Oil prices steady on extended supply cuts, US stocks draw

US crude inventories fell by 5 million barrels last week, more than the expected decrease of 3 million barrels. Above, an oil production facility in the Permian Basin near Midland, Texas. (Reuters)
Updated 03 July 2019
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Oil prices steady on extended supply cuts, US stocks draw

  • OPEC+ agreed on Tuesday to extend oil supply cuts until March 2020 as members overcame differences to try to prop up prices
  • US crude inventories fell by 5 million barrels last week, more than the expected decrease of 3 million barrels

SINGAPORE: Oil prices edged higher on Wednesday after a steep fall in the previous session, supported by extended output cuts by OPEC and its allies despite concerns that a slowing global economy could crimp demand.
An expected large draw in US crude oil inventories also underpinned sentiment after a bigger-than-expected stocks fall in a private survey.
Brent crude futures for September delivery were trading up 36 cents, or 0.6 percent, at $62.76 a barrel by 0244 GMT.
US crude futures for August were up 29 cents, or 0.5 percent, at $56.54 a barrel. Both benchmarks fell more than 4 percent on Tuesday as worries about a slowing global economy overshadowed OPEC supply cuts.
The Organization of the Petroleum Exporting Countries and other producers such as Russia, a group known as OPEC+, agreed on Tuesday to extend oil supply cuts until March 2020 as members overcame differences to try to prop up prices.
“The OPEC+ meeting showed the members sticking together in tough times, characterized by weakening global demand outlook, aiming for a more balanced oil market, despite clear market share implications,” said Amarpreet Singh, analyst at Barclays Commodities Research in a note.
“This is supportive of oil prices, in our view, even as the market remains squarely focused on weak macro signals.”
Ahead of government data due later on Wednesday, industry group the American Petroleum Institute (API) said that US crude inventories fell by 5 million barrels last week, more than the expected decrease of 3 million barrels.
The OPEC+ agreement to extend oil output cuts for nine months should draw down oil inventories in the second half of this year, boosting oil prices, said analysts from Citi Research in a note.
“Keeping cuts through the end of 1Q aims to avoid putting oil into the market during a seasonal low for demand and refinery runs, as well as providing time to assess the impacts of IMO 2020,” they said.
Still, signs of a global economic slowdown hitting oil demand growth worried investors after global manufacturing indicators disappointed and the US opened another trade front after threatening the EU with more tariffs to offset government aid to the aviation industry.
Barclays expects demand to grow at its slowest pace since 2011, gaining less than 1 million barrels per day year-on-year this year.
Morgan Stanley, meanwhile, lowered its long-term Brent price forecast on Tuesday to $60 per barrel from $65 per barrel, and said the oil market is broadly balanced in 2019.
Crude prices were also capped by signs of a recovery in oil exports from Venezuela in June and growth in oil production in Argentina in May.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 19 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.