WEEKLY ENERGY RECAP: Oil prices ignore worsening trade feud

WEEKLY ENERGY RECAP: Oil prices ignore worsening trade feud
A further tightening in the oil market added to supply concerns and offset the impact of trade tensions between the US and China. (File/Reuters)
Updated 11 May 2019

WEEKLY ENERGY RECAP: Oil prices ignore worsening trade feud

WEEKLY ENERGY RECAP: Oil prices ignore worsening trade feud
  • The surge in Chinese crude imports also coincided with tumbling Iranian oil exports

RIYADH: Oil prices were flat on the week despite some volatility. Brent and WTI crude eased to $70.62 and $61.66 per barrel, respectively.
The downward deterioration in crude prices came, counter-intuitively, despite the escalation in the US-China trade war.
Further tightening in the market added to already heightened supply concerns and offset the impact of trade tensions. Still, the broad narrative of continuing trade uncertainty should support prices.
The feud between the world’s two economic superpowers should be seen in the context of rising global demand with China’s (the largest oil importer) crude oil imports reaching a record
10.68 million barrels per days (bpd) in April.
Some saw the spike as a result of Beijing importing more as a hedge against US sanctions exemptions expiring, but that argument doesn’t really stand up to scrutiny because the April crude oil imports were loaded a month ahead in March. Indeed, at this point Beijing was hopeful of an extension of US waivers.
China’s previous crude import record high was 10.48 million bpd in November 2018 and the country’s crude imports were hovering above 10 million bpd for four months until March, when the volume fell to 9.3 million bpd.
The surge of China crude oil imports in April came despite an estimated 1.7 million bpd of refining capacity that was taken offline for the peak maintenance season.
This surge in Chinese crude oil imports also coincided with tumbling Iranian oil exports.
Prices should have been supported further by tighter supply amid continuing production cuts by OPEC and US sanctions on Iran and Venezuela. 
OPEC April output was 30.26 million bpd, with Saudi Arabia output at a 15-month low of
9.8 million bpd, and Iranian output lower than during the 2012 sanctions at 2.57 million bpd in April.
Global refinery margins are still supported by strong gasoline demand that will cause additional draw downs in inventories in the coming weeks as driving season approaches. 
This has caused an increase in official selling prices (OSP) for lighter crude oil grades from Saudi Arabia for June cargoes, driven by robust refining margins for light-end products.
The suggestion that Asian refiners are being forced to pay more for Saudi crude as they scramble for replacement barrels to make up for a supply shortfall from Iran may not be accurate.
Saudi Aramco monthly OSP calculations are consistent and consider the refining margin changes. Also the widening Brent/Dubai spread favored Dubai-linked Arabian Gulf crudes over Brent-linked crudes.
Hence the increases in Saudi Aramco June OSP prices for the lighter grades came amid an upswing in gasoline margins.
This refers to the physical price of crude oil loading in the Arabian Gulf through the month of assessment. 
Saudi Aramco’s monthly OSP is based on a sophisticated pricing formula. This considers a number of different factors, including month-to-month changes in refining margins, benchmark market structure movement, related crudes’ competitiveness and a timing mechanism that stipulates when the value of the formula is to be calculated. 
Saudi Aramco sells all of its crude on long-term contractual agreements. This is how it can best fulfill contractual commitments to all of its customers and ensure supply reliability through proper allocation of crude production. 


Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades
Updated 47 min 9 sec ago

Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades

LONDON: Global shares stumbled on Friday as hopes of a fiscal boost from a $1.9 trillion US stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of COVID-19 cases in China.
European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.8 percent and London’s FTSE 100 0.8 percent weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring.
The MSCI world equity index, which tracks shares in 49 countries, was 0.3 percent lower. S&P 500 e-mini futures shed 0.3 percent to 3,779.
Oil prices, which had risen on a weak dollar and strong Chinese import data, dropped as COVID-19 concerns in China hit sentiment.
Brent was down $1.33, or 2.3 percent, after gaining 0.6 percent on Thursday. US West Texas Intermediate crude was down $1.17, or 2.1 percent at $52.44 a barrel, having risen more than 1 percent the previous session.
Brent and US crude were heading for their first weekly declines in three weeks.
Spot gold rose 0.1 percent to $1,847.00 per ounce.
While oil producers are facing unparalleled challenges balancing supply and demand equations with calculus involving vaccine rollouts versus lockdowns, financial contracts have been boosted by strong equities and a weaker dollar, which makes crude cheaper, along with strong Chinese demand.
“The recent resurgence in coronavirus infections, appearance of new variants, delayed vaccine rollouts and renewed lockdown measures in most major OECD economies has clouded the economic and demand recovery,” said Stephen Brennock of oil broker PVM.
“Simply put, near-term demand expectations aren’t too promising.”
Earlier on Friday, an Asian regional share index had edged near record highs after US President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus.
In prime time remarks on Thursday, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.
But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities.
“People are saying it’s a big number but markets are almost acting like its a disappointment,” said James Athey, investment director at Aberdeen Standard Investments.
“I think maybe the market was pricing an additional $2,000 cheque going to the US population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”
Investors also digested the prospect of rising taxes to pay for the plan.
“The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.”
Biden’s comments came after US Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University.
Powell said the US central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.
Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of infections.
German Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.
Chinese blue chips eased 0.2 percent, snapping a four-week winning streak, after the country on Friday reported the highest number of new COVID-19 cases in more than 10 months.
US earnings season kicked into full swing with results from JPMorgan, Citigroup and Wells Fargo.
JPMorgan Chase reported a much better-than-expected 42 percent jump in fourth-quarter profit on Friday, driven by the release of some of the reserves it had built up against coronavirus-driven loan losses.
Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.
In the currency market, the US dollar rose.
The dollar index was at 90.407 versus a basket of currencies, up 0.2 percent on the day.
It was on track for a weekly gain of around 0.4 percent, making this its strongest week since November.
Against the stronger dollar, the euro was down 0.2 percent at $1.21325.
US yields stepped back as risk appetite waned. Benchmark 10-year Treasury notes yielded 1.1039 percent, down from a US close of 1.129 percent on Thursday, while the 30-year yield dipped to 1.8451 percent from 1.874 percent.
In Europe, Italy’s bond market was poised to end the week calmer, as 10-year bond yields were down 2 basis points at 0.59 percent.
Italian Prime Minister Giuseppe Conte resisted calls to resign on Thursday after a junior coalition party led by former premier Matteo Renzi pulled out of the government on Wednesday and stripped it of its majority.