us, you can visit our Xinsheng Community,” Ren told Chinese media, alluding to Huawei’s internal forum partially open to viewers outside the company.
But a peek into Xinsheng shows his words have not reassured everyone within the Shenzhen-based company.
“During difficult times, what should we do as individuals?” posted an employee under the handle Xiao Feng on Thursday.
“At home reduce your debts and maintain enough cash,” Xiao Feng wrote.
“Make a plan for your financial assets and don’t be overly optimistic about your remuneration and income.”
This week Google, whose Android operating system powers most of the world’s smartphones, said it would cut ties with Huawei as a result of the ban.
Another critical partner, ARM Holdings — a British designer of semiconductors owned by Japanese group Softbank — said it was complying with the US restrictions.
“On its own Huawei can’t resolve this problem, we need to seek support from government policy,” one unnamed employee wrote last week, in a post that received dozens of likes and replies.
The employee outlined a plan for China to block off its smartphone market from all American components much in the same way Beijing fostered its Internet tech giants behind a “Great Firewall” that keeps out Google, Facebook, Twitter and dozens of other foreign companies.
“Our domestic market is big enough, we can use this opportunity to build up domestic suppliers and our ecosystem,” the employee wrote.
For his part, Ren advocated the opposite response in his interview with Chinese media.
“We should not promote populism; populism is detrimental to the country,” he said, noting that his family uses Apple products.
Other employees strategized ways to circumvent the US ban.
One advocated turning to Alibaba’s e-commerce platform Taobao to buy the needed components. Another dangled the prospect of setting up dozens of new companies to make purchases from US suppliers.
Many denounced the US and proposed China ban McDonald’s, Coca-Cola and all-American movies and TV shows.
“First time posting under my real name: we must do our jobs well, advance and retreat with our company,” said an employee named Xu Jin.
The tech ban caps months of US effort to isolate Huawei, whose equipment Washington fears could be used as a Trojan horse by Chinese intelligence services.
Still, last week Trump indicated he was willing to include a fix for Huawei in a trade deal that the two economic giants have struggled to seal and US officials issued a 90-day reprieve on the ban.
In Xinsheng, an employee with the handle Youxin lamented: “I want to advance and retreat alongside the company, but then my boss told me to pack up and go,” followed by two sad-face emoticons.