Oil rises on stronger financial markets, expectations of extended supply cuts

Global crude oil demand growth could drop below 1 million barrels per day in 2019, energy consultancy FGE said. (AFP)
Updated 11 June 2019
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Oil rises on stronger financial markets, expectations of extended supply cuts

  • Crude oil futures on Tuesday were pushed up by a broader lift in financial markets
  • Russia said on Monday it might support an extension of supply cuts that have been in place since January

SINGAPORE: Oil prices rose on Tuesday in line with firmer financial markets and bolstered by expectations that producer group OPEC and its allies will keep withholding supply.
Front-month Brent crude futures, the international benchmark for oil prices, were at $62.71 at 0630 GMT, 42 cents, or 0.7 percent, above Friday’s close.
US West Texas Intermediate (WTI) crude futures were at $53.85 per barrel, 59 cents, or 1.1 percent, above their last settlement.
Prices fell by around 1 percent in the previous session and crude futures are down by some 20 percent from their 2019 peaks in late April, dragged lower by a widespread economic downturn that has started to impact oil consumption.
Traders said crude oil futures on Tuesday were pushed up by a broader lift in financial markets after Beijing eased financing rules to stem an economic downturn.
On the production side, Russia said on Monday it might support an extension of supply cuts that have been in place since January, warning oil prices could fall as low as $30 per barrel if producers supply too much crude.
The Organization of the Petroleum Exporting Countries (OPEC) and some non-affiliated producers including Russia, known collectively as OPEC+, have withheld supplies since the start of the year to prop up prices.
OPEC+ is due to meet in late June or early July to decide output policy for the rest of the year.
“Without OPEC+ adherence to supply discipline in the deteriorating environment prices would drop to $40 in a heartbeat, which suggests the extension deal is a lock,” said Stephen Innes, managing partner at Vanguard Markets.
Energy consultancy FGE said global crude oil demand growth could drop below 1 million barrels per day (bpd) in 2019, down from previous expectations of 1.3 to 1.4 million bpd.
“This effectively gives us an extra 300,000-400,000 barrels per day of supply,” said FGE chairman Fereidun Fesharaki.
Despite Tuesday’s stronger markets, concerns about the health of the global economy remained.
“With China slowing, the EU sickly and the US data starting to wobble, an economic downturn remains a clear and present danger,” said Innes.


Lufthansa announces overhaul of budget carrier Eurowings

Updated 24 June 2019
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Lufthansa announces overhaul of budget carrier Eurowings

  • Lufthansa cited falling revenues at Eurowings as a major reason for its warning on full-year profits on June 16
  • Eurowings’ long-haul business would be managed by Lufthansa in the future

BERLIN: Lufthansa on Monday announced a turnaround plan for Eurowings in which the budget carrier will focus on short-haul flights and seek a 15 percent cut in costs by 2022 in the hope of returning to profit.
The German airline cited falling revenues at Eurowings as a major reason for its warning on full-year profits on June 16. Eurowings’ revenue was also forecast to fall sharply in the second quarter.
Lufthansa said its Eurowings fleet would be standardized on the Airbus A320 family and it would seek to boost productivity at Eurowings by limiting itself in Germany to one air operator’s certificate.
Brussels Airlines — the Belgian national flag carrier which Lufthansa took control of in 2016 — would not be integrated into Eurowings, Lufthansa said. A turnaround plan for Brussels Airlines will be announced in the third quarter.
Lufthansa also said it would start pegging its dividend payout ratio to net profit in the future to give the group more flexibility. It would pay out a regular dividend of 20 percent-40 percent of net profit, adjusted for one-off gains and losses.
Lufthansa said Eurowings’ long-haul business would be managed by Lufthansa in the future.
Carsten Spohr, Chief Executive Officer of Lufthansa, said Monday’s announcements sent “a clear signal that this company cares about its shareholders and tries to create value for them.”
Lufthansa said its Network Airlines — made up of Lufthansa, Swiss and Austrian Airlines — would aim to use innovations in sales and distribution to make a contribution to increasing unit revenues by 3 percent by 2022.
Network Airlines will aim to reduce unit costs continuously by 1 to 2 percent annually, the airline said.