Crude oil price rise signals a return to balanced market

Crude oil prices recovered by the end of the week, with the Brent crude price settling above $60 per barrel after deteriorating below that level during the week. (Reuters)
Updated 19 January 2019
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Crude oil price rise signals a return to balanced market

  • Iran’s crude oil output averaged 3.8 million bpd in 2017 and fell to 2.7 million bpd by the end of 2018, despite the US granting waivers in early November 2018 to eight of the largest importers of Iranian crude oil
  • If the US does not intend to renew the waivers, Iran’s crude oil output is likely to fall further below 2.5 million bpd

RIYADH: Crude oil prices recovered by the end of the week, with the Brent crude price settling above $60 per barrel after deteriorating below that level during the week. The Brent price rose to $62.70 per barrel and WTI rose to $53.80 per barrel.
The price market structure for the Brent crude price has flipped to a slight backwardation after hovering in a slight contango for the past two weeks. Even if the OPEC+ output cut of 1.2 million barrels per day (bpd) is yet to be reflected in the market, this signals an upcoming tight market amid strong supply-demand fundamentals and a well-balanced market for the first half of 2019.
Conversely, some market participants assumed a far more bearish fundamental outlook, while output cuts by the Organization of the Petroleum Exporting Countries (OPEC) should limit inventory builds and settle the market in a sustainable range above $75 per barrel for Brent, especially when the US continues to push for zero waivers on Iranian crude oil imports.
Iran’s crude oil output averaged 3.8 million bpd in 2017 and fell to 2.7 million bpd by the end of 2018, despite the US granting waivers in early November 2018 to eight of the largest importers of Iranian crude oil. If the US does not intend to renew the waivers, Iran’s crude oil output is likely to fall further below 2.5 million bpd.
The International Energy Agency’s (IEA) monthly report came with stronger oil demand this year compared with 2018, despite the expected economic slowdown amid concerns over economic growth in China and the US.
The IEA also reported that US oil output will rise by 1.3 million bpd in 2019, though S&P Global Platts reported US oil rigs dropping for the ninth consecutive week when Brent prices fell below $70 per barrel in mid-November 2018. Baker-Hughes drilling statistics show that the US oil-rig count has been moving in a relatively narrow band of 858-886 since June 2018.
China, as the world’s second-largest economy and largest crude oil importer, took advantage of the low oil prices in late 2018 and imported a record 10.35 million bpd in December 2018, amid independent refiners lifting their import quotas. China’s crude oil imports in 2019 are likely to rise before the impact of the OPEC+ output cuts on the market.
In late 2018, US refiners that have enjoyed record wide discounts of Western Canadian Select (WCS) to WTI are now threatened as this discount has narrowed amid Alberta’s output cuts of 325,000 bpd throughout 2019.
Consequently, US refining margins are threatened, while American refiners are already struggling with a glut of refined product inventories. Wide Canadian price spreads have played a major role in justifying rampant refinery utilization in the US, particularly in the mid-continent. Nevertheless, the narrowed discount means higher net-backs for Canadian oil sands producers.
The US Energy Information Administration (EIA) reported mid-continent refining utilization capacity averaging around 93 percent in 2018, when US refiners basically profited from the widening WTI/WCS spread.
Planned winter maintenance in US refineries started in early January. This will give some relief to the US downstream amid robust refined product inventories. Some refiners might choose to extend maintenance in an effort to bring a degree of balance to the oversupplied refined products market.


Huawei in public test as it unveils sanction-hit phone

Updated 19 September 2019

Huawei in public test as it unveils sanction-hit phone

  • Hit by US sanctions, Huawei's Mate 30 will not be allowed to use Google’s Play Store
  • Household-name services like WhatsApp, Instagram and Google Maps will be unavailable.
BERLIN: Chinese tech giant Huawei launches its latest high-end smartphone in Munich on Thursday, the first that could be void of popular Google apps because of US sanctions.
Observers are asking whether a phone without the Silicon Valley software that users have come to depend on can succeed, or whether Huawei will have found a way for buyers to install popular apps despite the constraints.
The company has maintained a veil of secrecy over its plans, set to be dropped at a 1200 GMT press conference revealing the Mate 30 and Mate 30 Pro models.
Huawei, targeted directly by the United States as part of a broader trade conflict with Beijing, was added to a “blacklist” in Washington in May.
Since then, it has been illegal for American firms to do business with the Chinese firm, suspected of espionage by President Donald Trump and his administration.
As a result, the new Mate will run on a freely available version of Android, the world’s most-used phone operating system that is owned by the search engine heavyweight.
While Mate 30 owners will experience little difference in the use of the system, the lack of Google’s Play Store — which provides access to hundreds of thousands of third-party apps and games as well as films, books and music — could hobble them.
Household-name services like WhatsApp, Instagram and Google Maps will be unavailable.
The tech press reports that this yawning gap in functionality has left some sellers reluctant to stock the new phones, fearing a wave of rapid-fire returns from dissatisfied customers.
Huawei president Richard Yu said at Berlin’s IFA electronics fair this month that his engineers found a “very simple” way to install the hottest apps without going via the Play Store.
Huawei could offer its own app store in a preliminary version, setting itself up as a competitor to the dominant Apple and Google offerings, observers speculate.
Over the longer term, the company could build out a similar “ecosystem” of devices, apps and services as the Silicon Valley companies that would bind users more closely to it.
The world’s second-largest smartphone maker after Samsung, Huawei earlier this month presented its proprietary operating system HarmonyOS, a potential replacement for Android.
The Mate 30 will not yet have HarmonyOS installed.
But it could make for a new round in the decades-old “OS wars” between Microsoft’s Windows and Apple’s Mac OS, then Android versus Apple’s iOS.
Meanwhile, Eric Xu, current holder of Huawei’s rotating chief executive chair, has urged Europe to foster an alternative to Google and Apple.
That could provide an opening for Huawei to build up Europe’s market of 500 million well-off consumers as a stronghold against American rivals.
“If Europe had its own ecosystem for smart devices, Huawei would use it... that would resolve the problem of European digital dependency” on the United States, Xu told German business daily Handelsblatt.
He added that his company would be prepared to invest in developing such joint European-Chinese projects.