|Day's Range||51.50 - 52.42|
(Bloomberg) -- An obscure product made by oil refineries has a grim story to tell investors right now about the fortunes of the global economy.That product is naphtha, something used to make a vast array of goods while also being integral to churning out gasoline. Oil refiners’ margins from making it are the weakest in years in Europe and Asia. Unusually, some petrochemical plants in Asia have even been losing money when processing it.Signs of weakening manufacturing in China could scarcely have come at a worse time for the market, given a backdrop of surging U.S. shale oil and gas supply that’s flooded petrochemicals producers with the raw materials they need. With some of those plants undergoing maintenance, it’s little wonder the naphtha market is taking a hit.“Naphtha demand is simply very sensitive to economic sentiment and growth,” said Jan-Jacob Verschoor, London-based director of Oil Analytics Ltd., which keeps track of the margins of hundreds of oil refineries around the world. “The trade war with escalating tariffs, has killed manufacturing sentiment in the East, thereby weakening margins of petrochemical plants.”Naphtha rarely grabs headlines because it’s usually not consumed directly. Instead, refineries make it from crude oil and then use it to churn out gasoline. Likewise, petrochemical plants process it to make what ultimately becomes plastics and other manufacturing raw-materials. The fuel was on board a tanker recently attacked just outside the Persian Gulf, part of a spate of incidents targeting shipping in the region.The profits an oil refiner makes from turning crude oil to naphtha -- known as crack spreads in trader jargon -- are plunging. In Japan, a benchmark for the fuel in Asia, they slumped to the lowest in at least four years in recent weeks. Corresponding indicators in Europe also remain seasonally very weak, prompting speculation they could be encouraging some refiners to process less crude.Petchem SnubThe U.S.-China trade-spat appears to be hurting the Asian country’s economy, a vital driver of demand for naphtha. Retail sales there are at the lowest level in years while car sales have fallen for twelve straight months. China’s Manufacturing PMI index was at 49.4 points in May, the weakest for the time of year since at least 2005. Profits of petrochemical producers in the region have been withering.It’s not just demand that’s an issue. Naphtha competes with propane as a feedstock for petrochemical plants.Recent weakness in the price of the liquefied petroleum gas, another consequence of the U.S. energy boom, has heavily diminished the appeal of naphtha in the past five weeks, Hui Heng Tan, an analyst at Marex Spectron, wrote in research note dated June 10. With the U.S. exports of the LPG set to accelerate, petrochemical plants’ appetite for naphtha may not rebound anytime soon.Gasoline CoolsThe other market where naphtha is widely used -- gasoline -- is not picking up the slack created by weak petrochemicals demand.Normally, when there’s a spike in demand for gasoline, buying of naphtha typically picks up as it gets used as a blending stock, according to JBC Energy GmbH. However, a recent surge in gasoline prices in Europe didn’t result in a corresponding strengthening of naphtha margins -- a sign to the Vienna-based researcher of a particularly weak market.“This suggests to us that there is simply already a maximum volume of naphtha in the finished gasoline pool, meaning that naphtha is having to price in order to maintain its position in the petchem market,” JBC said.The naphtha market’s woes are also being caused in part by the type of crude the world is pumping these days.A surge in U.S. supply of low-density crude has meant refineries are processing more of it, resulting in extra naphtha and other light-end refined products. American shale oil production will surge this quarter, rising by 250,000 barrels a day compared with the first three months of the year, JBC said in a note Tuesday.Gasoline inventories in the U.S. Gulf of Mexico are at the highest for the time of year since at least 1990.With no signs of a U.S.-China trade deal in sight, and predictions that American crude production will only keep surging, the immediate future of the naphtha market looks precarious.“I don’t see a U.S.-China trade deal happening anytime soon”, said Steve Sawyer, a senior analyst at Facts Global Energy in London.“Naphtha cracks are set to remain weak till at least the end of the year.”(Updates with forecast for shale oil production in 14th paragraph.)To contact the reporters on this story: Prejula Prem in London at firstname.lastname@example.org;Jack Wittels in London at email@example.comTo contact the editors responsible for this story: Alaric Nightingale at firstname.lastname@example.org, Brian WingfieldFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
While geopolitical tensions in the Middle East appear to be at the highest level in recent memory, the oil market is refusing to focus on anything other than fundamentals
(Bloomberg) -- Oil held losses as economic indicators continue to look weak and OPEC and its allies are still struggling to set a date to discuss an extension to supply cuts.Futures lost as much as 0.8% in New York after retreating 1.1% on Monday. The dollar firmed as the European Central Bank said it may pump more stimulus into the region’s economy as risks to growth increase. It follows a slew of weak U.S. data on Monday. All the while, the Organization of Petroleum Exporting Countries and its allies have shifted their focus to mid-July for the next meeting to discuss extending production cuts, after talks between Russia and Iran made some progress toward resolving a standoff over the date.Oil has lost about 20% since late April as growing American inventories and an entrenched trade dispute between the U.S. and China continue to cloud the demand outlook. While last week’s attacks on two tankers near the Strait of Hormuz raised concerns about a disruption to crude flows, focus has returned to OPEC’s attempts to fix a meeting on supply cuts which are due to expire at the end of the month.“The market is largely demand-led once again, while the fact that OPEC+ can’t agree on a date doesn’t help,” said Warren Patterson, head of commodities strategy at ING Bank NV.West Texas Intermediate for July delivery slid 23 cents to $51.70 a barrel on the New York Mercantile Exchange as of 11:05 a.m. London time. Futures ended Monday 1.1% lower at $51.93 after capping a 2.7% weekly loss on Friday.Brent for August settlement lost 33 cents to $60.57 a barrel on London’s ICE Futures Europe Exchange. Futures slid $1.07 to close at $60.94 on Monday. The global benchmark crude traded at a $8.62 premium to WTI for the same month.Also see: An Obscure Hydrocarbon Contains Bad News for the Global EconomyAfter a meeting on Monday, OPEC and its allies appeared to be moving toward mid-July as a possible date for the next meeting to discuss output cuts. Their failure to agree a date has given turbulent oil markets little reassurance about the future of production cuts, just as crude prices extend their slump. Iran said Monday it was willing to hold a meeting July 10-12. The group had originally planned to meet next week.The dispute over the timing of the meeting is playing out amid a broader geopolitical confrontation as Saudi Arabia accuses Iran of complicity in attacks on the two oil tankers. Iran has denied culpability.To contact the reporters on this story: Heesu Lee in Seoul at email@example.com;Alex Longley in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Serene Cheong at email@example.com, Helen Robertson, Rakteem KatakeyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The fundamentals seem to be heading in the wrong direction for oil prices, with demand weakening even as supply continues to exceed expectations
Saudi Energy Minister Khalid Al-Falih hinted at a delay of the upcoming OPEC meeting as key partner Russia has seemingly requested extra time
Crude oil markets did very little during the trading session on Monday, as markets in general took a break. Keep in mind that the Federal Reserve has a statement coming out on Wednesday that will greatly influence markets overall.
The Zacks Analyst Blog Highlights: PDC Energy, Exxon Mobil, AngloGold Ashanti, NovaGold Resources and VanEck Vectors Oil Refiners
Ahead of the day, the Greenback might show some good upward movements making the Index touching the 2/1 Gann fan. Oil prices dropped after the statement of US Secretary of State Mike Pompeo.
After the tanker sabotage attempts in May, shipping rates and premiums are bound to increase further after the latest attacks, potentially having a lasting effect on crude oil prices
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Over the long-run a direct U.S.-Iran conflict would likely lead to the shutdown of the Strait of Hormuz. This poses a higher risk of oil-supply disruption, which could lead to sharply higher prices. Therefore, we may continue to see attacks, but until there is a military response to the attacks, which would lead to actual supply disruptions, any gains are likely to be limited.
The comments come a day after the International Energy Agency forecast global supplies will expand far more than demand next year, putting further pressure on OPEC. Saudi Arabia and its allies, including Russia, are expected to extend output cuts into the second half of this year, despite growing tension within the group and gridlock over its next meeting date. “I hope that we will balance the market before next year, we are working on it,” Khalid Al-Falih told reporters on the sidelines of a G20 ministerial meeting on energy and the environment in Karuizawa, Japan, on Saturday.
Based on Friday’s close at 97.065, the direction of the September U.S. Dollar Index on Monday is likely to be determined by trader reaction to the short-term Fibonacci level at 97.020.
Oil markets appear to have more or less shaken off the oil tanker attacks, with most analysts returning to focus on fundamentals and the most recent rig count
Vance Querio has been the CEO of Oryx Petroleum Corporation Limited (TSE:OXC) since 2016. First, this article will...
In spite of the rising global oil prices and Canada's vast endowments of oil and gas resources, the oil sector of the country is likely to bear the brunt of inefficient regulations and pipeline crisis.
The agency removed the federal restriction on summer sales of E15 ethanol and came up with several structural changes to increase RIN market transparency.
Global oil supplies will increase far more than demand next year with the start of a host of new projects, putting further pressure on the OPEC cartel, the International Energy Agency said. As a result, the world will need significantly less crude from the Organization of Petroleum Exporting Countries, the IEA, which advises most major economies, predicted in its monthly report on Friday. “A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock,” said the Paris-based IEA.
Much has been made of Putin’s bold claims about Russia’s ability to survive $40 oil, in reality, this is likely little more than an attempt to gain leverage over Saudi Arabia
OPEC brought its oil production down to 29.876 million barrels per day in May according to the latest edition of OPEC’s Monthly Oil Market Report (MOMR) released on Thursday
A new report from Rystad Energy shows that the U.S. has overtaken Saudi Arabia, Venezuela and Russia, and officially has the largest oil reserves in the world