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


Saudi minister: OPEC+ will take responsible approach to virus

Updated 26 February 2020

Saudi minister: OPEC+ will take responsible approach to virus

  • Saudi Arabia supports the further oil production cut, but Russia is yet to announce its final position on the matter

RIYADH: Saudi Arabia’s energy minister said on Tuesday he was confident that OPEC and its partner oil-producing nations, the so-called OPEC+ group, would respond responsibly to the spread of the coronavirus.

He also said Saudi Arabia and Russia would continue to engage regarding oil policy.

“Everything serious requires being attended to,” the minister, Prince Abdul Aziz bin Salman, told reporters at an industry conference in Riyadh.

An OPEC+ committee this month recommended the group deepen its output cuts by an additional 600,000 barrels per day.

Saudi Arabia supports the further oil production cut, but Russia is yet to announce its final position on the matter.

The minister said he was still talking with Moscow and that he was confident of Riyadh’s partnership with the rest of the OPEC+ group.

“We did not run out of ideas, we have not closed our phones. There is always a good way of communicating through conference calls,” he said.

Regarding the coronavirus, which has impacted OPEC member Iran, he said OPEC+ members should not be complacent about the virus but added he was confident every OPEC+ member was a responsible and responsive producer.

The flu-like SARS-CoV-2 virus, which first broke out in China, has now spread to more than 20 countries.

“Of course there is an impact and we are assessing, but we’ll do whatever we can in our next meeting and we’ll address that issue,” UAE Energy Minister Suhail Al-Mazrouei said at the same industry conference.

Saudi Aramco CEO Amin Nasser on Monday said he expected a short-lived impact on oil demand.

“We think this is short term and I am confident that in the second half of the year there is going to be an improvement on the demand side, especially from China,” he said.

Oil climbed on Tuesday as investors sought bargains after crude benchmarks slumped almost 4 percent in the previous session, although concerns about the global spread of the virus capped gains.