WEEKLY ENERGY RECAP: Strong demand, despite ample supply

The logo of the Organization of the Petroleum Exporting Countries (OPEC) sits outside its headquarters in Vienna, Austria. (REUTERS/Lisi Niesner/File Photo)
Updated 17 November 2019

WEEKLY ENERGY RECAP: Strong demand, despite ample supply

Brent crude rose above $63 for the first time in more than seven weeks despite a bearish International Energy Agency (IEA) 2019 outlook that was published shortly before the monthly report from the IEA.

As usual, that highlighted weak demand and rising non-OPEC supply of some 2.3 million bpd in 2020, which is higher than the 1.8 million bpd this year.

The Paris-based organization opined that this would eat from the Organization of the Petroleum Exporting Countries (OPEC) market share and lead to a decline in OPEC’s crude oil output by around 1 million bpd.

However the IEA neglected to report that the US oil and gas rig count continued to fall for the 12th time in the past 13 weeks. 

According to Baker Hughes data, the total oil and gas rig count dropped to 806. 

Still, Brent crude still continued to hover in a narrow range most of the year trading sideways at around $60 per barrel both prior to and after the Sept.14 attacks on Saudi Aramco oil facilities. 

Year to date, Brent crude rose above $70 per barrel only for a short time during April and May and never made it above $80 per barrel, unlike last year.

Oil prices managed to edge higher despite the 2.2 million barrels build in US crude oil inventories, which makes it the 9th rise in US crude inventories for 8 weeks, that added a total of more than 40 million barrels of oil to US commercial inventories, as reported by the US EIA.

The IEA continues to push the thesis that higher US output will shrink the market share of OPEC members and Russia in total oil production. 

The timing of this conclusion is very questionable ahead of OPEC’s early December 2019 meeting, as it is premature to conclude that OPEC+ producers will face a major challenge in 2020 as demand for their crude is expected to fall sharply.

The IEA also irrationally emphasized that the market is currently well supplied not only from the US, but also from relatively new growth prospects like Brazil’s offshore fields, and even from older, mature Norwegian fields in the North Sea.

The IEA completely ignores the market’s strong fundamentals. For instance, China’s refining capacity remains historically high at 13.68 million bpd, jumped 9.2 percent, or around 1.15 million bpd year on year, according to data from the China National Bureau of Statistics. 

Consequently, China’s crude oil imports surged 1 percent year-on-year to hit a historical high of 10.76 million bpd in October. 

Higher demand is further expected as refineries in China will strive to maximize petrochemical yields ahead of the Christmas manufacturing season. 

Another market positive downplayed by the IEA is the strength in the physical sour crude oil market, representing tighter supply fundamentals.

Such factors suggest the market may be in better shape than the IEA suggests.

 

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

 

 

 

 


LG Display swings to profit on demand for new iPhone

Updated 23 October 2020

LG Display swings to profit on demand for new iPhone

  • South Korean tech giant says Apple sales will offset Huawei sanctions ban as it ends six-quarter run of losses

SEOUL: South Korea’s LG Display reported a profit for July-September, ending a six-quarter run of loss, helped by shipments for Apple Inc’s new iPhone and stay-at-home trends boosting panel demand for TVs and laptops.

LG Display expects rising panel shipments and sales in the current quarter as well and suggested it has pushed back plans to phase out all of its domestic liquid crystal display (LCD) TV panel production by year end to respond to TV demand.

It also painted a positive outlook for its sales to Apple, which would offset the suspension of sales to China’s Huawei as a result of US sanctions.

LG Display posted a third-quarter operating profit of 164 billion won ($145 million) versus a loss of 437 billion won a year earlier.

That topped the 64 billion won expected by 17 analysts, Refinitiv SmartEstimate data showed. Revenue rose 16 percent to 6.7 trillion won, LG Display said in a regulatory filing.

FASTFACT

$145 MILLION

LG Display posted a third-quarter operating profit of 164 billion won ($145 million) versus a loss of 437 billion won a year earlier.

LG Display, which supplies mobile OLED panels for Apple’s iPhone 12, said an expanded supply of mobile OLED panels to an identified strategic customer in North America, helped lift its earnings and it is using its full production capacity to respond to demand from the customer.

It said it will be able to resume business with Huawei after the company along with other suppliers gain US export licences.

“Strategically speaking, it’s a very important client for the company, but when it comes to the volume itself, we are not at the stage of providing mass volume, so when it comes to the impact on business itself, it’s more than manageable.” Chief Financial Officer Suh Dong-hee said during an earnings briefing.

LG Display, which said in January it would halt domestic production of LCD TV panels by year end, said there is no change to its plan to revamp its LCD business structure, but suggested that it would keep some of capacity for the time being to respond to solid demand for TVs.

It said the start of its China OLED TV display fab contributed to its earnings rise, and expected annual sales to reach around 4.5 million units this year, although this would fall short of its earlier target of 6 million, as the pandemic hit demand for high-end TVs earlier in the year.