WEEKLY ENERGY RECAP: Despite sell-off, spot market is tight

Workers are seen at the damaged site of Saudi Aramco oil facility in Abqaiq, Saudi Arabia. (Reuters)
Updated 06 October 2019

WEEKLY ENERGY RECAP: Despite sell-off, spot market is tight

  • Demand is strong for Arabian Gulf crude grades after a return to pre-attack production

Oil prices continued to deteriorate for the second week in a row. Brent crude dropped below the $60 barrier for the first time in a month. 

Brent fell to $58.37 per barrel which is close to the level it was before the attacks on Saudi Aramco oil facilities on Sep. 14. 

WTI also fell to $52.81 per barrel. 

Worrying economic news continued to put downward pressure on the market. However, the focus should not be on the slowing economic outlook that is detached from oil market fundamentals. 

The market continues to shrug off the possibility of serious supply threats. Conventional oil discoveries have plunged to a seven-decade low with no signs of any speed recovery amid lower capital expenditure investments. 

This coincides with OPEC oil output falling to an eight-year low in September.

At the same time, output from the US and Russia, also fell to 11.81 million bpd and to 11.24 million bpd respectively.

Right after the Saudi Aramco attacks, many speculators took advantage of the short-lived price spike as a major opportunity to sell older positions and lock in profits. 

However, after oil prices plunged for the second week in a row, money managers reduced their net long positions in Brent futures.

That was largely because speculators have been discouraged by the weakening macroeconomic outlook which of course implies weakened demand for oil.

However, demand remains strong for Arabian Gulf sour crude grades despite a return to normal Saudi pre-attack production levels.

The physical spot market remains extremely tight, reflected in steep Dubai backwardation and higher official sales prices (OSP) for November Arabian Gulf sour crude grades. 

The Russian crude grade, ESPO, also fetched high premiums despite the restoration of supply in the Kingdom. 

Brent-linked crudes are still not economically cheap enough to flow into Asia to compete with the Arabian Gulf sour crudes.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq


Pandemic to keep Asia’s growth at lowest since 1967, warns World Bank

Updated 29 September 2020

Pandemic to keep Asia’s growth at lowest since 1967, warns World Bank

  • The bank said the region this year is projected to grow by only 0.9%, the lowest rate since 1967
  • The rest of the East Asia and Pacific region was projected to see a 3.5% contraction

TOKYO: The coronavirus pandemic is expected to lead to the slowest growth in more than 50 years in East Asia and the Pacific as well as China, while up to 38 million people are set to be pushed back into poverty, the World Bank said in an economic update on Monday.
The bank said the region this year is projected to grow by only 0.9%, the lowest rate since 1967.
Growth in China was expected to come in at 2% this year, boosted by government spending, strong exports and a low rate of new coronavirus infections since March, but held back by slow domestic consumption.
The rest of the East Asia and Pacific region was projected to see a 3.5% contraction, the World Bank said.
The pandemic and efforts to contain its spread led to a “significant curtailment” of economic activity, the report said.
“These domestic difficulties were compounded by the pandemic-induced global recession, which hit EAP (East Asia and Pacific) economies that rely on trade and tourism hard,” it said.
Countries in the region may need to pursue fiscal reform to mobilize revenue in response to the economic and financial impact from the pandemic, while social protection programs can help support workers’ integration back into the economy, the Washington, DC-based bank said.
“Countries with well-functioning social protection programs, and good implementation infrastructure, pre-COVID, have been able to scale up more quickly during the pandemic,” it said.
The economic shock of the pandemic was also expected to lead to a jump in poverty, defined as income of $5.50 a day, the bank said, adding that based on past experience and the latest gross domestic product forecasts, poverty could expand by 33 million to 38 million people to see its first rise in 20 years.
The bank said that 33 million people who would have in the absence of the pandemic escaped poverty would remain in it this year.
“The region is confronted with an unprecedented set of challenges,” said Victoria Kwakwa, vice president for East Asia and the Pacific at the World Bank.
“But there are smart policy options available that can soften these tradeoffs — such as investing in testing and tracing capacity and durably expanding social protection to cover the poor and the informal sector.”