WEEKLY ENERGY RECAP: Crude oil prices deteriorated sharply

Because of copious US shale oil supplies, the West African crude oil market continues to struggle with the ripple effects of the Atlantic basin being awash in crude oil availability. (File/AP)
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Updated 26 January 2020

WEEKLY ENERGY RECAP: Crude oil prices deteriorated sharply

Crude oil prices deteriorated sharply over the week, with Brent crude falling to $60.69 per barrel, the lowest in nearly two months. 

WTI dropped to $54.19 per barrel the lowest since October 2019. Pessimism seems to be back after fears that China’s coronavirus outbreak may dent crude oil demand. Still, China crude oil imports are increasing and the crude price encourages more buying to build up Chinese inventories.

Libyan supply interruptions are also affecting the market, where a similar type of light sweet oil to West African crude is made.

Traders have largely ignored Libyan supply issues because the market has become used to supply outages since 2011.

West African crude oil has usually stepped in to the fill the gap in European and the Mediterranean markets. At the same time the US shale oil revolution of the last six years has meant that less of this type of crude from West Africa has been sent to the US.

If the Libyan oil was a medium sour crude grade like the Arabian Gulf crude oil grades, the market situation would be different as this type of oil cannot be easily replaced.

Because of copious US shale oil supplies, the West African crude oil market continues to struggle with the ripple effects of the Atlantic basin being awash in crude oil availability. 

Over the longer term, prospects look bleak for European refinvers and Nigerian crude sales by implication. 

Big new refineries in Asia are posing stronger competition to Europe’s products market, as are US oil product exports which have been made cheaper and more plentiful by the growth of shale oil. Noticeably, shale oil has already displaced West African barrels from the US market. 

Today, the marginal barrel of crude oil has become extremely light, starving sophisticated refiners of heavy crude oil and thereby narrowing light/heavy differentials. 

This has meant heavier crude grades have been outperforming lighter sweet crude grades in recent years, so the loss of Libyan crude did not have a major impact.

European bank ramps up stimulus package

Updated 05 June 2020

European bank ramps up stimulus package

FRANKFURT: The European Central Bank approved a bigger-than-expected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War II.

Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by €600 billion ($674 billion) to €1.35 trillion and that purchases would run at least until end-June 2021, six months longer than first planned.

It also said it would reinvest proceeds from maturing bonds in its pandemic emergency purchase scheme at least until the end of 2022.

ECB President Christine Lagarde scotched speculation that the bank could follow the US Federal Reserve in buying sub-investment grade bonds, saying that option was not discussed by policymakers.

The announcement, which comes just weeks after Germany’s Constitutional Court ruled that the ECB had already been exceeding its mandate with a longstanding asset purchase program, prompted a rally in the euro and bond markets.

“Today’s easing measures were another illustration that the ECB means business and stands ready to do whatever is necessary to help the euro area survive the corona crisis in one piece. The ECB will do its part, and it hopes the governments will do their part,” Nordea analysts said in a note.

The bank dramatically revised downward its baseline scenario for euro zone output this year to a contraction of 8.7 percent from the modest 0.8 percent rise it had forecast only in March.

“The euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus pandemic and the measures taken to contain it,” Lagarde said.

She said she was confident that a “good solution” could be found on the legal stand-off with Germany’s top court.