ENERGY RECAP: Iranian crude exports plummet

An Iranian flag flutters on board the Adrian Darya oil tanker, formerly known as Grace 1, off the coast of Gibraltar on August 18, 2019. (AFP)
Updated 25 August 2019

ENERGY RECAP: Iranian crude exports plummet

  • US President Donald Trump and top White House officials dismissed concerns that US economic growth may be faltering, yet we still see a bearish forward view on the market from OPEC and the International Energy Agency

Brent crude edged closer to the $60 (SR2225) barrier over the course of the week, finishing at $59.34 per barrel while WTI deteriorated slightly to $54.17 per barrel. Prices remain relatively stable on a week to week basis and continued to move in a narrow band.
Still, oil futures speculators were broad-based sellers last week as the uncertainty over the outlook for global economic growth and future demand continued to take its toll.
US crude oil inventories declined by 2.7 million barrels and the US rig count also slipped below 1,000 for first time since May 2017.
A second drone attack on a Saudi Arabian oil field within three months brought geopolitical risks back into focus, displacing recession worries and concerns about lower oil demand growth.
Even if concerns about an economic recession continued to weigh on crude prices, the US-China trade dispute has shown that this has not hurt demand as much as feared.
Instead, China has chalked up new record levels of oil imports every month.
US President Donald Trump and top White House officials dismissed concerns that US economic growth may be faltering, yet we still see a bearish forward view on the market from OPEC and the International Energy Agency.
That appears largely driven by the view held by some economists that a trade dispute could lead to a global recession that will lead to a drop in oil demand growth, The US Department of State said that sanctions caused Iranian crude exports to fall to about 100,000 bpd in July, down from roughly 2.5 million bpd a year earlier.
By zeroing out these oil exports, the US is disrupting about $50 billion in annual revenue to the Iranian regime. It is also unclear if these remaining barrels are condensate only, which is a kind of ultra-light crude oil that is produced from natural gas fields.

Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq


S&P cuts Australia’s sovereign outlook, affirms AAA rating

Updated 08 April 2020

S&P cuts Australia’s sovereign outlook, affirms AAA rating

  • S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years
  • Australian long-dated bonds sold off after S&P’s outlook downgrade

SYDNEY: Global ratings agency S&P on Wednesday lowered its outlook on Australia’s coveted ‘AAA’ rating to “negative” from “stable” in anticipation of a “material” weakening in the government’s debt position as it splashes out a large fiscal stimulus package.
S&P affirmed Australia’s prized rating but said a downgrade was possible within the next two years if the economic damage from the COVID-19 outbreak is more severe or prolonged than it currently expects.
Australia is among a handful of countries in the world to boast the best ranking from all three major ratings agencies.
But it has come under a cloud as the pandemic has dealt Australia a severe economic and fiscal shock, with S&P predicting the A$2 trillion ($1.23 trillion) economy would plunge into recession for the first time in nearly 30 years.
This would cause a “substantial deterioration of the government’s fiscal headroom at the ‘AAA’ rating level,” S&P said in a statement.
Treasurer Josh Frydenberg said the outlook downgrade was “a reminder of the importance of maintaining our commitment to medium term fiscal sustainability.”
The government has pledged A$320 billion ($197.73 billion) in fiscal spending, or 16.4 percent of annual economic output, to backstop the economy and prevent a crisis as the pandemic shuts companies and leaves many unemployed.
Some fund managers said Wednesday’s outlook downgrade was unlikely to raise the government’s borrowing costs by much though it could hurt Australian companies whose ratings are dependent on the sovereign rating.
“A large proportion of credit funds are mandated to maintain funds in a specific ratings bucket,” said Asmita Kulkarni, Director Investment Strategy at FIIG.
“With potential widespread downgrades we could see funds being forced to sell-down investment which would result in a widening of credit spreads.”
Australian long-dated bonds sold off after S&P’s outlook downgrade with 10-year yields jumping to 0.967 percent from 0.909 percent at Tuesday’s close.
Economists said they do not expect a rating downgrade prior to the federal budget due on Oct. 6.
It was only in September 2018 that S&P upgraded Australia’s outlook to “stable” from “negative” as the budget came close to balance. The government had even projected a surplus for the current fiscal year and next.
While all those predictions are now under water, Australia’s public debt is still in good shape, S&P noted.
“While fiscal stimulus measures will soften the blow presented by the COVID-19 outbreak and weigh heavily on public finances in the immediate future, they won’t structurally weaken Australia’s fiscal position,” S&P said.
“This expected improvement is a key supporting factor of our ‘AAA’ rating.”