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Oil Markets Take A Bearish Turn – OIR 121018

Oct 14, 2018   •   by   •   Source: Proshare   •   eye-icon 3569 views

Saturday, October 13, 2018 /08:17PM / Oilprice Intelligence Report

 

Oil markets appear to have taken a bearish turnas stock market volatility and reports of a significant inventory build fromthe EIA combined to drag prices down

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Friday,October 12th, 2018

Oil prices seem to havestabilized after a steep selloff mid-week. Brent fell from around $85 to $80over a two-day span, but prices were back up slightly in early trading onFriday. The global stock market plunge dragged down crude prices, but bearishfigures from the EIA and OPEC accentuated the decline. 

Stock markets pauseafter plunge. Global equities crashed this week,although finally seemed to gather their footing on Friday. Markets in Europe,Asia and the U.S. were up (at least at the time of this writing), and positive export data from China released on Friday helped soothmarket concerns. Oil prices remain highly vulnerable to volatility in thefinancial markets. 

EIA data bearish. Theweekly data from the EIA magnified bearish sentiment, and the timing was poorgiven the worldwide decline in financials. The EIA reported a 6-million-barrelincrease in crude oil inventories, while gasoline stocks also rose by 1 millionbarrels. Exports rose and imports fell, so the inventory increase cannot bechalked up to trade anomalies. Refinery utilization was sharply down – whichhelps explain the crude stock increase – but the uptick in gasoline inventorieswas not received well.

OPEC revises down demandfor its crude. Rising U.S. production could give OPECmore breathing room. “OPEC revised its forecast for the call on OPEC in 2019down by 270,000 to 31.8 million barrels per day due to the steep rise innon-OPEC supply. By contrast, OPEC production rose to 32.8 million barrels perday in September, despite falls in Iran and Venezuela,” Commerzbank wrote in anote. “Thus OPEC is currently producing roughly 1 million barrels per day morethan will be needed next year, creating a substantial cushion for any furtheroutages in Iran and Venezuela.”

IEA: Oil market to hit100 mb/d. In its latest report, the IEA said that bothsupply and demand are closing in on 100 million barrels per day for the firsttime ever. The agency also said that there is no sign that peak demand is atall close as the drivers of demand growth are “very powerful.” 

IEA: Oil market “understrain.” In the short run, the IEA said that“expensive energy is back,” and it could threaten economic growth. Risingproduction from Saudi Arabia over the last few months leaves the market“adequately supplied for now,” the IEA said, although because the gains havecome at the expense of spare capacity, the market is now suffering from somestrain. Meanwhile, the IEA also downgraded its oil demand forecast for 2019from 1.4 to 1.3 million barrels per day, citing emerging market weakness. 

Chevron looking to buildor buy refinery on Gulf Coast. Chevron (NYSE: CVX) islooking to either build or purchase an oil refinery on the U.S. Gulf Coast inorder to process all of the oil that it is producing in the Permian basin,according to Reuters. Chevron already has a downstream presence in Mississippi, and so islooking for a refining asset on the Houston Ship Channel. The interesthighlights the knock-on effect of the surging shale production in West Texas.Rising downstream capacity is an outgrowth of abundant shale supply, with aparticular focus by companies on processing light sweet crude. 

BP open to higher costprojects. In a sign that pricing expectations arerising from within the oil industry. BP’s (NYSE: BP) CEO Bob Dudley said that his company is now planning investments based on a price of$60-$65 per barrel, a sharp increase from $50-$55 per barrel. Dudley said hedoes not expect prices to plunge again going forward, but the industry wouldn’tspend recklessly. “Are we now off to the races again with spending? My sense ofthe industry is it learned such a painful lesson,” Dudley said. “Capitaldiscipline is really important.” Still, the rally in prices and the revisedpricing target for BP suggests executives won’t be as tightfisted as they havebeen over the last few years. 

Gas prices spike inPacific Northwest after pipeline explosion. A naturalgas pipeline owned by Enbridge(NYSE: ENB) exploded in British Columbia earlier thisweek, a critical artery that supplies much of the U.S. Pacific Northwest withnatural gas. The incident caused a ripple effect, forcing at least four oilrefiners in Washington to curtail operations because they lacked the gas for electricity and steam. As aresult, wholesale gasoline prices in the Pacific Northwest spiked. 

Fallout from missingSaudi journalist spreads. The apparent murder of aSaudi journalist at the hands of the Saudi government – and perhaps with thedirect involvement of Crown Prince Mohammed bin Salman – is threatening toisolate Riyadh. “The disappearance of Saudi journalist Jamal Khashoggi inIstanbul raises fresh questions about Crown Prince Mohammed bin Salman’sreputation as a reformer and political developments pose a growing threat tothe economic outlook,” said Jason Tuvey, an economist at Capital Economics,according to the Wall Street Journal.

Trump to meet Xi inNovember. The U.S. has decided to go ahead with a planned meeting between President Trump andChinese leader Xi Jingping in November to see if they can overcome tradedifferences. Next week, the U.S. Treasury is expected conclude that China hasnot been manipulating its currency, which is seen as a small overture to Chinafrom Washington. There is an internal battle within the Trump administration onhow hard of a line to take with China in regard to tariffs – some officialsthat oppose the trade war hope that the Trump-Xi meeting could lead to abreakthrough. 

China’s car marketstalls. The world’s largest car market is sufferingfrom a slowdown. Last year, China sold 29 million cars, 70 percent more thanthe 17 million sold in the United States. However, in July and August, carsales fell compared to a year earlier, with indications that the declinecontinued into September. Car sales might actually even decline for the fullyear compared to 2017. Industry executives and analysts point to decliningconsumer sentiment in China, the U.S.-China trade war, volatility in China’sstock market and higher fuel prices, according to the FT.

 

Previous OilpriceIntelligence Reports

1.       Oil Prices Rise On Iran, HurricaneOutages – OIR 091018

2.      The Oil Price Rally Is Under Threat – OIR 051018

3.     Why Brent Broke $85 OIR 021018

4.      The $100 Oil Debate – OIR 280918

5.      Brent Oil Hits Its Highest Level Since2014 – OIR 250918

6.      Is Oil On Its Way To $80? – OIR 210918

7.      Oil Markets Unfazed By $200 BillionTrade War Escalation – OIR190918

8.     A CrucialPeriod For Oil Markets– OIR 150918

9.      Why OilPrices Are Heading HigherOIR 120918

10.  The End OfThe Oil Price Rally – OIR 080918

11.  What’sBehind The Oil Price Rally? -OIR 050918

12.  Why OilPrices Are Trending Upwards -OIR 310818

13.  Oil HoldsGains Despite Downward Pressure -OIR 290818

 

Proshare Nigeria Pvt. Ltd.

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