WEEKLY ENERGY RECAP: Oil price trends suggest OPEC+ output cuts having desired effect

WEEKLY ENERGY RECAP: Oil price trends suggest OPEC+ output cuts having desired effect
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Updated 12 July 2020

WEEKLY ENERGY RECAP: Oil price trends suggest OPEC+ output cuts having desired effect

WEEKLY ENERGY RECAP: Oil price trends suggest OPEC+ output cuts having desired effect
  • Brent crude oil nudged higher to end the week at $43.24 per barrel

Brent crude oil nudged higher to end the week at $43.24 per barrel as WTI also gained to $40.55. 

Oil prices have been moving in an extremely narrow band over the last two months of just $3-$4 and this week that band was squeezed further from dollars to cents.

Accordingly, the US Energy Information Administration (EIA) raised its price outlook for Brent crude to $41 per barrel for the second half of 2020, which is $4 per barrel higher than last month.

More importantly, the latest oil price trends confirm that historical output cuts made by OPEC+ are working to re-balance the market in the wake of the largest oil demand shock in history.

OPEC slashed its crude output in June to a three-decade low when it produced 22.31 million bpd, the organization’s lowest collective output since September 1990. 

These cuts appear to have achieved high compliance rates and have been largely responsible for keeping the market intact. 

But while consumers have benefited from market stability recently, the same cannot be said for speculators who love volatility.

Instead the hedge fund heads have been turned by airlines, cruise companies, banks and other sectors hard hit by the pandemic.

This won’t support upward movement in oil prices as sentiment remains bearish.

In the physical market, sour crude grades with high sulfur content are trading at prices getting closer to sweet barrels with low sulfur content. Crude grades with high sulfur content are showing signs of under-supply, with record premiums to Brent.

Coronavirus disease cases continue to rise in the US, a major threat to oil markets. 

Brent’s premium against Dubai has narrowed sharply this year and even flipped to a discount against Arabian Gulf crude grades for the first time in March.

At the same time, US shale prices linked to WTI remains relatively expensive.


Australia bounces out of recession as economy grows 3.3 percent

Updated 02 December 2020

Australia bounces out of recession as economy grows 3.3 percent

  • ‘Australia’s recession may be over, but Australia’s economic recovery is not’
  • Before this year, Australia had managed to avoid a recession for 28 years

WELLINGTON, New Zealand: Australia’s economy grew by 3.3 percent in the third quarter, rebounding from its first recession in nearly three decades as it recovered from pandemic-related shocks, according to figures released Wednesday.

Treasurer Josh Frydenberg told reporters the country still has a lot of ground to make up from the coronavirus downturn.

“Australia’s recession may be over, but Australia’s economic recovery is not,” he said.

Despite the latest quarterly rise, the economy contracted at a 3.8 percent annual pace. That’s after GDP fell by 0.3 percent in the first quarter and then by a record 7 percent in the second quarter.

“But the Australian economy has demonstrated its remarkable resilience and Australia is as well positioned as any other nation on Earth,” Frydenberg said. “Today’s national accounts represent a major step forward in Australia’s economic recovery.”

Before this year, Australia had managed to avoid a recession for 28 years. The economy grew even during the global financial crisis thanks to strong demand for Australia’s mineral exports and a robust domestic sector.

The better-than-expected figures were encouraging, economists said.

“The rebound in Q3 GDP reversed around 40 percent of the decline during the first half of the year and we expect output to return to pre-virus levels by mid-2021,” Ben Udy of Capital Economics said in a commentary.

Now on top of the pandemic, Australia is enduring a spate of rocky relations with China, its biggest trading partner.

Frydenberg said the situation with China is “very serious” but his government is focusing on striking deals with other countries in Asia and beyond.

“We have great produce, and we have great services, and we have great resource sectors, and I’m very optimistic about the opportunities for our exporters around the world,” he said.

Australia’s relationship with China worsened this week after a Chinese official tweeted a fake image of a grinning Australian soldier holding a bloodied knife to a child’s throat.

Australian Prime Minister Scott Morrison called the image “repugnant” and demanded an apology from the Chinese government. But China has not backed down.

The post took aim at alleged abuses by elite Australian soldiers during the conflict in Afghanistan.

Tensions have been growing this year since the Australian government called for an independent inquiry into the origins of the pandemic. China has imposed tariffs and other restrictions on a number of Australian exports.