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

Short Url
Updated 12 July 2020

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.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.