Bears ignore tight market as oil prices stay volatile

The Total Culzean platform is pictured on the North Sea, about 70 kilometers east of the Aberdeen, on April 8, 2019. Oil prices have continued to fall since the second half of May. (AFP / ANDY BUCHANAN)
Updated 09 June 2019

Bears ignore tight market as oil prices stay volatile

RIYADH: Oil prices have continued to fall since the second half of May as some commentators described the volatile market as the worst four-week run since the 2008 financial crisis. 

If that is an accurate description of the market, then we should also consider the retreat in major equity share indexes such as the S&P 500 and the Dow Jones.

Oil prices rebounded slightly at the end of the week on the news that OPEC+ will probably continue its output cuts throughout the year. Brent and WTI crude prices rose to $63.29 and $53.99 per barrel respectively.

However, falling oil prices for the past month have not taken the strength out of the forward curves, which still suggest tight physical crude oil markets. 

We can observe the tightness in the market in the forward curve of Brent futures, where deliveries in future months are cheaper than current prices. 

This scenario, known in the oil trading sector as “backwardation,” is a fundamental support to the market that is not reflected in oil prices.

The latest data from the Energy Information Administration (EIA), shows US inventories featured more than 22 million barrels in crude, gasoline and diesel stocks. 

Crude inventories have risen in three of the last four weeks despite expectations for declines.

Strong China oil imports and increased US refinery utilization that reached a 4-month high above 90 percent, hardly denote an economic slowdown.

The rise in US inventories has acted to either drive speculators away from bets on higher prices or to encourage bearish speculators to short the market and bet on lower prices, which is one of the factors behind oil price weakness in recent months.

Speculators have taken advantage of the price fall by increasing their bearish bets, a change from recent weeks that was more about these same speculators closing out bets that prices would rise. 


Huawei's third-quarter revenue jumps 27% as smartphone sales surge

Updated 16 October 2019

Huawei's third-quarter revenue jumps 27% as smartphone sales surge

  • American companies, significantly disrupting its ability to source key parts
  • Huawei was all but banned by the United States in May from doing business with American companies

SHENZHEN, SHANGHAI: Huawei Technologies Co. Ltd’s third-quarter revenue jumped 27%, driven by a surge in shipments of smartphones launched before a trade blacklisting by the United States expected to hammer its business.
Huawei, the world’s biggest maker of telecom network equipment and the No. 2 manufacturer of smartphones, was all but banned by the United States in May from doing business with American companies, significantly disrupting its ability to source key parts.
The company has been granted a reprieve until November, meaning it will lose access to some technology next month. Huawei has so far mainly sold smartphones that were launched before the ban.
Its newest Mate 30 smartphone — which lacks access to a licensed version of Google’s Android operating system — started sales last month.
Huawei in August said the curbs would hurt less than initially feared, but could still push its smartphone unit’s revenue lower by about $10 billion this year.
The tech giant did not break down third-quarter figures but said on Wednesday revenue for the first three quarters of the year grew 24.4% to 610.8 billion yuan.
Revenue in the quarter ended Sept. 30 rose to 165.29 billion yuan ($23.28 billion) according to Reuters calculations based on previous statements from Huawei.
“Huawei’s overseas shipments bounced back quickly in the third quarter although they are yet to return to pre-US ban levels,” said Nicole Peng, vice president for mobility at consultancy Canalys.
“The Q3 result is truly impressive given the tremendous pressure the company is facing. But it is worth noting that strong shipments were driven by devices launched pre-US ban, and the long-term outlook is still dim,” she added.
The company said it has shipped 185 million smartphones so far this year. Based on the company’s previous statements and estimates from market research firm Strategy Analytics, that indicates a 29% surge in third-quarter smartphone shipments.
Still, growth in the third quarter slowed from the 39% increase the company reported in the first quarter. Huawei did not break out figures for the second quarter either, but has said revenue rose 23.2% in the first half of the year.
“Our continued strong performance in Q3 shows our customers’ trust in Huawei, our technology and services, despite the actions and unfounded allegations against us by some national governments,” Huawei spokesman Joe Kelly told Reuters.
The US government alleges Huawei is a national security risk as its equipment could be used by Beijing to spy. Huawei has repeatedly denied its products pose a security threat.
The company, which is now trying to reduce its reliance on foreign technology, said last month that it has started making 5G base stations without US components.
It is also developing its own mobile operating system as the curbs cut its access to Google’s Android operating system, though analysts are skeptical that Huawei’s Harmony system is yet a viable alternative.
Still, promotions and patriotic purchases have driven Huawei’s smartphone sales in China — surging by a nearly a third compared to a record high in the June quarter — helping it more than offset a shipments slump in the global market.