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Easing Inflation Sparks Bullish Sentiment in Oil Markets

Easing Inflation Sparks Bullish Sentiment in Oil Markets

Easing Inflation Sparks Bullish Sentiment…

Tom Kool

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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Cracks In Global Economy Weigh On Oil Markets


Oil posted steep losses mid-week on sudden concerns about global economic stability. 

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Friday, August 17th, 2018

Turkey’s currency crisis has raised fears of destabilization in emerging markets. With higher financial risks in mind, traders sold off oil.

EIA’s bearish report. The EIA reported a 6.8-million-barrel increase in crude stocks this week, sending prices down on Wednesday. The abnormally large build sent a shudder through the oil market, raising the prospect of a slowdown.

Cracks in global economy. The Turkish lira crisis has put concerns about the health of the global economy front and center. Bloomberg says that if the economy falters, it will show up in timespreads for oil futures. “Crude oil prices and the crude curve structure are typically the indicator which picks up all the demand side factors and all the supply side factors into one number,” said Bjarne Schieldrop of SEB. For much of 2018, Brent futures were in a state of backwardation. The recent flip into contango – in which front month contracts trade at a discount to longer-dated futures – is a bearish sign.

Currency weakness could hit emerging market demand. The plunge in the lira has infected several other emerging market currencies, most notably, Argentina’s peso and India’s rupee. That makes oil vastly more expensive in those countries, which ultimately could undercut demand. “Higher oil prices paired with a weakening domestic currency spells trouble for major emerging market oil demand growth countries like India, where consumers are already paying near record levels for retail petrol,” said Michael Tran, global energy strategist at RBC Capital Markets LLC. Related: Can U.S. Shale Stop A Global Oil Supply Crisis?

Protests in Libya threaten production again. A new round of protests by workers at Libya’s key Zawiya oil export terminal threaten to disrupt production at the Sharara oil field, according to S&P Global Platts. Libya has succeeded in restoring production after previous events, pushing output back above 1 mb/d. But the latest protests could shut in the 340,000-bpd Sharara field this weekend. “We are expecting a complete shutdown [at Sharara] because of some problems at Zawiya refinery. Tomorrow a tanker is due but maybe loading will be stopped by the guys causing the problems,” a source at the Sharara field said, according to S&P Global Platts.

Trump admin to release revised power plant rule. The Trump administration is expected to release a draft proposal to replace the Obama-era Clean Power Plan, which put limits on greenhouse gas emissions from power plants. The plan would give states leeway to write their own rules or even opt out of emissions limits.

Diamondback to acquire Energen for $8.4 billion. Diamondback Energy (NASDAQ: FANG) announced plans to purchase Energen (NYSE: EGN) in an $8.4-billion all-stock takeover. The deal would give the combined company 390,000 acres in the Midland and Delaware basins in the Permian, and according to the WSJ, it would grow Diamondback’s Permian acreage by 85 percent. Diamondback says the deal will generate $3 billion in cost savings over time. Although deal-making has been quiet in the shale patch relative to prior years, the Energen acquisition is the latest in a wave of consolidation in the Permian. It comes after BP (NYSE: BP) decided to spend more than $10 billion to acquire shale assets from BHP Billiton (NYSE: BBL). Earlier this year Concho Resources (NYSE: CXO) bought RSP Permian for $9.5 billion.

Weak interest in offshore auction. Despite the Trump administration’s efforts, the oil industry isn’t showing much interest in offshore auctions. Companies only bid on less than 1 percent of the acreage offered in the Gulf of Mexico auction this week, the second year in a row in which they largely ignored a major offering. ExxonMobil (NYSE: XOM) won 25 blocks, the most out of any company. BP (NYSE: BP) won 18, Hess (NYSE: HES) and Equinor (NYSE: EQNR) each obtained 16. In total, companies placed bids on 144 blocks out of the 14,575 that were up for sale. The industry appears much more interested in other offshore basins, such as in Mexico and Brazil.


Germany to fall short on climate pledge. Germany has been at the forefront of reducing greenhouse gas emissions, but the country is on track to fall short of its own stated climate goals by 2025. Germany has ramped up installations of renewable energy, but the closure of most its fleet of nuclear power plants has offset some of those gains. That has led to a persistent reliance on coal-fired power plants, a conundrum that has vexed the German government as it tries to wring more emissions reductions out of its economy. The goal is to cut emissions by 40 percent below 1990 levels by 2025. So far, Germany has only reduced those emissions by about 28 percent.

Related: The Winners And Losers This Earnings Season

Iran says discussions with U.S. was a mistake. Iran’s Supreme Leader said that it was a mistake to negotiate with the U.S. for the 2015 nuclear deal. “With the issue of the nuclear negotiations, I made a mistake in permitting our foreign minister to speak with them. It was a loss for us,” Ayatollah Ali Khamenei said.

Keystone XL delayed again. A U.S. federal judge ruled that the State Department must redo an environmental assessment after the Keystone XL project received the go-ahead for a revised route through the state of Nebraska. The Trump administration argued that the revised route didn’t affect the State Department’s permit, which requires a full environmental assessment, but the judge ordered the agency to study the project’s environmental impact again. The ruling could delay the beginning of construction beyond the 2Q2019 planned start date.

SEC subpoena’s Tesla. The SEC has subpoenaed Tesla (NASDAQ: TSLA) after Elon Musk’s tweet about taking the company private. Regulators have opened up a formal investigation into the company.

U.S. sanctions have only minimal impact on Russia’s oil. The U.S. just slapped severe sanctions on Russia but the move won’t have a damaging impact on Russia’s energy sector as prior rounds of sanctions might have. Reuters reports that Russia’s oil sector has pivoted away from western technology, western funding and western partnerships, reducing the industry’s vulnerability to U.S. sanctions.

By Tom Kool for Oilprice.com

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  • Norman Pagett on August 17 2018 said:
    the ultimate oil problem is not supply, but affordability.

    apart from one or two politically driven glitches, we have had 150 years where supply exceeded demand.

    Our innate complacency has allowed us to believe in an infinite cornucopia where energy is concerned---and have not our leaders told us so?

    our oil supplies will be there for the foreseeable future, and anyway, ''alternatives'' will take over when/if it finally gives out, and we will continue with our lives of wheeled delusion.

    But now the cost of extraction in energy terms is getting close to energy derived from the oil itself. There's less and less 'surplus' to spare to provide the leisured luxury that we have come to expect.

    This is being shown in the visible 'cracks' in our economic system, but few can accept why this is happening---no one understands that this time the oilparty really is over


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