The International Energy Agency’s (IEA) July report, released on Thursday, received some interest after the crude benchmark posted its biggest one day decline since September 2016 (on Wednesday) falling 6.9% to USD$73.40 at the close. News that some Libya supply was resuming and escalating US-China trade tensions have been a factors unsettling the market and on Tuesday the US announced it is looking to impose additional tariffs on USD200bn of Chinese imports.
The IEA report warned that ‘rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit.’ Beyond supply risks from Iran and Venezuela the IEA also voiced concerns over supply reliability from Libya: ‘a series of attacks on key infrastructure that saw production plummet to around 500 kb/d in July from close to the 1 mb/d level seen for about a year. At the time of writing, the situation seemed to be improving, but we cannot know if stability will return. The fact that so much production is vulnerable is clearly a cause for concern.’
At the time of writing Brent is trading ~USD73.50/bbl, down on the week but importantly still up close to 10% YTD. GCC member states such as Kuwait, UAE and Saudi Arabia and Russia have been obvious beneficiaries as higher than budgeted oil prices have brought greater budget flexibility. Kirill Dmitriev, CEO of the Russian Direct Investment Fund, is reported as stating in an interview that the Russian budget has received more than USD63.5bn (RUB4tn) in additional revenues due to production cuts boosting oil prices.
In contrast, the EU released its Summer Interim Economic Forecast where growth estimates were lowered citing ‘temporary factors’ as well as ‘rising trade tensions, higher oil prices and political uncertainty in some Member States’. Growth is now forecast at 2.1% for 2018 and 2% for 2019 for both the EU and Euro area, 0.2% lower than the Spring forecast. Pierre Moscovici, Commissioner for Economics and Financial Affairs, Taxation and Customs, summed up the situation stating: ‘Growth in Europe is set to remain resilient’, but ‘The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices. Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk. Trade wars produce no winners, only casualties.’