WEEKLY ENERGY RECAP: Russian crude disruption fails to lift oil market

It was surprising that the supply outage of Russian Urals crude oil flows to Germany and Poland didn’t cause an upward momentum in oil prices, says Faisal Mrza. (AFP)
Updated 27 April 2019

WEEKLY ENERGY RECAP: Russian crude disruption fails to lift oil market

RIYADH: Last week started with a major bullish sentiment in the oil market, after the US said it was halting sanctions waivers on Iranian crude exports. This drove Brent prices to a five-month high, touching $75 per barrel, although they dropped by the end of the week to $72.15.
Though oil prices didn’t change much on a weekly closing basis, a steep price fluctuation took place during the week.
Prices fell sharply at the end of the week on speculation that some Iran crude oil exports may be able to find customers regardless of the end to sanctions waivers. Also, global refining margins fell across the board last week, mostly driven by weak middle distillates margins (diesel and jet fuel), though gasoline margins have remained relatively firm ahead of the high demand season in summer.
Most of the supply distributions have been attributed lately to geopolitical factors; however, some other technical factors have emerged after Europe refineries stopped processing Urals crude from Russia after they found contamination in oil delivered via the Druzhba pipeline.
It was surprising that the supply outage of Russian Urals crude oil flows to Germany and Poland didn’t cause an upward momentum in oil prices, especially given that the global market is already short of supplies of similar crude grades.
Urals crude oil is close in quality to the sour crude produced in the Arabian Gulf. It accounts for most of the Russian crude exports in eastern and central Europe, and almost half of Russia’s total crude oil exports globally.
The contamination came at a time when European refiners are already questioning Urals quality, especially the sulfur levels.
Its unclear whether the concerns will affect Russia’s future market share, and hence the global supply and demand balance. Likewise, it is not yet clear how long the issue will last, given that Reuters reported it could have legal effects, as buyers in Europe could open lawsuits against Russian suppliers.

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


Japan’s households tighten purse strings as sales tax and typhoon hit

Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.