WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 

WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 
Journalists and police officers stand outside the Organisation of the Petroleum Exporting Countries (OPEC) headquarters, in Vienna, Austria, December 5, 2019. (Reuters)
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Updated 05 May 2020

WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 

WEEKLY ENERGY RECAP: Improving sentiment before fundamentals change 
  • While sentiment is improving, the market fundamentals have not as the oil surplus needs time to be absorbed
  • The OPEC+ output cuts have just started and have yet to make an impact on market fundamentals

The month of drama in the oil markets appears to be at an end finally, as prices recorded their first weekly gain since the start of April.
While sentiment is improving, the market fundamentals have not as the oil surplus needs time to be absorbed from the market as economic activity recovers. A similar glut of crude oil and petroleum refined products will also need some time to be depleted.
Although the historical OPEC+ output cuts have just started and have yet to make an impact on market fundamentals, they have nonetheless impacted market sentiment.
Hence, oil prices rose as global production cuts deepened and signs of a fledgling demand recovery emerged. However, it will still take time for the world to consume what is already in storage.
The start of May loading, means lower production and fewer barrels to the market from OPEC+, also from other non-OPEC producers, and this will have a huge impact on the gradual re-balancing of the oil market. The market has been waited anxiously for the start of May barrels.
Stronger transportation fuel demand from the US, China and Europe with traffic returning to the streets, is helping to support a boost in fuel use and refining rates. This sudden demand rebound has improved the physical market noticeably.
Infact, data from the US showed the biggest weekly jump in gasoline demand in almost a year last as stockpiles of the fuel shrunk. At the same time, rush hour traffic in some of China’s biggest cities is returning to pre-virus levels.
Therefore, refining margins are likely to improve in the second quarter as countries reopen businesses that were closed through efforts to contain the coronavirus pandemic. 
Still, it may take some time to restore refined product demand that has nosedived as a result of lockdowns globally.
Baker Hughes reported a big weekly drop in the US rig count which was down by 64 rigs from the previous week to 465 — with oil rigs down 60 to 378, and gas rigs down by four to 85. 
Year on year, the US rig count is down 526 rigs from last year’s 991.
Look at the month of April overall, Baker Hughes reported that the US rig count was 566, compared to 772 counted in March 2020.
Meanwhile the worldwide rig count for April 2020 was 1,514, compared to 1,964 counted in March 2020, and down 626 from the 2,140 counted in April 2019.
Speculation remained strong in the futures markets over the week. Money managers increased net-long positions in Brent crude oil futures and options by 9,007 contracts to 143,126 in the week ending April 28. This represents a seven-week high. At the same time, money managers were also long on WTI crude oil futures and options — which increased by 73,564 contracts to 283,298 — a 16-week high.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 20 min 5 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies

WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.