Month in brief

• Published date: 01 September 2019
• Date: 01 September 2019
• DOI: http://doi.org/10.1111/oet.12729

THE MONTH IN BRIEF

Month in brief

The month began with a seventh consecutive weekly crude

stock draw in the United States, although this was offset

somewhat by rising supply from the US Gulf, following

shut-ins due to Hurricane Barry. The draw-down put US

inventories just 1.7% above the 5-year average, the tightest

overhang since mid-April.

However, the focus quickly switched to concerns over

trade and economic growth, with the announcement of US

sanctions on another $300 bn worth of Chinese imports,

which sent equity markets plunging. Combined with a strong

US dollar (which tends to put downward pressure on crude

prices, as the cost in non-dollar currencies rises), this saw

prices fall steadily for the first few days of August, from

above $60/bbl at the beginning of the month. Prices bot-

tomed out on August 7, when front-month Brent and WTI

futures settled at their lowest levels since early January at

$56.23/bbl and $51.09/bbl, respectively.

The price plunge came despite OPEC and 10 non-OPEC

partners, led by Russia, continuing to over-comply with their

agreed 1.2 mn bpd supply cuts. As prices fell, Saudi Arabia

signaled it would take steps to stabilize the market—

although OPEC's market share has already fallen to 30%, the

lowest level in years. Nevertheless, the kingdom contacted

other OPEC members to gage support for unspecified addi-

tional measures. OPEC's nine-country monitoring committee

of the OPEC/non-OPEC coalition will meet September 12 in

Abu Dhabi to further assess options.

By the middle of the month, the bad economic news

extended to the real economy in the form of weaker growth

numbers—cutting oil demand growth forecasts. Germany's

Q2 2019 GDP contracted 0.1% compared to Q1, and China's

industrial output growth in July stood at just 4.8% year on

year—the lowest growth in 17 years and well down on fore-

casts of 6% growth. Crude throughput at China's domestic

refineries fell in July to 12.44 mn bpd, from a record high

13.12 mn bpd in June. A recession could lower global

demand growth by 260 000 b/d in 2019 to 930 000 b/d and

by 750 000 bpd in 2020 to 660 000 bpd, according to S&P

Global Platts.

Crude bounced briefly on August 13 as the US announced

some delays and exemptions to tariffs on Chinese imports.

But it quickly fell back on the poor economic news, only to

gain further support from August 19, following a drone attack

on Saudi Arabia's 1 mn bpd Shaybah oilfield by Yemen's

Houthi rebels. The attack caused damage to some facilities

and a fire at a gas plant, although Saudi Aramco said there

was no disruption to output. But again, the support was short-

lived, with little impact on actual supply, although a small

risk premium associated with Middle East instability remains.

On August 23 the focus switched back to trade, with

China announcing a tariff of 5% on US crude oil, the first

time that US oil exports have been brought into the trade

war—which sent crude prices lower again. The measure was

among a package of new tariffs on $75 bn worth of United

States imports to China. Since then oil prices have moved

steadily higher due to further stock draws, hurricane season

concerns, signs of compromise in trade talks and tight

OPEC/non-OPEC quota adherence—leaving Brent little

changed on the month at just above $60/bbl.

After narrowing in the first half of the month, the

Brent/WTI spread widened out from the third week, with

WTI underperforming Brent due to surging US light sweet

crude output, pipeline export constraints, and tariffs on sales

to China.

How to cite this article: Month in brief. Oil and

Energy Trends. 2019;44:7. https://doi.org/10.1111/

oet.12729

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