Brent likely to average $70 next year, says American bank

The WTI grade is expected to average around $59, helped both by demand growth and a production cut from OPEC and some of its allies. (Reuters)
Updated 05 December 2018
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Brent likely to average $70 next year, says American bank

  • Bank of America Merrill Lynch expects the WTI grade to average around $59, helped both by demand growth and a production cut from OPEC and some of its allies
  • BAML said that rising inventories had started to become a problem for OPEC and its allies and so was expecting a meaningful reduction in OPEC output

LONDON: Brent crude is expected to average $70 per barrel in 2019 according to an energy sector outlook from Bank of America Merrill Lynch (BAML).
It expects the WTI grade to average around $59, helped both by demand growth and a production cut from OPEC and some of its allies.
OPEC is due to meet today in Vienna, followed by talks with allies such as Russia on Friday.
“The global oil market has sold off sharply in recent weeks mostly on the back of a major shift in US and Iran supply expectations for 2019,” said Francisco Blanch, head of global commodities and derivatives research.
“While US production has easily beaten expectations in September and October, it is also important to note that Russia, Saudi Arabia, and Libya oil production has surprised to the upside in recent months.”
BAML said that rising inventories had started to become a problem for OPEC and its allies and so was expecting a “meaningful reduction” in OPEC output.
Russian Energy Minister Alexander Novak said that he had held a “good” meeting with his Saudi counterpart Khalid Al-Falih on Wednesday and that more discussions were planned.
Oman’s oil minister said that he believed OPEC and its allies would reach a deal this week to cut oil production, Reuters reported.


Asia’s refining profits slump as Mideast exports surge

Updated 23 February 2019
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.