Oil prices slip on concerns of looming oversupply, economic downturn

SINGAPORE: Oil prices slipped on Thursday, weighed down by rising supply going into a market in which consumption is expected to slow down amid a glum economic outlook.

Front-month Brent crude oil futures were trading at $65.88 per barrel at 0441 GMT, down 24 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $55.96 a barrel, down 29 cents, or 0.5 percent.

Since early October, oil prices have lost around a quarter of their value as supply soars just as demand is expected to slow down along with an economic downturn.

“Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand,” said Mike Corley, president of Mercatus Energy Advisors.

U.S. bank Morgan Stanley said in a note on Wednesday that China’s economic “conditions deteriorated materially” in the third quarter of 2018, while analysts at Capital Economics said China’s “near-term economic outlook still remains downbeat.”

China is the world’s biggest oil importer and the second-largest crude consumer.

Meanwhile, data released this week showed economic contraction in industrial powerhouses Japan and Germany in the third quarter.

At the same time, supply has been surging, especially due to a 22 percent rise in U.S. crude oil production this year to a record 11.6 million barrels per day (bpd).

“Producers…have more barrels than they can sell at the moment,” said Mercatus Energy Advisors’ Corley.

As a result, oil inventories are rising. The American Petroleum Institute said late on Wednesday that crude inventories rose by 8.8 million barrels in the week to Nov. 9 to 440.7 million, compared with analyst expectations for an increase of 3.2 million barrels.

Fearing a renewed glut like in 2014, when prices crashed under the weight of oversupply, the Organization of the Petroleum Exporting Countries (OPEC) is discussing supply cuts.

To do so successfully, OPEC – under the de-facto leadership of Saudi Arabia – will need Russia on its side, which is not an OPEC member.

A joint effort between OPEC and Russia to withhold supply from 2017 was a major contributor to crude price rises last year and in the first half of 2018.

“Russia and OPEC and Saudi Arabia – they are observing the market. If they see that there is dis-balance between supply and demand, (they) will of course take a joint action to reduce supply,” said Kirill Dmitriev, head of Russian Direct Investment Fund, the country’s sovereign wealth investment body.

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Successful talks for IMF package to reduce Pakistan’s external financing risks: Moody’s

KARACHI: Successful negotiations for a new International Monetary Fund programme would reduce external financing risks for Pakistan, credit rating agency Moody’s said in its “Global Emerging Markets: Outlook” report issued on Thursday.

The government of Pakistan has recently secured $6 billion package from Saudi Arabia including $3bn in deferred payments on oil and $3bn to be deposited in Central Bank, the report said.

The government is seeking all sources to avert the imminent balance of payment crisis, the report observed.

The central bank foreign exchange reserves have fallen to their lowest levels in four years reaching $7.5bn, which could not meet the bill of two months’ imports, the report said.

The rating agency report has kept the outlook for global emerging markets (EM) “broadly stable” but warns of risks from “higher rates, politics and trade tensions”.

The report highlights that “although the share of [Pakistan’s] foreign currency debt is relatively low at around 35pc of total government debt, declining foreign reserves because of a current account deficit of around four to five percent of GDP, raise repayment risks.”

The agency expects the country’s external vulnerability indicator (EVI) ratio to rise to 153 per cent in 2019.

The EVI ratio indicates country’s immediately available foreign exchange resources sufficiency to allow it to make all external debt payments, even if there is a complete refusal of creditors to roll over debt due within a given year.

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