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Market conditions continue to change lately, with sentiment
adjusting to recent news. Oil prices have been falling during the
last couple of days, with Brent now standing below USD 70 per
barrel, for the first time since early April. WTI followed a
similar path, with the price pushed below USD 60 per barrel after
remaining above this level for almost two months. The decline has
been mainly driven by growing concern around the global economic
performance, with a significant growth slowdown now considered a
rather probable scenario.
The geopolitical risks that could affect global demand in
parallel to supply outages together with the increasing
aggressiveness expressed by both major economies, the US and China,
bring more uncertainty to the table. The trade war environment
pushed expectations for global growth to lower levels, pressing oil
price movements as well.
From the one side, the Trump administration announced higher
tariffs on USD 250 billion worth of Chinese goods earlier this
month. China's response, meanwhile, has started to take shape as
the country raised tariffs on USD 60 billion of US goods effective
1 June 2019, with many key US energy products being subject to
higher tariffs in China. Crude oil will remain the only exception
with 0% tariff, but trade flows since September 2018 suggests the
country has been simply avoiding increasing its exposure to
American barrels.
Supply alternatives cannot be easily found for commodities like
ethane and propane, with prices pushed much higher due to the
limited options to shift to other importers. For crude oil, concern
raises in parallel to growing uncertainty as global supply faces
the risk of further disruptions together with the impact of the US
sanctions on Iran and Venezuela and OPEC supply cuts.
Elsewhere, as global auto sales continued to slow, automakers
around the world have been focusing on rationalising their
operations, with Ford adding to the list of companies laying off
thousands of people.
Without doubt, as the US crude oil inventories continue to rise,
with stocks having reached their highest level since late July
2017, parts of the market do not seem to accept that global supply
might be turning tight in the near future, even if the OPEC+
agreement is still in place and most importers have been avoiding
Iran. US inventories, however, are not the only indicator to
consider, especially as the risk of further disruption around the
world still stands. US stocks are now also affected by the
country's oil production, as domestic pipeline capacities remain
insufficient. This has been another factor pushing WTI to trade at
a significant discount of nearly USD ten against Brent. Most OPEC
members, especially those across the Middle East Gulf, would remain
reluctant to increase their production for as long as the US stocks
keep on rising.
The weakness of oil prices might not last for long, as the next
OPEC meeting takes place in around four weeks. An extension of the
production cuts plan, even if Russia doesn't participate, could
support oil prices to reach levels observed in late April.
In terms of volumes, based on data by IHS Markit's Commodities at Sea, loadings
from the US Gulf seem to have declined by around 8% since last
month, but remaining above two million b/d. Meanwhile, China has
been importing around 8.5 million b/d so far in May 2019, which
translates into a decline of around of around 2.5%
month-on-month.
During the first 20 weeks of 2019, the US has been loading
around 2,300 thousand b/d, with most of that getting absorbed by
European countries, while South Korea is ranked first overall as a
country importing from the US, with around 320 thousand b/d of US
crude oil loaded since the beginning of the year. Canada and Latin
America have been importing a significant percentage of US barrels
as well, on average 270 and 210 thousand b/d accordingly. South
East Asia and India have been the other major destination for US
barrels, with around 225 and 170 thousand b/d loaded so far
accordingly. Japan and China have remained at lower levels. During
the first three quarters of 2018, the US loaded almost 300 thousand
b/d with destination China.
Posted 28 May 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit