WEEKLY ENERGY RECAP: China highlights demand strength

Oil has been under pressure from concerns over global economic growth amid ongoing US-China trade tensions. (Reuters)
Updated 03 August 2019

WEEKLY ENERGY RECAP: China highlights demand strength

  • Upcoming September crude oil trading was completed without a single unsold Gulf crude cargo

An eventful week ended with downward momentum for oil prices. Brent crude fell to $61.89 and WTI dropped to $55.66 per barrel.

Oil has been under pressure from concerns over global economic growth amid ongoing US-China trade tensions.

However, crude remains healthy, reflected by growing demand from refineries in Asia, where new refining capacity is coming online. 

Exports from the Arabian Gulf to Asian refiners are growing — a key barometer for the overall health of the global crude market.

Though crude oil trading activity in the Gulf region have been threatened amid political turmoil in the Strait of Hormuz, there has been no change in Asian refiner plans from the area.

Upcoming September crude oil trading was completed without a single unsold single cargo for sour crude from the Arabian Gulf.

Gulf sour crude grades have further strengthened on bullish fuel demand amid tighter supply for high sulfur fuel oil and bunker fuels. That has resulted in medium sour crude spreads pushing upwards.

The strength of underlying demand in the market was highlighted by China’s record crude oil imports from Saudi Arabia in July.

OPEC crude oil production fell to an 8-year low, just 29.42 million barrels-per-day (bpd) in July, down 280,000 bpd from June. Voluntary output cuts from Saudi Arabia and steep losses from Iran contributed to this historically low figure.

Libyan crude oil production fell below 1 million bpd to just 950,000  after the Sharara oil field, the largest in the country, went offline for the second time in as many weeks.

There was a huge decline in US crude oil stockpiles for the seventh week in a row. The EIA reported that US crude inventories declined by nearly 49 million barrels in the last seven weeks. It is the longest retreat since the winter of 2017/18 when they fell for a record 10 consecutive weeks. 

Stockpiles of gasoline and distillate fuels also shrank, which should ease concerns about slowing consumption, as strong summer demand in the US continued to drain stockpiles. The EIA report showed total US inventories were at their lowest level since late May.

S&P 500 inches closer to record high

Updated 11 min 30 sec ago

S&P 500 inches closer to record high

  • US stock market index returns to levels last seen before the onset of coronavirus crisis

NEW YORK: The S&P 500 on Tuesday closed in on its February record high, returning to levels last seen before the onset of the coronavirus crisis that caused one of Wall Street’s most dramatic crashes in history.

The benchmark index was about half a percent below its peak hit on Feb. 19, when investors started dumping shares in anticipation of what proved to be the biggest slump in the US economy since the Great Depression.

Ultra-low interest rates, trillions of dollars in stimulus and, more recently, a better-than-feared second quarter earnings season have allowed all three of Wall Street’s main indexes to recover.

The tech-heavy Nasdaq has led the charge, boosted by “stay-at-home winners” Amazon.com Inc., Netflix Inc. and Apple Inc. The index was down about 0.4 percent.

The blue chip Dow surged 1.2 percent, coming within 5 percent of its February peak.

“You’ve got to admit that this is a market that wants to go up, despite tensions between US-China, despite news of the coronavirus not being particularly encouraging,” said Andrea Cicione, a strategist at TS Lombard.

“We’re facing an emergency from the health, economy and employment point of view — the outlook is a lot less rosy. There’s a disconnect between valuation and the actual outlook even though lower rates to some degree justify high valuation.”

Aiding sentiment, President Vladimir Putin claimed Russia had become the first country in the world to grant regulatory approval to a COVID-19 vaccine. But the approval’s speed has concerned some experts as the vaccine still must complete final trials.

Investors are now hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with US cases surpassing 5 million last week.

Also in focus are Sino-US tensions ahead of high-stakes trade talks in the coming weekend.

“Certainly the rhetoric from Washington has been negative with regards to China ... there’s plenty of things to worry about, but markets are really focused more on the very easy fiscal and monetary policies at this point,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

Financials, energy and industrial sectors, that have lagged the benchmark index this year, provided the biggest boost to the S&P 500 on Tuesday.

The S&P 500 was set to rise for the eighth straight session, its longest streak of gains since April 2019.

The S&P 500 was up 15.39 points, or 0.46 percent, at 3,375.86, about 18 points shy of its high of 3,393.52. The Dow Jones Industrial Average was up 341.41 points, or 1.23 percent, at 28,132.85, and the Nasdaq Composite was down 48.37 points, or 0.44 percent, at 10,919.99.

Royal Caribbean Group jumped 4.6 percent after it hinted at new safety measures aimed at getting sailing going again after months of cancellations. Peers Norwegian Cruise Line Holdings Ltd. and Carnival Corp. also rose.

US mall owner Simon Property Group Inc. gained 4.1 percent despite posting a disappointing second quarter profit, as its CEO expressed some hope over a recovery in retail as lockdown measures in some regions eased.

Advancing issues outnumbered decliners 3.44-to-1 on the NYSE and 1.44-to-1 on the Nasdaq.

The S&P index recorded 35 new 52-week highs and no new low, while the Nasdaq recorded 50 new highs and four new lows.