WEEKLY ENERGY RECAP: Strength in adversity

Damage at Saudi Arabia’s Abqaiq oil processing plant. (AFP)
Updated 22 September 2019

WEEKLY ENERGY RECAP: Strength in adversity

  • Saudi Aramco was able to continue with its deliveries which reassured the market

The week started with the largest “force majeure” in the history of the oil industry following the attacks on Saudi Aramco oil and gas facilities in Abqaiq and Khurais. 

It represented a supply disruption of some 5.7 million barrels per day (bpd). 

Still, Saudi crude oil exports were suspended for only 36 hours before resuming. Brent crude’s price started the week on levels not seen since late April, above $70.

The market calmed down after Saudi Aramco customers confirmed that their near-term crude oil term allocations were not affected by the attacks and that there was sufficient stockpiles to cover for lost production.

This clearly demonstrated the robust and resilient infrastructure of Saudi Aramco oil and gas facilities.

The immediate risk management response greatly mitigated the losses despite suggestions from parts of the oil industry media that the attacks highlighted the vulnerability of Saudi oil supplies.

Saudi Aramco was able to continue with its deliveries which reassured the market and was the main factor in the gradual retreat of the oil price over the week.

Brent softened to $64.28 per barrel and WTI fell to $58.09 — but that was still up almost $4 from a week earlier.

That represented the biggest weekly gain this year since, with prices moving mostly in a very narrow band until this week.

Elsewhere, the US EIA reported that Cushing oil stocks were at their lowest level since October 2018. 

Storms in Texas also triggered the shutdown of some pipeline and terminal capacity, but the impact on the market is not yet clear as it coincides with a period of extensive refinery turnarounds in the region.

Softening crude oil futures show that the physical market is more concerned than the paper market as Arabian Gulf sour crude grades continue to strengthen. 

Platts reported that the backwardation (where the spot price of oil is higher than the future price) in the Dubai forward price structure rose to a six-year high of $2.90 per barrel. 

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


Japan lower house passes US trade deal but auto tariffs still in limbo

Updated 19 November 2019

Japan lower house passes US trade deal but auto tariffs still in limbo

  • There is uncertainty over how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts
  • Japan has estimated the initial deal will boost its economy by about 0.8 percent over the next 10-20 years

TOKYO: Japan’s lower house of parliament approved on Tuesday a limited trade deal Prime Minister Shinzo Abe agreed with the United States, clearing the way for tariff cuts next year on items including US farm goods and Japanese machine tools.
But there is uncertainty over how much progress Japan can make in negotiating the elimination of US tariffs on its cars and car parts, casting doubt on Abe’s assurances the deal he signed with US President Donald Trump was “win-win.”
Japan and the United States last month formally signed the limited trade deal to cut tariffs on US farm goods, Japanese machine tools and other products while staving off the threat of higher US car duties.
The government’s proposal to ratify the trade deal will next be brought to the upper house for a vote but its passage in the powerful lower house increases the chances it will come into force in January.
The deal will give Trump a success he can trumpet to voters but Abe has said it will bring as much benefit to Japan as to the United States.
Japan has estimated the initial deal will boost its economy by about 0.8 percent over the next 10-20 years, when the benefits fully kick in. It also estimated ¥212.8 billion of overall tariffs on Japan’s exports to the United States will be reduced.
But the figures were based on the assumption the United States would eliminate its tariffs on Japanese autos and auto parts — a major sticking point.
Without those tariff cuts, the reduction in overall US tariffs on Japanese goods would be a little over 10 percent of the government’s projection, according to an estimate by Japan’s Asahi newspaper and Mitsubishi UFJ Research and Consulting.
After the deal is ratified, Japan and the United States have four months to consult on further talks, and Trump has said he wants more trade talks with Japan after the initial deal.
But Japanese government sources familiar with the talks say the momentum to negotiate a deeper deal appears to have waned for now with Washington preoccupied with talks with Beijing.
“It’s unclear whether Washington seriously wants to continue trade talks,” one of the sources said.
“The question is how much time the United States can allocate for talks with Japan, even if we start negotiations. There’s limited time to conclude talks before the presidential elections.”
Japan and the United States already appear to have different interpretations of what was agreed on car tariffs.
Japan has said it has received US assurance that it would scrap tariffs on Japanese cars and car parts, and that the only remaining issue was the timing.
But Washington has not confirmed that.
US Trade Representative Robert Lighthizer has said cars were not included in the agreement, and that it was only Japan’s ambition to discuss car tariffs in the future.
A US document only said customs duties on autos and auto parts “will be subject to further negotiations with respect to the elimination of customs duties.”
“The deal was left vague on the issue of tariff cuts on Japanese auto and auto parts. Otherwise, we couldn’t have reached the agreement,” another source said.
There is also uncertainty on whether Trump will drop threats to impose steep tariffs on Japanese car imports under “Section 232” that gives him authority to do so on national security grounds.
Abe said he had got an assurance from Trump that he would not do that, though analysts say the president could always change his mind, or at least keep Japan guessing.
Opposition parties have attacked Abe for a deal they say is unfair. Critics say Trump could drag his feet on further negotiations unless he is sure he can win more concessions.
“There’s a chance Trump will put pressure on Japan on trade to appeal to his voters,” said Junichi Sugawara, senior research officer at Mizuho Research Institute. “There’s a possibility he could renew his threat over auto tariffs.”