Tuesday 14, August 2018 by Jessica Combes

Oil rebounds as supply risks back in focus after Turkey turmoil

 

Oil rebounded as investor focus returned to near-term supply risks, while broader financial markets steadied after being rattled by Turkey’s deepening economic turmoil.

Futures in New York added 0.3 per cent, recouping some of Monday’s losses. US crude stockpiles probably fell last week for a second time, according to a Bloomberg survey of analysts. While a plunge in the Turkish lira from the financial crisis has spilled over to other emerging countries, commodity markets so far have been largely spared from the selloff. Asian stocks mostly steadied, with relative calm seen in most developed markets overnight.

Oil has traded mostly within a small range below $70 a barrel this month as traders weigh whether increased production from OPEC will be enough to offset potential losses from Iran, with the US set to impose sanctions on the Gulf nation’s oil sales in early November. Investors are also watching to see if a trade conflict between America and China escalates to imperil global economic growth, reducing energy demand. China is said to plan to delay some US oil purchases.

“Oil markets are more driven by supply risks right now,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone from Seoul. “But Turkey’s collapse could suppress gains as it could result in a stronger dollar. Meanwhile, more volatility is expected, with the US inventory data due and geopolitical risks lurking.”

West Texas Intermediate crude for September delivery traded at $67.43 a barrel on the New York Mercantile Exchange, up 23 cents at 2:31 p.m. in Singapore. The contract fell 43 cents to $67.20 on Monday. Total volume traded was about 51 per cent below the 100-day average.

Brent for October settlement added 24 cents, or 0.3 per cent, to $72.85 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday declined 20 cents to $72.61. The global benchmark traded at a $6.05 premium to WTI for the same month.

Futures for September delivery traded 1.3 per cent higher at 522.3 yuan a barrel on the Shanghai International Energy Exchange. The contract gained 0.5 per cent on Monday.

Commodity markets have had a more muted reaction to Turkey’s meltdown even as the impact rippled across emerging markets after the Turkish lira plunged. In broader financial markets, equities climbed in Japan, Australia and South Korea, while those in China and Hong Kong traded lower. The MSCI Emerging Market Index was little changed after falling to the lowest in a year on Monday.

The dollar may continue to strengthen versus the euro as European Union members have a large exposure to Turkey, Samsung Futures’ Kim said. In the long run, Turkey’s financial crisis may hurt energy demand if it spreads to other emerging markets due to a slowdown in economic growth, he said. Commodities priced in the dollar also tend to fall when the greenback rises.

In the US, crude inventories are forecast to have fallen by 2.5 million barrels in the week ended 10 August, according to the Bloomberg survey before government data due Wednesday. Stockpiles in the nation’s storage hub in Cushing, Oklahoma, probably increased 500,000 barrels last week.

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