WEEKLY ENERGY RECAP: All eyes on OPEC’s meet next week

OPEC’s own forecast for global oil demand growth remains unchanged in 2020 at 1.08 million bpd. (AFP)
Updated 30 November 2019

WEEKLY ENERGY RECAP: All eyes on OPEC’s meet next week

  • OPEC will meet next week on Dec. 5-6

Although Brent crude dropped below $63 per barrel by the week closing, oil prices are still very close to the levels that prevailed around OPEC’s meeting six months ago when an output cut rollover was suggested till March 2020.

OPEC will meet next week on Dec. 5-6 and so far the efforts of the OPEC+ group of producers have been successful in absorbing the market surplus.

At the end of 2016 OECD stocks were 299 million barrels above the latest five-year average, which was OPEC’s key measure for its oil output strategy for those three years.

OECD commercial oil stocks for March 2018 were 40 million barrels below the latest five-year average, which meant that the OPEC+ output cuts of 1.8 million barrels per day (bpd) since January 2017 were successful in driving OECD commercial oil stocks below the five-year average within just 15 months of the new  production cut strategy.

The continuing efforts in the past three years have ensured that the market is in balance and preventing any surplus building up.

By January this year OECD commercial oil stocks were at 19 million barrels above the latest five-year average — which coincided with the latest OPEC+ output cuts of 1.2 million bpd.

According to the OPEC monthly oil market report  of November 2019, OECD commercial oil stocks stand at 28.2 million barrels above the latest five-year average. This means that OECD commercial crude stocks have been increasing regardless of OPEC+ output cuts. However, OPEC monthly reports forecast a sharp fall in calls on its crude in the first half of next year, while non-OPEC supply is set to increase ahead of weak global demand growth.

OPEC’s own forecast for global oil demand growth remains unchanged in 2020 at 1.08 million bpd, but demand is projected to be flat in the first and second quarter, when non-OPEC supply is set to rise by 1.79 million bpd.

However, there are many non-OPEC supply uncertainties in 2020. 

According to OPEC’s own outlook, a rollover remains the most likely outcome of the 177th meeting.

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

Virus fears push stocks to 2-week low

Updated 28 January 2020

Virus fears push stocks to 2-week low

  • China has confirmed more than 2,700 cases of the new virus, with 81 deaths. Most have been in the central city of Wuhan

LONDON: World shares slipped to their lowest in two weeks on Monday as worries grew about the economic impact of China’s spreading coronavirus, with demand spiking for safe haven assets such as Japanese yen and Treasury notes.

The death toll from the coronavirus outbreak in China rose to 106 and the virus spread to more than 10 countries, including France, Japan and the US. Some health experts questioned whether China can contain the epidemic.

By midday in London, MSCI’s All-Country World Index, which tracks shares across 47 countries, was down 0.6 percent to its lowest since Jan. 9.

In Europe, stock markets slumped at the start of trading, tracking their counterparts in Asia. The pan-European STOXX 600 index fell 2 percent to its lowest level since Jan. 6, and the Euro Stoxx 50 volatility index jumped to its highest level since December.

“The coronavirus is an economic and financial shock. The extent of that shock still needs to be assessed, but it could provide the spark for an arguably long-overdue adjustment in the capital markets,” Marc Chandler, chief market strategist at Bannockburn Securities, told clients.

In Asia, Japan’s Nikkei average slid 2 percent, the biggest one-day fall in five months. A Tokyo-listed China proxy, ChinaAMC CSI 300 index ETF, fell 2.2 percent. Many markets in Asia were closed for the Lunar New Year holiday.

US S&P 500 mini futures were last down 1.36 percent, suggesting an open in the red on Wall Street later. The VIX volatility index, also known as Wall Street’s “fear gauge,” hit its highest levels since October.

The ability of the coronavirus to spread is getting stronger and infections could continue to rise, China’s National Health Commission said on Sunday. More than 2,800 people globally have been infected.

China announced it will extend the week-long new year holiday by three days to Feb. 2 and schools will return from their break later than usual. Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei province in the past 14 days.

“While the continued spread of the virus is concerning, we were expecting that the outbreak could worsen before being brought under control,” UBS strategists wrote in a research note, adding that they expected impact on the region’s economy and risk assets to be short-lived.

“Sentiment may remain depressed in the near term, especially for those sectors most impacted, however we retain a positive outlook for emerging market stocks, including a preference for China equities within our Asia portfolios.”

MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.45 percent, although markets in China, Hong Kong, Taiwan, South Korea, Singapore and Australia were closed on Monday.

All three major Wall Street indexes closed sharply lower on Friday, with the S&P 500 seeing its biggest one-day percentage drop in over three months.

The S&P 500 lost 0.9 percent, the Dow Jones Industrial Average 0.6 percent and the Nasdaq Composite 0.9 percent. The US Centers for Disease Control and Prevention has confirmed five case of the virus on US soil.

US Treasury prices advanced, pushing down yields. The benchmark 10-year note’s yield fell to a three-and-half-month trough of 1.6030 percent. It last traded at 1.6321 percent.

Elsewhere in bonds, the Italian 10-year yield fell to a three-month low Monday after right-wing leader Matteo Salvini failed in his bid to overturn decades of leftist rule in the northern region of Emilia-Romagna on Sunday, bringing some relief to the government.

In the currency market, the Japanese yen strengthened as much as 0.5 percent to 108.73 yen per dollar, a two-and-a-half-week high.

The euro last traded unchanged to the dollar.

China’s yuan tumbled to a 2020 low, and commodity-linked currencies such as the Australian dollar fell, as growing fears about the spread of a coronavirus from China pushed investors into safe assets.

The coronavirus outbreak also pressured oil and other commodity prices.

US West Texas Intermediate crude futures plummeted 2.69 percent to a three-and-a-half-month low of $52.13. Brent shed more than 3 percent to a three-month low of $58.50 per barrel.

Spot gold rose as much as 1.0% to $1,585.80 per ounce, the highest level since Jan. 8, as the coronavirus outbreak pushed up demand for the safe-haven metal.