HomeResearch and NewsOil Market Report - July 2018
Vitaly Gromadin CFA, Senior Analyst
Report

Oil Market Report - July 2018

EXECUTIVE SUMMARY

In July there were not many disturbances for crude oil price trading levels. The price was on the edge of breaking downside but Saudi Arabia made an effort to support it by limiting production growth. Saudi Arabia said it won’t oversupply the market just because geopolitical risks around Iran are so elevated for the moment.

Saudi Arabia’s crude oil price preservation strategy has been working perfectly so far. Iran sanctions implementation deadline is looming, but the price is trading close to $70 per barrel.

Trade war has not made a significant impact on crude oil price. Pace of world oil demand growth has not been revised due to elevated risks for the economy. However, some concerns regarding cool down of demand growth later this year were mentioned by energy agencies.

International Energy Agency said in their last outlook that oil markets have entered a brief period of calm, but a storm might be looming later this year when new U.S. sanctions are poised to slash supplies of Iranian oil.

Pr. Trump mentioned his willingness to meet with Iran to discuss a new deal, but at the moment there has been no any progress on this matter. Sanctions are going to be implemented in November. Europe has not assured import countries in their abilities to avoid U.S. sanctions. India is going to cut Iran oil supplies by half to get a waiver from the USA.

Interestingly U.S. trade war with China helps Iran to secure its exports in this country. China is even considering the idea to replace supplies of U.S. light shale oil with increasing Iran’s import. 

Given all the uncertainties about supply forecasts it is especially a hard task for energy agencies to predict output growth this and next years.

EIA lowered 2018 oil supply growth from 2.15 mln bbl / d to 1.89 mln bbl / d and 2019 oil supply growth from 2.38 mln bbl / d to 2.13 mln bbl / d.

Demand side of the balance in the market also has its risks mostly skewed to the downside.

EIA cuts 2018 oil demand growth from 1.72 mbpd to 1.66 mbpd and 2019 oil demand growth from 1.71 mbpd to 1.57 mbpd.

IEA noticed in its outlook that the risks to stable supply that will grow later this year could cause higher prices and thus impact demand growth. Trade tensions might escalate and lead to slower economic growth, and in turn lower oil demand.

For 2018, global demand growth forecast is unchanged at 1.4 mln bbl / d in last IEA outlook. In 2019 growth accelerates slightly to 1.5 mln bbl / d, but there are risks to the forecast from escalating trade disputes. Demand growth for 2019 was revised slightly upwards by 110 thsd bbl / d, but demand growth could cool down later this year and into 2019.Global oil supply rose by 300 kb/d in July to 99.4 mb/d, 1.1 mb/d above a year-ago.

OPEC also lowered its oil demand growth estimates for 2018, to 1.64 mln bbl / d. However, in 2019 demand growth revised down to 1.43 mln b/d (-20 thsd bbl / d).

OPEC revised down the call on its crude for 2018 by 100 thsd bbl / d to 32.9 mln bbl / d. For 2019, the call was put at 32 mln bbl / d, a downward revision of 200 thsd bbl / d.

In the report, OPEC said its oil output in July rose to 32.32 million bpd.

OPEC in the report said concern about global trade tensions had weighed on crude prices in July, although it expected support for the market from refined products.

“Healthy global economic developments and increased industrial activity should support the demand for distillate fuels in the coming months, leading to a further drawdown in diesel inventories,” it said.

OPEC and a group of non-OPEC countries agreed on June 22-23 to return to 100 percent compliance with oil output cuts that began in January 2017, after months of underproduction by Venezuela and others pushed adherence above 160 percent.

OECD commercial stocks fell seasonally by 7.2 mln bbls in June to 2 823 mln bbls and were 32 mln bbls below the five-year average, according to IEA. Stocks at the end of 2Q18 were up 6.6 mln bbls versus end-1Q18, the first quarterly increase seen since 1Q17.

Download PDF

oil, investment, equity

Read more

Report Banking Sector Report - August 2018 Mikhail Zavaraev

US banks again underperformed the broad market on MoM basis, the third month of the last four. But, in fact, US banks were relatively flat over the last 5 months, trading in a narrow range of 103-111 points on BKX index. In August, US banks increased by 1.1% MoM vs +3.0% of SPX index.

investment, banks;

Report Banking Sector Report - July 2018 Mikhail Zavaraev

After two consecutive months of underperformance US banks finally outperformed S&P 500 index in July due to positive perception of the earnings season. In July, US banks increased by 4.9% MoM vs +3.6% of SPX index. But on the YTD basis, banks still underperformed the broad market by 3.1% as of end-July.

investment, banks;

Report Banking Sector Report - June 2018 Mikhail Zavaraev

US banks underperformed the broad market again, the second month in a row and the third month out of six this year. In June banks lost 1.9% MoM vs +0.5% MoM of SPX index, after -1.0% MoM decline in May. Absolute June performance on MoM basis was -0.4 StD from the mean and it is in the bottom 30% absolute monthly performance of BKX Index. 

investment, banks;