Lower oil prices help grease economic activity, says IEA

IEA: Lower crude prices tend to support demand for oil and economic activity. (Reuters)
Updated 14 December 2018
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Lower oil prices help grease economic activity, says IEA

  • There has been intense concern about a slowdown in China, which has been the motor for growth in the global economy in recent times
  • The IEA last month lowered its forecast for growth of global oil demand for 2018 and 2019, citing high prices, trade tensions and a less favorable economic outlook

PARIS: The threat of an all-out trade war has dampened the outlook for the global economy, but the recent drop in oil prices should support demand, the International Energy Agency said Thursday.
There has been intense concern about a slowdown in China, which has been the motor for growth in the global economy in recent times, but the IEA said in a report that demand for oil there remains robust.
The IEA last month lowered its forecast for growth of global oil demand for 2018 and 2019, citing high prices, trade tensions and a less favorable economic outlook.
But oil prices, which struck $86 per barrel in October, then tumbled to $58 last month, prompting the OPEC oil cartel and Russia to agree on new production cuts to stabilize prices.
The IEA declined to speculate on the longer-term impact of the deal, but noted that price expectations by the market have shifted lower. Lower oil prices tend to support demand for oil and economic activity.
The drop in oil prices “should help support demand in 2019,” said the IEA. “The price impact is offset, however, by slightly lower economic growth assumptions and downward revisions to our projections for certain countries impacted by weak currencies, such as Turkey, or countries facing collapse, such as Venezuela,” said the Paris-based agency, which advises major oil-consuming nations.

 

The IEA’s analysis included the latest economic projections released last month by the OECD, which said the global economy has peaked and faces a slowdown driven by international trade tensions and tighter monetary conditions.
The OECD trimmed its growth forecast for 2019 to 3.5 percent from the previous 3.7 percent.
The IEA thus left unchanged its projection for oil demand growth in 2019 at 1.4 million barrels per day (mbd). It noted however that growth in global demand has accelerated, from modest growth of 0.5 mbd year-on-year in the second quarter of this year, to 1.3 mbd in the third quarter.
The IEA sees it rising to 1.6 mbd in the final three months of this year.
While various measures of China’s economy have pointed to slowing growth, the IEA said the country’s thirst for oil remains unsated. “China’s apparent oil demand increased strongly” in the third quarter, when it grew by 840,000 barrels per day.
“This trend has continued in October when growth is estimated to have been” 700,000 barrels per day, it added.

FASTFACTS

The IEA expects oil demand growth in 2019 to be about 1.4 million barrels per day.


Oil prices jump as US crude stocks fall, Middle East worries add support

Updated 30 min 25 sec ago
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Oil prices jump as US crude stocks fall, Middle East worries add support

  • Analysts said the gains were mainly driven by American Petroleum Institute data showing a fall in US crude inventories
  • Data come as traders watched for any signs that tensions between the US and Iran could escalate into military conflict
SYDNEY: Oil prices rose more than 1 percent on Wednesday to their highest in nearly a month as industry data showed US crude stockpiles fell more than expected, underpinning a market already buoyed by worries over a potential US-Iran conflict.
Front-month Brent crude futures, international benchmark for oil, were up 1.3 percent at $65.91 by 0341 GMT. They earlier touched their highest since May 31 at $66 a barrel.
US West Texas Intermediate (WTI) crude futures were at $58.98 per barrel, up 1.8 percent from their last settlement. WTI earlier hit its strongest level since May 30 at $59.03 a barrel.
Analysts said the gains were mainly driven by American Petroleum Institute (API) data showing a fall in US crude inventories.
US crude stockpiles fell by 7.5 million barrels in the week ended June 21 to 474.5 million, compared with analyst expectations for a decline of 2.5 million barrels, the data showed. Crude stocks at US delivery hub Cushing, Oklahoma, fell by 1.3 million barrels.
“Oil prices went ballistic after the API report,” said Stephen Innes, a managing partner at Vanguard Markets.
“Oil prices have been squeezing higher on escalating tensions in the Middle East. But with late-day draws showing up in the API report, this is a strong signal for the energy market,” Innes said.
The data came as traders watched for any signs that tensions between the United States and Iran could escalate into military conflict.
US President Donald Trump threatened on Tuesday to obliterate parts of Iran if it attacked “anything American,” in a new war of words with Iran. Tehran has condemned a fresh round of US sanctions as “mentally retarded.”
Bilateral tensions between the two have spiked anew after Iran shot down a US drone last week in the Gulf. Relations have been tense since Washington blamed attacks on oil tankers just outside the Gulf in May and June on Iran, while Tehran has repeatedly said it had no role in the incidents.
Conflict between Washington and Tehran has stoked fears that shipments passing through the Strait of Hormuz — the world’s busiest oil supply route — could be disrupted.
Seeking to calm a nervous market, the head of national oil company Saudi Aramco said on Tuesday the company can meet the oil needs of customers using its spare capacity.