WEEKLY ENERGY RECAP: Oil trading is reflecting regional security concerns

WEEKLY ENERGY RECAP: Oil trading is reflecting regional security concerns
Brent crude and WTI prices rose to $65.20 and $57.43 per barrel respectively as oil traders were distracted from worries over supply to concerns about security in the Middle East region. (AP)
Updated 23 June 2019

WEEKLY ENERGY RECAP: Oil trading is reflecting regional security concerns

WEEKLY ENERGY RECAP: Oil trading is reflecting regional security concerns
  • Up until this week, Brent had been on a downward trajectory
  • As we move into the last week of June, Iranian oil exports remain at historic lows

RIYADH: It has taken a while but the oil market has finally responded to tensions in the Arabian Gulf. Brent crude and WTI prices rose to $65.20 and $57.43 per barrel respectively as oil traders were distracted from worries over supply to concerns about security.
Up until this week, Brent had been on a downward trajectory with the price unable to break out of the low $60’s since the end of May as the market focused on weaker demand projections, in part linked to escalating trade tensions and the fallout from the US-China trade war.
With the market now focused not only on the threat of military escalation in the Strait of Hormuz but also falling US crude oil and gasoline stockpiles, the bulls are once again on the rampage.
As we move into the last week of June, Iranian oil exports remain at historic lows as Tehran is shunned by global refiners. We are also seeing the resumption of stronger buying appetite as Asian refiners try to secure oil cargoes before the end of the month, after having waited so long to do so in the hope that prices would keep falling after persistent oil short-selling surges amid concerns of slowing oil demand.
Part of the downward movement in oil prices last month was attribute to weak refining margins for Naphtha. However, if oil prices continue to rise, this might end the weakest Naphtha refining margins in years.
Naphtha margins have been negative since early 2018 with Asia awash with light distillate amid plentiful supplies.
The ample supplies of light sweet crude which comes mainly from US shale also contributed to this bearishness as Asian refiners can’t absorb as much of this type of oil as the sour medium to heavy grades from the Arabian Gulf.
The light sweet crude grades are a shorthand for oil that has less than 0.5 percent sulfur content. These light sweet crude grades yield more naphtha and gasoline than medium and heavy sour alternatives.


Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades
Updated 53 min 16 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.