Oil headed for weekly loss on demand jitters
Euro rebounds vs dollar
LONDON, Sept 28, (RTRS): Oil prices were steady on Thursday but headed for a weekly loss, weighed down by slowing Chinese economic growth that dampens the demand outlook and a faster-thanexpected recovery in Saudi output.
Brent fell 6 cents to $62.68 a barrel by 0919 GMT, while US crude rose 18 cents to $56.59 a barrel. But both were down 2.6% on a weekly basis.
Brent, which is on course for its biggest weekly loss in seven weeks, is just above its level before Sept. 14 attacks on Saudi facilities that initially halved the kingdom’s production.
Sources told Reuters this week that Saudi Arabia had restored capacity to 11.3 million barrels per day. Saudi Aramco has yet to confirm it is fully back online.
“The political risk premium in crude prices has largely evaporated,” Jefferies analysts said in a note.
The International Energy Agency (IEA) said on Friday it might cut its growth estimates for global oil demand for 2019 and 2020 should the global economy weaken further.
“It will depend on the global economy. If the global economy weakens, for which there are already some signs, we may lower oil demand expectations,” IEA Executive Director Fatih Birol told Reuters.
In China, the world’s second largest economy and top importer of crude, industrial firms reported a contraction in profits in August.
A surprise 2.4 million-barrel build in US crude inventories last week also weighed on prices.
Key oil freight rates from the Middle East to Asia rocketed as much as 28% on Friday in the global oil shipping market, spooked by US sanctions on units of Chinese giant COSCO for alleged involvement in ferrying crude out of Iran.
The COSCO vessels are equal to about 7.5% of the world’s fleet of supertankers, Refinitiv data showed. While US oil output continues to surge along with the productivity of existing wells, the increasingly sparse number of operating wells could eventually drag on output and provide a boost to prices.
Optimistic
“We think the outlook for US supply growth is far too optimistic,” Mark Hume, portfolio manager at investment giant BlackRock’s Energy and Resources Income Trust.
“There’s a real chance of US growth going to the downside and I think balances will be tighter than one might anticipate right now,” he added.
BP chief executive Bob Dudley said this week that the reaction to the Saudi attacks was “sensible”.
“It says something about the market - there’s instantaneous data on storage levels which didn’t exist in the past,” he said.
Technology firms increasingly offer real-time data pinpointing storage levels in oil tanks, detecting if a refinery unit is operating using heat cameras and tracking ships.
“The data availability is a bit of a game changer,” said Norbert Ruecker, head of economics at Swiss bank Julius Baer. “This speeds up what financial markets are all about.”
Meanwhile, the euro fell to more than two-year lows against the US dollar on Friday as a weak growth outlook weighed on the single currency, though it rebounded after testing technical support levels. Dismal business activity data from the euro area, especially powerhouse economy Germany, has pushed European bond yields lower across the board this week, with further pressure coming from concern over economic weakness in Britain.
Negative
“We have had a steady drip of weak data from the eurozone this week and that is highlighting the differences between the US and Europe,” said Commerzbank analyst Thu Lan Nguyen, adding that the United States is still showing signs of strength.
Negative interest rates, quantitative easing and other attempts by the European Central Bank (ECB) to stimulate the eurozone economy are also making investment in US government debt more attractive and boosting the greenback against the euro.
“The more recent drift lower in the euro seems to be perpetuated by the continued grind lower in growth expectations, and certainly in realized growth in the eurozone,” said Mazen Issa, senior FX strategist at TD Securities in New York.
Further ECB stimulus, negative rates and bond buying are also exerting a pull on the euro, he added. The euro dropped as low as $1.0903, its lowest since May 2017, in overnight trading before rising back to $1.0938.
The single currency has technical support around $1.0925, which could provide a floor for the time being. “We did break below that briefly yesterday, but that was late trading in New York, and so I think there is going to be quite a bit of hesitance to try to push it below that on a sustainable basis,” Issa said, noting that quarterend rebalancing is also limiting risk taking. Sterling also fell weakened to a two-week low of $1.2269 after Bank of England policymaker Michael Saunders hinted at looser monetary policy if Brexit uncertainty remained prolonged against a backdrop of disappointing global growth.
The currency later rose back to $1.2291. The Chinese yuan weakened after Bloomberg reported that White House officials are discussing ways to limit US portfolio flows into China. The greenback gained %0.31 on the day to 7.1451 yuan.