Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

Trade and geopolitical tensions are competing to influence the price of oil. (Reuters)
Updated 19 August 2018

Weekly Energy Recap: Too early to gauge trade tension fallout on oil markets

  • Oil prices have moved in narrow band since June
  • Brent/WTI spread widens over week

Brent crude finished the week at $71.83 per barrel while WTI dropped to $65.91 as the Brent/WTI spread widened to $5.92 per barrel.
Oil prices fell as a result of market sentiment impacted by hypothetical fears over lower global economic growth.
Brent crude price fell below $72 for the first time since mid-April 2018.
Oil prices have moved in a narrow band since early June 2018.
The Brent price had been hovering between $73 and $78, until it dropped to nearly a four-month low at the middle of the week, then recovered by the week’s closing.
Oil fell after both OPEC and the International Energy Agency’s (IEA) monthly oil market reports forecasted lower growth in oil demand.
This was claimed to be a result of the major downside risk on economic growth amid US-China trade tensions.
These are reportedly impacting emerging economies across Asia as a strengthening dollar weakens their local currencies, and thus reduces purchasing power for transport fuel.
On the other hand, the IEA reported that oil consumption for plastics and other petrochemicals will keep demand growing and elevated for decades as this is driven by population growth and urbanization.
After oil inventories in the US fell to the lowest level since February 2015, last week, the US Energy Information Administration (EIA) reported an unexpected significant build up in US commercial crude oil inventories of 6.8 million barrels. This brought oil inventories slightly back above the five-year average.
The drawdown in US refined products inventories came on the back of US refineries running at a record capacity. On average they refined 18 million barrels per day for the first time, in order to meet high gasoline demand for the summer season.
This was an increase of 383,000 barrels per day on the previous week’s average.
Analysts are also making much about Saudi Arabia’s output cuts for July 2018. Last month the Kingdom lowered output by 200,000 barrels per day to 10.288 million bpd. My perspective on this is that it has nothing to do with potentially lower economic growth as a result of trade disputes between the US and China, nor emerging market turmoil.
Instead, as the world’s swing producer, the Kingdom must track the output of other OPEC nations and adjust its production accordingly. This is exactly what happened after Libyan oil output recovered and exceeded one million barrels per day for the first time since last June. Consequently, Saudi Arabia reduced production.
Saudi Arabia, as the only swing producer, changes its crude oil production to meet fluctuations in market demand. In reality, it’s far too early to know what influence trade tensions will have on economic growth. It will take time for such impacts to materialize and weigh on the market fundamentals.


China's aviation regulator raised concerns with Boeing on 737 MAX design changes

Updated 12 December 2019

China's aviation regulator raised concerns with Boeing on 737 MAX design changes

  • China is reviewing the airworthiness of the plane
  • China was first country to ground plane in March

BEIJING: China’s aviation regulator raised “important concerns” with Boeing Co. on the reliability and security of design changes to the grounded 737 MAX, it said on Thursday, but declined to comment on when the plane might fly again in China.
China is reviewing the airworthiness of the plane based on proposed changes to software and flight control systems according to a bilateral agreement with the United States, Civil Aviation Administration of China (CAAC) spokesman Liu Luxu told reporters at a monthly briefing.
He reiterated that for the plane to resume flights in China, it needed to be re-certified, pilots needed comprehensive and effective training to restore confidence in the model and the causes of two crashes that killed 346 people needed to be investigated with effective measures put in place to prevent another one.
China was the first country to ground the 737 MAX after the second crash in Ethiopia in March and had set up a task force to review design changes to the aircraft that Boeing had submitted.
The US Federal Aviation Administration (FAA) will not allow the 737 MAX to resume flying before the end of 2019, its chief, Steve Dickson, said on Wednesday.
Once the FAA approves the reintroduction into service, the 737 MAX can operate in the United States, but individual regulators could keep the planes grounded in other countries until they complete their own reviews.
“Due to the trade war, the jury is still out on when China would reintroduce the aircraft,” said Rob Morris, Global Head of Consultancy at Ascend by Cirium.
Chinese airlines had 97 737 MAX jets in operation before the global grounding, the most of any country, according to Cirium Fleets Analyzer.