BW Communities

Oil Slips As China Slows

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Oil slipped to around $123 per barrel on Monday as worries over a supply crunch eased after China lowered its economic growth target for 2012 and Iraq boosted production. China cut its 2012 growth target to an eight-year low of 7.5 per cent, lowering its long-standing annual goal of 8 per cent, causing a fall in Asian shares and raising questions over oil demand. Last month, White House Press Secretary Jay Carney had said: "The rise in gas prices is clearly the effect of a variety of factors on the global price of oil. They include unrest in certain regions of the world. They include growth in areas like China and India." Meanwhile, Citigroup said in a note that though rising oil prices are bad for economic fundamentals but history suggests India's performance rises with crude's early rise and ebbs with crude's further rise. Citi has maintained its target of 18,400 for the 30-share benchmark index for December 2012, saying investors should look not just at crude oil but the market's fair value and portfolio positioning as well. "A graphical view ... suggests that a Brent crude level of about $110 is where India switches from an outperformer to an underperformer," Citi said in a report on Friday. Earlier, research house Macquarie had said that India should brace for an oil shock as crude oil has hit an all-time high in rupee terms and that could raise macro concerns leading to a de-rating of Indian equities. Brent crude oil futures for April fell 99 cents to a low of $122.66 before recovering to trade around $123.00 by 1025 GMT. US April crude on Monday fell $1.20 to a low of $105.50 per barrel but then rebounded to around $105.78. Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt, said the Chinese announcement has focused the international markets on the global growth outlook but pointed out Iran is a dominant factor on the supply side. "Lower expectations for China growth are one dampening factor. Lower China growth means lower commodities demand. That is weighing on sentiment," he said. Sanctions against Iran, the world's fifth largest oil exporter, have made oil trading more difficult and the country's biggest customers including China, Japan and India are reducing imports from Tehran, supporting prices. India's Mangalore Refinery and Petrochemicals Ltd (MRPL), one of Iran's biggest customers, announced plans to cut its yearly Iranian oil import deal by as much as 44 percent to 80,000 barrels per day in 2012-2013. India, China and Japan buy almost half of Iran's estimated 2.6 million barrels per day of oil exports, but a raft of US. and European sanctions aimed at choking off funding for Iran's controversial nuclear programme are squeezing Tehran's oil supply lines. State-run Mangalore Refinery and Petrochemicals Ltd, or MRPL, could reduce imports to as little as 80,000 barrels per day (bpd) for the fiscal year starting April 1, the sources said. That would be down around 44 per cent on the average annual purchase of 150,000 bpd. Like other Asian nations, India appears to be trying to wean itself off Iranian crude before the sanctions take effect on June 28. MRPL is the third Indian refiner planning import cuts. "There will be a drastic reduction in volumes from Iran," said one source. "For the next fiscal year, MRPL plans to restrict its term deal to 80,000-100,000 bpd." Another source said the refiner planned to only import 80,000 bpd, with the option to buy more. Iran is the biggest crude supplier to India after Saudi Arabia. Saudi Arabia's current spare capacity is 2.5 million bpd while production is now at 9.8 million bpd, the country's deputy oil minister Abdul Aziz Bin Salman bin Abdulaziz said last week, adding that his country's main concern was to keep the global oil market well supplied. Saudi Raises Prices In a possible response to additional demand, Saudi Arabia has raised the price of its flagship Arab Light crude oil for customers in Asia, who buy more than half of its crude exports, by $1.25 a barrel for April. Iraqi officials said oil production had risen above 3 million bpd, up from Reuters estimates of around 2.7 million bpd in February, boosting global oil supply at a time when energy market weigh the impact of Iranian sanctions. Deputy Prime Minister Hussein al-Shahristani added Iraq will begin long-awaited exports from its first off-shore floating oil terminal within three days. A delay of up to four more days in restarting Enbridge Inc's oil pipeline system in the US Midwest also provided support. Tobias Merath, head of Global Commodity Research at Credit Suisse Private Banking, said it should be no surprise that oil prices are retreating slightly as geopolitical risks have not intensified any further. "Nevertheless, oil markets remain tight and there are still plenty of risks to the supply side. Thus, the downside risks to oil prices are probably limited," he said. For the week ahead, CPI data out of China and US jobs data, both due on Friday, are focal points for the market. The latest data out of China showed that its services sector ran at its fastest pace in four months in February -- contrary to an official report on Saturday that signalled that the sector was shrinking. (BW Online Bureau & Agencies)