1. Newsroom
  2. Oil demand stays firm
Menu
Insight 14.08.2018

Oil demand stays firm

Oil demand stays firm

WTI oil prices are down almost 10% since the beginning of July. At the beginning of August, oil prices started their longest weekly losing streak in three years. The US/China trade tensions fuelled concerns that global economic growth could slow, weakening worldwide energy demand.


Two major geopolitical events have been affecting the volatility of oil prices: President Donald Trump is sticking to his pledge to cut off Iran from the rest of the world with economic sanctions, squeezing the country’s energy trade. As the result of these sanctions, Iranian oil exports are forecast to fall by between 700,000 to 1 million barrels per day, a range consistent with the 2011 sanctions, when Iranian exports fell by 900,000 barrels per day. Today, three months before the November deadline when the sanctions are due to take effect, Iran’s outflow has already fallen by around 430,000 barrels and the nation has to rely more on its own fleet of tankers to carry oil to its customers, clearly showing that buyers are hesitant to continue purchasing Iranian oil. On the geopolitical side of the equation, the trade war between the US and China, the two largest economies in the world, is starting to weigh heavily on the energy sector. China’s main producers have received instructions from Xi Jinping to increase domestic oil production in order to safeguard the country’s energy security. China will apply 25% duties on American diesel, gasoline and other petroleum products, but US crude is excluded from the latest list of sanctions. In June, China was the biggest foreign buyer of American crude, importing a record 15 million barrels that month.

Demand for oil this year is projected to remain robust, supported by global GDP growth. This demand is coming mainly from China and India, with Chinese imports of US crude having more than doubled since the beginning of 2017. Estimates are stable at an average growth of 1.5 million barrels per day, in line with demand growth’s three-year average.

On the supply side, OPEC’s decision to increase output again to compensate for production losses in Iran and Venezuela is already taking effect, with the group adding more than 300,000 barrels in the last month. In the US, the nationwide crude stockpile decreased by more than 10 million barrels, while production remained flat at around 10.5 million barrels per day. The Energy Information Administration reduced its 2019 forecast for domestic oil output to an average of 11.7 million barrels per day, but reiterated that the US is set to become the world’s top oil producer in 2019, reaching 12 million barrels per day before 2020. It is interesting to note that the US oil rig count (an indicator of future oil production) has been flat in the past two months.

Despite the recent correction, the commodity price remains well above the average cash flow breakeven levels of integrated oil companies. The rebound in oil prices helped the energy supermajors print strong Q2 results with much higher profits but weaker-than-expected cash flows. At current prices, these companies should continue to post strong results in the next couple of quarters.

UBP Investment Expertise

Melki_Pierre_150x150.jpg

Pierre Melki
Equity Analyst Advisory & Research

Expertise

Swiss & Global Equities

Why Swiss equities now? This market offers equity investors the stability and agility they need to navigate this volatile period. 

Read more
Expertise

European Equities

European equities offer unrivalled opportunities in terms of breadth of sector and market exposure.

Read more

Most read

Insight 01.10.2020

COVID-19: UBP keeps you up to date

Since this coronavirus appeared, UBP has provided its clients with guidance and support as we all tackle this unprecedented global health crisis. We give you regular updates on everything from our own safety protocols and the recommendations issued by the authorities to our experts’ latest analysis on the effects of the pandemic on the world economy and financial markets.

Insight 30.06.2020

UBP Investment Outlook 2020 Reset

The Global Economy at the Crossroads

Insight 24.06.2020

Market turmoil brings new opportunities for pragmatic investors

March 2020 was difficult time for many investors, as COVID-19 spread across Europe and the US, leading to sharp sell-offs in fixed-income credit markets. While such market turbulence is not to be welcomed, its occurrence can create opportunities.


Further reading

Insight 21.11.2020

UBP Investment Outlook 2021

A Brave New World

Insight 09.11.2020

Will Chinese domestic consumers become the next global growth engine ?

China revealed the key themes of its upcoming 14th Five-Year Plan (14-FYP) and long-range objectives through the year 2035. The Fifth Plenum took place amid signs of stronger economic recovery, with better performance spilling over onto the domestic sector.
Insight 02.11.2020

Hidden gems in Swiss & European small caps

Small and mid caps have traditionally recorded higher growth rates and investment returns over the long term than large caps: it is easier to generate a dynamic growth rate from a smaller base. Swiss and European small and medium-sized capitalisations – so-called ‘SMID caps’ – also tend to provide investors with ‘pure play’ exposure to major secular growth trends.