Oil prices reach 3-month high as OPEC output falls

Output by the Organization of the Petroleum Exporting Countries (OPEC) has fallen sharply over the past two months to its lowest level in four years. (Reuters)
Updated 26 February 2019
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Oil prices reach 3-month high as OPEC output falls

  • The US crude oil inventory build could not push oil lower
  • Brent seems to have moved back above $70 per barrel amid a tight market

RIYADH: Oil prices continued to rise slowly for a second consecutive week, reaching a three-month high. The US crude oil inventory build could not push oil lower. Brent seems to have moved back above $70 per barrel amid a tight market.
Output by the Organization of the Petroleum Exporting Countries (OPEC) has fallen sharply over the past two months to its lowest level in four years, to 30.8 million barrels per day (bpd) in January, causing any oil surplus to disappear. This might move the oil market into a deficit toward the end of the first quarter.
By the weekend, Brent crude rose to $67.12 per barrel and WTI rose to $57.26 per barrel. The Brent / WTI spread remains wide at $9.86 per barrel. The wide spread helps traders to hedge US crude oil exports that help increase the flow heading East.
This is the reason behind US exports jumping to above 3 million bpd in the last two weeks. The Energy Information Administration (EIA) reported US crude output at 12 million bpd for the first time last week, up from 11.9 million bpd the week prior.
The surge in US crude oil exports has brought stronger competition for West African light sweet crudes heading to the Asian market, as the arbitrage economics remain highly favorable for more US crude purchases, especially with lower freight costs to Asia that have fallen by about a third since early December 2018, S&P Platts Global reported.
OPEC output cuts kept Dubai crude relatively expensive amid medium / heavy sour crude tightness in the market. This supply tightness pushed Dubai crude’s discount to Brent to narrow to a record low in January and early February.
However, the Dubai benchmark moved steadily higher and reached a premium of $0.20-$0.30 per barrel to Brent by mid-February. This has led to robust trading activities in the physical market amid tightening medium / heavy sour crude oil supplies, which was further tightened after the loss of the heavier Venezuelan grades that made heavy crudes priced more competitively.
Global refiners already suffer from poor refining margins for naphtha and gasoline (the light ends of a crude barrel), while rising US production puts more light sweet crude oil in a global market that is already saturated with these crude supplies, necessitating refineries worldwide to sweeten their blends as much as they can economically handle.
Since the global market is already soaked with gasoline and naphtha refined products, that is depressing refining margins, while refiners are having to pay more to secure supplies of the medium / heavy sour crudes. The constrained medium / heavy crude market has supported fuel oil prices that have escalated, while its inventories are at low levels, especially for high-sulfur fuel oil.

  • Faisal Mrza is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalmrza.


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.