Home » oil » current oil prices market - Global markets react to softening crude demand scenario

Sunday, April 17, 2011

current oil prices market - Global markets react to softening crude demand scenario

current oil prices market - Global markets react to softening crude demand scenario : There are concerns whether the current oil market rally is finally coming to an abrupt end. Mid last week, oil prices dropped to the lowest level this month, with pundits underlining that high oil prices are destroying fuel demand in the US and elsewhere.

US gasoline demand has dropped for six straight weeks, reported MasterCard SpendingPulse.

Strong oil prices are beginning to harm economic growth and erode fuel demand, the International Energy Agency said last Tuesday. It underlined that the prices could ultimately be moderated through a global economic slowdown.

Although it may still be too early to comprehend the impact of high oil prices fully, however, the IEA emphasized that the available data for January and February suggested that high oil prices might have finally started to dent demand growth.

Price peak attained in summer 2008 adversely impacted the global consumption patterns and indications are pointing to the same scenario now too, it is now being increasingly argued.

The head of the IEA's oil industry and markets division, David Fyfe, said the agency had noticed slowing demand trends in the US and Asia Pacific.

"There's been a marked slowdown since autumn last year. China is looking a bit slower. Thailand and Malaysia have seen a bit of a slowdown."

He, however, cautioned that slower demand in some Asian countries could be offset by stronger demand from Japan, which might have to ramp up its oil consumption by 150 000 barrels a day to compensate for lost nuclear power generation after last month's devastating earthquake.

IEA also conceded the OPEC's spare capacity stood at a comfortable level of 3.91 million barrels a day with Saudi Arabia accounting for 3.2 million barrels, countering industry concerns that OPEC's spare supply cushion was getting smaller.

This might also help take steam off the bull-run.

Investment bank Goldman Sachs, in the meantime, too is warning that the price of oil has already topped its second-quarter forecast and is due for a "substantial pullback" in the near term.

Goldman, a big player in oil markets, is best known for bullish price forecasts.

Oil's 33 percent rally since the middle of February has been built largely on concerns about disruptions to supplies from North Africa and the Middle East. On Tuesday last, Goldman analyst David Greely termed global supplies as "adequate," backing off from the earlier warning that the loss of Libya's daily oil production of 1.6 million barrels would create a squeeze on supplies similar to that seen in 2008, when oil spiked to $147 per barrel.

And the markets seem to have taken the cue, reacting almost immediately to the softening demand scenario. The Goldman Sachs report sparked an almost sell-off, some said.

In London, Brent lost $2.99, or 2.4 percent, to settle at $120.43 per barrel on the ICE Futures exchange. WTI, the US benchmark, followed too. It dropped by about six percent in two days after settling above $112 only a few days earlier.

Primary data-collecting agencies suggested recently that refineries should remain well supplied despite growing demand from China and other emerging economies. And the demand drop is beginning to be felt - at all levels.

Market reports indicate that Saudi Arabia had to cut back its crude output to 8.5-8.6 million barrels per day in recent weeks, apparently due to weak demand, after temporarily pumping 9-9.2 million bpd in at least part of March.

IEA also said that though the Kingdom ramped up its production at the beginning of the year in the wake of the Libyan outage, the output had to be adjusted once the Japanese demand fell in the aftermath of the March 11 earthquake and tsunami.

Markets did not require additional supplies. Saudi Arabia raised output by an average of 310,000 barrels a day in the first three months of the year, to 8.88 million barrels a day, with expectations that production would have to hold at more than nine million barrels in March.

Bloomberg News said Riyadh pumped nine million barrels of crude a day in March, the highest level since October 2008.

But the quake and tsunami that hit north of Tokyo changed the global equation, cutting demand and leading to the diversion of Japan-bound Saudi oil tankers to other countries, the IEA report said.

As a result, the agency said Saudi Aramco had to throttle back production mid-March. And as soon as the Libyan crisis erupted, Saudi Arabia indicated it was ready to step in to fill the void.

Libya was only meeting less than two percent of the daily global output, yet its output was light and sweet, its buyers were traditional European refineries, generally not equipped to process the heavier and the sour crude.

Hence as per reports, Saudi Aramco came out into the market offering two new, crude oil blends, close to the light, low-sulfur Libyan crude.

Traders now say that Aramco is still ready to sell more of this light blend in the coming months if indeed demand is there and that it insists, it would keep the blend available on the spot market too.

"Volume of the special blend will continue to be available for this month and next month," a source was reported saying in the international media.

"It is available on the spot market." And this is despite the fact that until now almost all Saudi oil was being sold on a term basis to long-term customers.

But with the overall softening of demand, there may not be many takers at this moment for the two blends on offer. Consequently the Saudi output is down.

John Sfakianakis, the chief economist at Riyadh-based Banque Saudi Fransi, also now concedes that Riyadh had to reduce its output by 300,000 barrels a day.

Barclays says Riyadh may be lowering production of its lighter oil blends introduced in response to the slump from Libya. "Reduced production of the country's lighter blends in response to Libyan outages suggests supply may tighten," Mark Pervan, head of commodity research at Australia & New Zealand Banking Group in Melbourne, said in a note.

"On the other hand, it could imply that demand is weak for Saudi light crude blends. The weaker US dollar too helped" prices, he said.

Crude markets stand transformed - and rather overnight - one can't help stressing. Yet this is how oil markets are known to operate - volatile and ready to swing to the other end - at the slightest hint.
 For the latest updates PRESS CTR + D or visit Stock Market news Today

Related Post:

Posted by at
Labels:

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)