Wednesday 29 May 2019
BUSINESS DAY
marketinsight Oil prices rise amid OPEC supply cuts, but trade worries weigh
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il prices rose as ongoing supply cuts led by producer club OPEC kept markets relatively tight, but Brent remained below $70 per barrel on concerns over an ongoing trade war between the United States and China. Front-month Brent crude futures, the international benchmark for oil prices, were at $69.10 per barrel, up 41 cents, or 0.6 percent, from their last close. US West Texas Intermediate (WTI) crude futures were up 10 cents, or 0.2 percent, at $58.73 per barrel. A group of producers led
by the Organization of the Petroleum Exporting Countries (OPEC), known as OPEC+, has been withholding supply since the start of the year to tighten the market and prop up prices. But the gain could not make up for falls last week, when both crude futures contracts registered their biggest price declines this year amid concerns that the Sino-American trade dispute could accelerate a global economic slowdown. Beyond financial markets, there are also signs on the ground of a slowdown in oil demand growth. China’s automobile sales, a
key driver of global oil demand growth, will reach around 28.1 million units this year, unchanged from levels seen in 2018, when the country’s auto market contracted for the first time in more than two decades, state news agency Xinhua reported. The outlook for flat car sales may be too optimistic still, as monthly sales have so far declined for 10 consecutive months. A bright spot for carmakers, although not for the oil industry, is that sales of new energy vehicles are likely to grow by about 27 percent to hit 1.6 million units, from 1.26 units in 2018, the report said.
Iran stores more oil on land and at sea as exports slump
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ran’s oil storage on land and at sea is on the rise as US sanctions on exports bite and Tehran battles to keep its ageing fields operational and crude flowing, according to data and industry sources. Washington announced in May the end of sanctions waivers for foreign countries importing Iranian oil, hitting Tehran’s biggest source of income. With creaking infrastructure and an ageing fleet of ships due to increasing isolation from much of the world, Iran will need to park unsold stocks of oil until it can find buyers. It is vital for Tehran to keep oil flowing as any disruption would damage its future activities due to the high costs and complexities of restarting production. Data from Kayrros, a company which tracks oil flows, showed onshore storage in Iran was 46.1 million barrels, from total capacity of 73 million barrels, its highest since mid-January. Iranian oil exports fell in May to 500,000 barrels per day (bpd) or lower, more than half the level seen in April, according to tanker data and industry sources. Data based on AIS tracking
by shipping intelligence platform MarineTraffic showed 16 Iranian tankers, holding some 20 million barrels, were estimated to be used for floating storage after being stationary between two to four weeks. Ten of those tankers with nearly 11 million barrels had been stationary for four weeks. This compared with 12 Iranian tankers holding at least 13 million barrels of oil in March, which had been stationary from two to
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four weeks, MarineTraffic data showed. Analytics company GlobalData said Iran had planned investment of around $900 million in capacity additions on new build storage projects between 2019 to 2023. Analysts have estimated that over 50 percent of Iran’s oil production comes from fields that are over 50 years old with billions of dollars needed to develop additional capacity.
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WEST AFRICA
ENERGY intelligence OPEC Flakes
Saudi-Russian oil alliance marks a historic shift for OPEC
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he Organization of the Petroleum Exporting Countries (OPEC) is now a completely different organization in comparison to one founded 60 years ago. Not much has left from the sense of discipline and solidarity according to Albert Bininachvili, a professor of political science at the Columbia University. “The important thing to recognize is that it also has a new identity that may reshape oil geopolitics for years to come.” The new alliance between Saudi Arabia and Russia in managing world oil markets marks an important shift. Deepening and possibly formalizing the SaudiRussian oil alliance marks a potentially historic shift for OPEC, as the decision-making power is almost completely concentrated
in the hands of Riyadh and Moscow to the detriment of other members left with little or no say. Formally not an OPEC member Moscow, nevertheless has a say in its decisions through the OPEC plus mechanism and actively influences the policy of this organization through coordination agreement it has with the OPEC’s leader Saudi Arabia. Russia also has willingness not to miss at any opportunity to challenge the US interests. Russia is in a prime position to deliver the oil removed from markets because of US sanctions against Iran, which will result in development of cooperation between Moscow and countries important to American foreign policy. Thus, Russia will gain new leverage against the United States.
OPEC exports hit 4-year low as Venezuela and Iran drop further
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PEC exports are hitting a 4-year low this month with Iranian exports falling below 1 mb/d and Venezuela exports falling to a new record low. While the final May export figures are still early, we are seeing a near-term drop in Iranian crude exports, which is also corresponding to a buildup in floating storage. Venezuela exports also continue to suffer from US sanctions, which is pushing volumes to a record low. All of this comes at a time when the Saudis have just reiterated the policy of keeping everything the same going forward. Our expectation is that OPEC+ will keep the production cut agreement of 1.2 mb/d into year-end 2019. There will likely be very little objections as Russia is suffering from its own crisis resulting from the contaminated oil issue. Everyone appears to be on board for an extended cut. @Businessdayng
The key focus for the Saudis will be to drain US crude storage, which we are seeing in the export data. Saudi/Iraq/Venezuela crude exports to the US are ~1.2 mb/d lower y-o-y. Finally, unlike last year, Saudi, UAE, Kuwait, Russia, and Iraq are not able to offset the declines in Venezuela and Iran crude exports: May exports could be more than 2 mb/d lower than where they were in November 2018.