OPEC sees lower 2020 demand for its oil, points to surplus

OPEC and its allies last week renewed a supply-cutting pact until March 2020. (AFP)
Updated 12 July 2019
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OPEC sees lower 2020 demand for its oil, points to surplus

  • The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices
  • OPEC and its allies last week renewed a supply-cutting pact until March 2020

LONDON: OPEC yesterday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an OPEC-led pact to restrain supplies.
The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support prices by supply cuts is giving to US shale and other rival sources. This potentially gives US President Donald Trump more room to keep up sanctions on OPEC members Iran and Venezuela.
Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year.
“US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub,” OPEC said, using another term for shale oil.
In the report OPEC also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the US and China.
“The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” OPEC said of the economic outlook. Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.”
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, last week renewed the pact until March 2020 to avoid a build-up of inventories that could hit prices.
Oil pared earlier gains after the report was released, although prices were still trading above $67 a barrel after three Iranian vessels tried to block a British ship in the Strait of Hormuz oil chokepoint.

HIGHLIGHTS

● Demand for OPEC crude to fall 1.34 million bpd in 2020.

● Cites trade disputes, Brexit as economy risks.

● Oil stocks increase, remaining above five-year average. Points to 2020 supply surplus at current OPEC production.

Despite the supply cut, oil has tumbled from April’s 2019 peak above $75, pressured by concerns over the US-China trade dispute and an economic slowdown.
OPEC also oil inventories in developed economies rose in May, suggesting a trend that could raise concern over a possible oil glut.
Stocks in May exceeded the five-year average — a yardstick OPEC watches closely — by 25 million barrels.
OPEC said its oil output in June fell by 68,000 bpd to 29.83 million bpd as US sanctions on Iran boosted the impact of the supply pact.
According to figures OPEC collects from secondary sources, supply from Iran posted the biggest decline, by 142,000 bpd, as Washington tightened the screws on Iranian exports.
Top exporter Saudi Arabia increased output by 126,000 bpd to 9.81 million bpd in June but continued to voluntarily pump less than the supply pact allows it to in order to bolster the market. Nigeria, seeking a higher OPEC quota, posted the group’s largest boost in output.
With 2020 demand for OPEC crude expected to average 29.27 million bpd, OPEC’s report suggests there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June’s rate and other things remain equal.


Debut of China’s Nasdaq-style board adds $44bn in market cap

Updated 22 July 2019
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Debut of China’s Nasdaq-style board adds $44bn in market cap

  • Activity draws attention away from main board

BEIJING: Trading on China’s new Nasdaq-style board for homegrown tech firms hit fever pitch on Monday, with shares up as much as 520 percent in a wild debut that more than doubled the exchange’s combined market capitalization and beat veteran investors’ expectations.

Sixteen of the first batch of 25 companies — ranging from chip-makers to health care firms — increased their already frothy initial public offering (IPO) prices by 136 percent on the STAR Market, operated by the Shanghai Stock Exchange.

The raucous first day of trade tripped the exchange’s circuit breakers that are designed to calm frenzied activity. The weakest performer leapt 84.22 percent. In total, the day saw the creation of around 305 billion yuan ($44.3 billion) in new market capitalization on top of an initial market cap of around 225 billion yuan, according to Reuters’ calculations.

“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”

Modelled after Nasdaq, and complete with a US-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet. It is also seen driven by Beijing’s ambition to become technologically self-reliant as a prolonged trade war with Washington catches Chinese tech firms in the crossfire.

Trading in Anji Microelectronics Technology (Shanghai) Co. Ltd., a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers — first after rising 30 percent, then after climbing 60 percent from the market open.

HIGHLIGHTS

• 16 of 25 STAR Market firms more than double from IPO price.

• Weakest performer gains 84 percent, average gain of 140 percent.

• STAR may be China’s boldest attempt at capital market reforms yet.

The mechanisms did little to keep Anji shares in check as they soared as much as 520 percent from their IPO price in the morning session. Anji shares ended the day up 400.2 percent from their IPO price, the day’s biggest gain, giving the company a valuation of nearly 242 times 2018 earnings.

Suzhou Harmontronics Automation Technology Co. Ltd., in contrast, triggered its circuit breaker in the opposite direction, falling 30 percent from the market open in early trade before rebounding. But by the market close, the company’s shares were still 94.61 percent higher than their IPO price.

Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.

The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China.

In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards.

Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.

Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange (SSE) said in a statement on Friday.

The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate.