Oil slips on economic slowdown, but OPEC-led cuts still support

The International Energy Agency said on Friday it expected oil markets to be in a modest deficit from the second quarter of 2019. (Reuters)
Updated 18 March 2019
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Oil slips on economic slowdown, but OPEC-led cuts still support

  • US manufacturing output fell for a second straight month in February
  • It was a sign that the world’s biggest economy has been slowing down in the first quarter

SINGAPORE: Oil prices dipped on Monday amid concerns that an economic downturn may dent fuel consumption, but crude markets remain broadly supported by supply cuts led by producer group OPEC and US sanctions against Iran and Venezuela.
Brent crude oil futures were at $67.03 per barrel at 0231 GMT, down 13 cents, or 0.2 percent, from their last close, but not far off the $68.14 per barrel 2019-high reached last week.
US West Texas Intermediate (WTI) futures were at $58.32 per barrel, down 20 cents, or 0.3 percent, from their last settlement, and also not far off their 2019-high of $58.95 from the previous week.
“The greatest downside risk to our oil price view is demand weakness on slower economic growth. Our base case is that global oil demand will increase by 1.3 million barrels per day (bpd) in 2019 ... A synchronized global slowdown in growth could push global demand growth to below 1 million bpd,” Bernstein Energy said on Monday.
US manufacturing output fell for a second straight month in February, in a sign that the world’s biggest economy has been slowing down in the first quarter.
In Asia, Japan’s exports fell for a third straight month in February in a sign of growing strain from slowing global demand.
Despite this, oil prices have gained around a quarter since the start of the year amid US sanctions against Iran and Venezuela, and as the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia — known as OPEC+ — have pledged to withhold 1.2 million bpd in supply to prop up prices.
Saudi Arabia said on Sunday that balancing oil markets was far from done as inventories were still high.
Russia also said production cuts would stay in place at least until June.
As a result, Bernstein forecast an inventory draw of 37 million barrels in the first quarter for the 36 member countries of the Organization for Economic Co-operation and Development, which comprises most industrialized nations.
The International Energy Agency said on Friday it expected oil markets to be in a modest deficit from the second quarter of 2019.
Key for the supply and demand balance will be the US, where crude production has soared by around 2 million bpd over the past year, thanks largely to an onshore boom in shale formation drilling.
The number of rigs drilling for new oil production in the United States has been falling in 2019, and hit its lowest level since April 2018 last week, at 833 operating rigs.
However, US crude oil production still increased at the start of 2019, hitting a record 12.1 million barrels per day (bpd) in February, data from the Energy Information Administration (EIA) showed.
Output has since dipped back to 12 million bpd, but that still makes America the world’s biggest crude oil producer.


US wins WTO ruling against China grain import quotas

Updated 19 April 2019
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US wins WTO ruling against China grain import quotas

GENEVA: The United States won a World Trade Organization (WTO) ruling on Thursday against China’s use of tariff-rate quotas for rice, wheat and corn, which it successfully argued limited market access for US grain exports.
The case, lodged by the Obama administration in late 2016, marked the second US victory in as many months. It came amid US-China trade talks and on the heels of Washington clinching a WTO ruling on China’s price support for grains in March.
A WTO dispute panel ruled on Thursday that under the terms of its 2001 WTO accession, China’s administration of the tariff rate quotas (TRQs) as a whole violated its obligation to administer them on a “transparent, predictable and fair basis.”
TRQs are two-level tariffs, with a limited volume of imports allowed at the lower ‘in-quota’ tariff and subsequent imports charged an “out-of-quota” tariff, which is usually much higher.
The administration of state trading enterprises and non-state enterprises’ portions of TRQs are inconsistent with WTO rules, the panel said.
Australia, Brazil, India, and the European Union were among those reserving their rights in the dispute brought by the world’s largest grain exporter.
In a statement, US Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue welcomed the decision, saying China’s system “ultimately inhibits TRQs from filling, denying US farmers access to China’s market for grain.”
If China’s TRQs had been fully used, $3.5 billion worth of corn, wheat and rice would have been imported in 2015 alone, it said, citing US Department of Agriculture estimates.
The two WTO rulings would help American farmers “compete on a more level playing field,” the USTR statement said, adding: “The (Trump) Administration will continue to press China to promptly come into compliance with its WTO obligations.”
The latest WTO panel said that the United States had not proven all of its case, failing to show that China had violated its public notice obligation under the General Agreement on Tariffs and Trade (GATT) in respect to TRQs.
China’s Ministry of Commerce said in a statement on Friday it “regrets” the panel’s decision and that it would “earnestly evaluate” the panel’s report.
China would “handle the matter appropriately in accordance with WTO dispute resolution procedures, actively safeguard the stability of the multilateral trading system and continue to administer the relevant agricultural import tariff quotas in compliance with WTO rules,” it said.
Either side can appeal the ruling within 60 days.