WEEKLY ENERGY RECAP: Tightening market confounds bears

Updated 01 September 2019

WEEKLY ENERGY RECAP: Tightening market confounds bears

  • While economic growth concerns remain amid the ongoing trade war dispute, crude oil balances are tightening

Brent crude settled above the $60 per barrel barrier as markets continued to be preoccupied with slowing global growth.

The grade advanced to $60.43 per barrel while WTI rose to $55.11 per barrel.

While economic growth concerns remain amid the ongoing trade war dispute, crude oil balances are tightening. Meanwhile, geopolitical developments remained a key concern and could have a big impact on crude trading activities in Asia. 

It is still questionable if US crude oil exports to China will resume after Beijing planed to levy 5 percent tariff on US crude imports from September.

However, as the US-China trade tensions are Asia-centric matters, China’s surprise decision to include crude oil in its latest round of tariffs on imports from the US is unlikely to restrict the overall US- Asia crude trade.

American oil has ample outlets in Asia and other Asian refiners may also absorb China’s unwanted US crude cargoes.

US crude oil inventories fell sharply to their lowest since last October last year, while Russian crude oil exports also fell to an 18-month low of 4.51 million barrels per day (bpd).

US crude production rose 200,000 bpd to a new weekly record at 12.5 million bpd, challenging assumptions of slowing growth among the market bears.

Despite rising production, crude oil balances appear to be tightening amid OPEC+ output cuts and historically high compliance rates.

OPEC supply cuts are likely one of the main reasons fro the draining of US oil inventories.

In its August Short-Term Energy Outlook, the EIA expects refinery runs to average 17 million bpd in 2019. Refinery runs will increase to 17.6 million bpd in 2020 because of increases in both refining capacity and utilization. Strong refining margins encourage high runs.

This explains the net US crude imports decline to 2.9 million bpd, while imports to the Gulf Coast region dropped to their lowest on record at 1.2 million bpd, based on EIA data going back to 1990. Total US crude imports fell to 5.93 million bpd. 

EIA data showed US refining utilization at 95.2 percent of total capacity. Gasoline stocks fell by 2.1 million barrels. Distillate stockpiles, which include diesel and heating oil, also fell by 2.1 million barrels.

UK economy faces long climb back to health

Updated 18 min 13 sec ago

UK economy faces long climb back to health

  • Wave of job losses feared after data shows record 20 percent economic hit

LONDON: Britain’s economy shrank by a record 20.4 percent in the second quarter when the coronavirus lockdown was tightest, the most severe contraction reported by any major economy so far, with a wave of job losses set to hit later in 2020.

The scale of the economic hit may also revive questions about Prime Minister Boris Johnson’s handling of the pandemic, with Britain suffering the highest death toll in Europe. More than 50,000 UK deaths have been linked to the disease.

“Today’s figures confirm that hard times are here,” Finance Minister Rishi Sunak said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

The data confirmed that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25 percent below its pre-pandemic level.

Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 percent — a record single-month increase and stronger than forecasts by economists in a Reuters poll.

However, some analysts said the bounceback was unlikely to be sustained.

Last week the Bank of England (BoE) forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply.

Any decision to pump more stimulus into the economy will hinge on the pace of growth in the coming months, and whether the worst-hit sectors such as face-to-face retail and business travel ever fully recover.

The second-quarter gross domestic product (GDP) slump exceeded the 12.1 percent drop in the euro zone and the 9.5 percent fall in the United States.

Some economists said the sharper decline partly reflected the timing of Britain’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.

Suren Thiru, an economist with the British Chambers of Commerce, said the recent pickup probably only reflected the release of pent-up demand rather than a sustained revival.

“The prospect of a swift ‘V-shaped’ recovery remains remote,” he said.

Britain’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.

Sunak said he saw “promising signs” in GDP data for June and reiterated his opposition to extending the program. In July he cut sales tax for the hospitality sector and in August is subsidising restaurants to draw in diners.

Hotels and restaurants did just one fifth of their normal business in June, when the lockdown was still largely in force.

British GDP shrank by 2.2 percent in the first quarter of the year, reflecting the lockdown that started on March 24.