WEEKLY ENERGY RECAP: Arabian crude demand picture improves

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. (REUTERS)
Updated 07 July 2019

WEEKLY ENERGY RECAP: Arabian crude demand picture improves

  • Before the trade war, China was the largest oil importer of US shale oil, with almost 500,000 bpd last year that went to zero once the trade dispute started even though Beijing has not imposed tariffs on US crude imports

Despite two major news events that should have supported the oil price, the market finished the week on a bearish note.
At the G20 summit, the US and China agreed not to escalate tariffs and instead resume trade talks. Meanwhile OPEC and its allies outside the group agreed a nine-month extension of production cuts taking us through the first quarter of 2020.
OPEC+, as the enlarged group has come to be known, also sealed a long-term cooperation agreement “the Charter of Cooperation,” which aims to bring the 24 oil producing countries together to promote stability to a market that has been characterized by intense volatility in recent months.
So that all makes for a higher oil price? Well, not quite — as broader macroeconomic concerns kept a lid on prices as traders looked to the overall global demand picture.
Brent crude fell to $64.23 per barrel at the end of the week. The grade remains some 15 percent off its late-April high, despite escalating tensions in the Arabian Gulf as shipping premiums soar because of the increased risk of attacks on tankers.
Still, the OPEC+ output cuts extension has made sour crude oil grades from the Arabian Gulf firmer amid a stronger physical spot market for medium and heavy sour crude grades.
This was clearly shown in a narrower Brent/Dubai spread that points to stronger demand for Arabian Gulf sour crude grades.
The resumption of trade negotiations between the world’s two largest economies should pave the way for the recovery of commodity trade flows between the pair.
 So though we have not seen it yet, that should eventually be reflected in a stronger oil price.
Despite the expected positive recovery of commodity trade flows, oil traders seem focused on the volatile geopolitical situation.
Some suggest that shale oil producers are the biggest beneficiary in gaining market share as US shale will likely continue to define the future of OPEC+.
However, it is questionable whether US shale producers will continue to pump more oil at lower prices, given that they are not profitable at current price levels.
Before the trade war, China was the largest oil importer of US shale oil, with almost 500,000 bpd last year that went to zero once the trade dispute started even though Beijing has not imposed tariffs on US crude imports.
A resumption of more normalized trade flows between the US and China should benefit demand for US oil, especially after the removal of Iranian and Venezuelan barrels from the market.
Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq

Oil slumps more than 4% on coronavirus fears

Updated 28 February 2020

Oil slumps more than 4% on coronavirus fears

  • Traders fret about impact of spreading virus on crude demand, particularly from China

LONDON: World oil prices tumbled by more than 4 percent on Thursday, as traders fretted about the impact of spreading coronavirus on crude demand, particularly from key consumer China.

Brent oil for April delivery tanked almost 4.2 percent to $51.20 per barrel, while New York’s WTI crude for the same month dived nearly 5 percent to $46.31.

“Concerns that the virus will prompt a global slowdown, weaker consumer confidence and reduced travel has raised concerns about lower demand, weighing on prices,” said CMC Markets analyst Michael Hewson.

Investors are growing increasingly fearful about the economic impact of the new coronavirus or COVID-19 outbreak. 

The virus continues to spread meanwhile, with Brazil reporting Latin America’s first case, and Denmark, Estonia, Greece, Georgia, Norway and Pakistan following suit.

Around 2,800 people have died in China and more than 80,000 have been infected. There have been more than 50 deaths and 3,600 cases in dozens of other countries, raising fears of a pandemic.

The spread of the virus to large economies including South Korea, Japan and Italy has raised concerns that growth in fuel demand will be limited. 

Consultants Facts Global Energy forecast oil demand would grow by 60,000 barrels per day in 2020, a level it called “practically zero,” due to the outbreak.

US President Donald Trump sought to assure Americans on Wednesday evening that the risk from coronavirus remained “very low,” but global equities resumed their plunge, wiping out more than $3 trillion in value this week alone.

“The negative price impact would intensify if the coronavirus were declared pandemic by the World Health Organization, something that looks imminent,” said PVM Oil Associates analyst Tamas Varga.

“The mood is gloomy and the end of the tunnel is not in sight – there is no light ahead just darkness. Not even a refreshingly positive weekly US oil report was able to lend price support.”

Gasoline stockpiles dropped by 2.7 million barrels in the week to Feb. 21 to 256.4 million, the Energy Information Administration (EIA) said on Wednesday, amid a decline in refinery throughput. Distillate inventories fell by 2.1 million barrels to 138.5 million.

US crude oil stockpiles increased by 452,000 barrels to 443.3 million barrels, the EIA said, which was less than the 2-million-barrel rise analysts had expected.

The crude market is watching for possible deeper output cuts by the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+.

“Oil is in freefall as the magnitude of global quarantine efforts will provide severe demand destruction for the next couple of quarters,” said Edward Moya, senior market analyst at OANDA. 

“Expectations are growing for OPEC+ to deliver deeper production cuts next week.”

OPEC+ plans to meet in Vienna on March 5-6.