$85 oil opens chasm between emerging market winners and losers

Ivan Schwartz
October 16, 2018

West Texas Intermediate for November delivery was at $71.72 a barrel on the New York Mercantile Exchange at 3:46 p.m.in Seoul, up 75 cents.

Crude oil prices moved higher on Friday, recovering from recent losses, after upbeat exports data from China and the rally in stock markets helped ease concerns about economic slowdown and allay fears about demand growth.

It is an extraordinary achievement for the global oil industry to meet the needs of a 100 mb/d market, but today, in 4Q18, we have reached new twin peaks for demand and supply by straining parts of the system to the limit.

Stock markets worldwide bounced back on Friday after a multi-day sell-off but remained on track for their biggest weekly losses in months, while US Treasury yields inched higher and the US dollar held its gains.

Such disclosures from a respected agency, combined with persistent signs throughout this week that the crude industry could compensate for losses of Iran exports without incurring undue tightening, seemed to baffle media that for the past few months had been predicting calamity due to the US sanctions against the Islamic republic. The IEA raised its estimate of non-OPEC oil supply growth this year from 2 million b/d in last month's report, while it kept the corresponding estimate for next year unchanged at 1.8 million b/d.

Also, traders were betting on a drop in global crude demand as U.S.

Still, with impending US sanctions on Iran set to cut the OPEC producer's oil exports, traders continue to worry about whether the Organization of Petroleum Exporting Countries will be able to offset potential production losses.

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Members of the Organization of the Petroleum Exporting Countries (OPEC) and other exporters such as Russian Federation agreed in June to raise output as the market appeared increasingly tight. The agreement obliges the parties to cut production by a total of 1.8 million barrels per day in comparison with the level of October 2016.

Wall Street extended its slide into a sixth session and a global equity index fell to a 1-year low on Thursday as investors feared an escalating USA trade war with China and risks from a recent climb in interest rates.

The IEA said Iran's oil output, including natural gas liquids, had fallen to a two-and-a-half-year low of 3.45 million b/d in September in the run-up to next month's reinstatement of sanctions by the U.S., while its sale of crude oil had fallen to 1.63 million b/d, some 800,000 b/d below recent peaks in Q2.

Prices for the USA oil benchmark edged higher Friday as investors assessed the next leg of a volatile stock market, but signs of rising crude supplies contributed to an overall weekly loss of 4%.

The increase in net production from key suppliers since May of approximately 1.4 mb/d, led by Saudi Arabia, and the fact that oil stocks built by 0.5 mb/d in 2Q18 and look likely to have done the same in 3Q18, lends weight to the argument that the oil market is adequately supplied for now. In the US Gulf of Mexico, companies cut output by 40 per cent on Thursday because of Hurricane Michael, even as some operators began returning crews to offshore platforms.

Michael crashed ashore Florida on Wednesday as the third most powerful hurricane to strike the USA mainland.

Other reports by GizPress

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