i-switch-oil-market-review-2018-september-newsletter

October Newsletter 2018: Oil Market Review

brent-crude-oil-october-2018

Brent briefly touched $86.74, a level not seen since October 2014, before retreating to August levels.

Winter is coming. No, not a reference to Game of Thrones. No, it’s also not just a literal reference as we march on into November. It’s a metaphorical winter for all the oil bulls out there. Barely a month ago, the market was teeming with oil optimism, with traders banking on ever rising oil prices. Even $100 oil wasn’t out of the question as volume for $100 Brent call options went through the roof. Then the roof collapsed and took the floor along with it. Over the span of 3 weeks, Brent crude drop about $10.00.

The cause of this winter? Trump! Still in his November election fervour, Trump continues his crusade against the purported enemies., and the injustice done on the American economy. While it does make for great election speeches and talking points, it’s not exactly good economics material. In the forefront of everyone’s minds are the US vs China tariffs and yes, they are still slapping each other (with tariffs) with repercussions to the global economy. Given that neither side is willing to back down, we end up having a Mexican standoff while the town burns.

The weight of the tariffs is already being reflected on the equities market. The S&P500 reached a historic high in September, buoyed by strong earnings, before being bludgeoned to quasi-death back to January numbers. The Dow Jones Industrials followed a similar trend. Their Asian counterparts faired much worse. Shanghai Composite Index is down by 22% year to date, Hang Seng is down by 18% year to date. Basically, any millennial that took Buffet’s advice and invested their savings into Index Funds are scratching their heads right about now and wondering what they did wrong.

With that, oil prices are now in limbo territory. Much like the Twilight Zone and the last season of Lost, nobody really knows what’s going on. Barely a month ago, the picture was clear. It was as easy as ticking checkboxes. Strong earnings? Check. Strong expected demand? Check. Iran sanctions still on? Check. Venezuelan production still crumbling? Check. See? Easy! Now, with demand in doubt, a weakening outlook for the global economy and buyers still hoping for a last-minute Iran sanctions waiver, the checklist is becoming a lot murkier as traders try to weigh the impact of demand factors against supply factors. Then you add Saudi and Russia into the supply mix and you’ll have a whole pot of “I don’t know what will happen”.

The Iran sanctions are scheduled to kick in on 4th November and many nations have already either cut down on crude imports or halted them entirely, it seems even China is pausing for now. This had resulted in the perceived tightness in the market for the past few months. That is until recently. Russian energy minister Alexander Novak said he sees no grounds for reducing production and that there are risks of a deficit in oil supplies. Saudi energy minister Khalid Al-Falih stated OPEC was in “produce as much as you can mode.” Those were clear bearish signals that dropped oil prices by about 5% last week. Then again, oil is a fickle lady. She dances and jives to the latest tune she hears. With the $1.50 recovery on the 26th, I’m presuming she heard the latest one hit wonder, “I did the math and realised that the Saudis and Russians might not make up the supply canyon left in wake of the Iran sanctions”. Not the best song title but the tune was groovy enough to tap dance Brent prices back up above $77.00.

Let’s look at the USEP spot this month. October started with the generator reliability issues that caused the most volatile electricity week since the market began.Be wary of your next bill! If you are buying from the spot market, don’t hesitate to contact iSwitch for a competitive deal.

This whole month seemed very surreal to me. Then again, who am I to say what is real and what is not? When asked about his tariffs by the Wall Street Journal, Trump replied: “Where do we have tariffs? We don’t have tariffs anywhere.” That got me thinking; Is this the real life? Is this just fantasy? Maybe one day, Trump will wake up and renounce his tariffs on twitter. Until then, oil bulls who’s bet on $100 oil will be chanting the eternal words of Freddy Mercury: “Just gotta get out. Just gotta get right outta here!”

Zheng Tianbai, Analyst

Published On: 30th October 2018

i-switch-oil-market-review-2018-september-newsletter

September Newsletter 2018: Oil Market Review

If someone were to whack me in the head last month (not saying that anyone should) and send me into a time specific 1-month coma, I would pretty much wake up to a similar oil environment. Headline of the day is still Trump versus……everyone, Iran sanctions are still on, Venezuela is still crumbling. The only new thing is the hurricanes.

One of the best headlines I read this month was “Trump in a tug of war with Trump”. It initially sounded ridiculous but made more sense when I stared deeper into the abyss. The bulls are relying on Trump for a tough stance on Iranian sanctions and devoid 2 million bpd of supply while bears are relying on Trump to continue firing shots at China (and the rest of the world) and dampen oil demand.

Trump has again threatened to use his trump card (ha ha). After the most recent round of Chinese retaliation, he again threatened to impose tariffs on yet more Chinese goods, $267bn worth to be exact. While on the Chinese side, with only $20bn left of US imports that are yet untouched by tariff, they seem to be running out of room to manoeuvre on the “You slap me, and I slap you” game. Tariff rates also threaten to more than double from the existing 10% to be implemented on 24 Sep to 25% from 1st Jan 2019 unless China capitulates. This certainly fits into Trump’s political narrative that oil prices are too high as more tariffs à lower growth à lower demand à lower oil prices. This effect is seen during the first round of tariffs where it contributed to the $4 fall in Brent prices in July. Let’s hope he has considered the impact of the 2nd link above on his political support…

Brent-crude-oil-price

Brent briefly breach $80.00 this month, a level not seen since May this year on hurricane concerns.

Then you may wonder, why did Brent prices recover more than $8 since mid-August? Well, this is the part where Trump tugs himself. Iran sanctions still looms over many traders’ mind. Iran crude exports dropped near 800kbpd since April this year and that’s even before the sanctions has officially kicked in. Another 500kbpd is expected to fall off the market once November comes. Now 1.3 million bpd is not something one can just find laying about. There’s bound to be supply constrains that will reverberate through the oil markets. And it didn’t help that Venezuela’s crude production dipped close to 1.3 million bpd from the glorious 2.0 million bdp only a year ago.

Adding to the supply concerns, it’s hurricane season again. After last year’s Harvey that took out 1/3 of US refineries and shut-in most of the offshore platforms in the Gulf Coast, concerns were this year’s Florence and Issac might do the same even though they were about 30 Singapores away from the major oil infrastructures (Yes, people can be irrational). Fanning the fire was the Saudis saying that they’re comfortable with $80 crude prices which got me telling my boss that I’m comfortable working from home. Incredibly, despite both of us stating the obvious, the Saudis walked away with a $1.50 rally in oil prices and I got a work laptop for my holidays.

Meanwhile, on topics closer to home. USEP this month has been generally tame at $105 ~ $106 range. Then Sembcorp’s generator tripped in the middle of the night. Senoko heroically tried to compensate but then tripped as well in an almost comedic fashion. Almost comedic given the heroics ended up with 146,500 households without power and caused USEP to soar to over $1000/MWH. This one day of excitement brought the month average close to $120.

Onward to happier news, the Open Electricity Market (OEM) is right around the corner. However, to my frustrations, the corner never seems to come. Argh…. just imagine all the money I could’ve saved if I am living in Jurong instead of Not-Jurong. Anyways, by the time this newsletter is released, EMA would no doubt have announced the new lucky savers in Singapore. I’m just hoping that this time I’ll be staying in the OEM areas instead of the Not-OEM areas.

Zheng Tianbai, Analyst

Published on 20th Sep 2018

Disclaimer: iSwitch will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, or any reliance on such information. The opinions expressed in this article are the author’s personal views and must not be construed as representing the opinion of iSwitch as a company.

August Newsletter 2018: Oil Market Review

Happy Birthday Singapore! For the oil bulls it seems that was the only celebration this month. Trump continues his crusade against China, Iran, Russia, Turkey, Mueller, CNBC, New York Times, my neighbour’s poodle and the list goes on and on. As much as I want to resist it, my monthly newsletters just seem to be becoming a political commentary for Trump. Alas, we do not live in a perfect world and the oil market does not react to the more interesting topics such as how well Singapore is doing for the Asian Games.

Brent Crude Oil Prices: Oil reached 2 months high of $79.70 before retreating to low of 70.30, a level not seen since April.

Next round of US against China tariffs starts on the 23rd August for $16b worth of goods. In response to the announcement, Brent tanked $3.00 the day after the press release. Thankfully, China adopted a non-escalation policy and retaliated with $16b as well, relative circumstances of course. However, this might just be the opening salvos to a much larger conflict. Trumps has another $200b of imports he wants to impose tariffs upon and China’s number is about $60b. The tiny silver lining in this mess of a thunderstorm is that low level trade talks seems to be starting between the two countries again. However, given Trump’s mostly hard-line stance, that tiny silver could easily be washed away by a swash of lush golden hair.

That’s pretty much the outlook for demand, now on to supply. The markets seem to have already relented that there’ll be no improvement regarding the Iranian sanctions with 1million barrels a day forgone. There are a few possible saving graces. The US might still, however unlikely, grants exceptions to the sanctions. China’s choosing to compromise in the situation, saying that they will still import crude but not ramp up imports. With the tariff war in the forefront, I’m more than certain that this would be leveraged upon but exactly how would be anyone’s guess.

If you could still recall the OPEC+ meeting 2 months ago, crude production is scheduled to be ramped up. Few notables are, as usual, Saudi, Russia and Venezuela. Both the Saudis and Russians have ramped up productions by about 200 kbpd each since July. What would be interesting to see is how much more they are willing or able to produce. To the chagrin of oil bears, that has been partially offset by the further crumbling of Venezuela production. Thankfully the rest of OPEC are more than happy to produce more as well. July sees a ramp up of OPEC crude supply by about 300 kbpd.

Overall in the short run, Brent seems to be on a bearish trend. The strengthening of the USD is not helping oil prices either as a stronger USD tends to result in lower oil prices and a reduced likelihood of me going to Boston for skiing come winter.

Coming closer to home, lets talk about USEP spot prices. If my internal thermometer were any guide, this month’s weather was almost unbearably warm. However, despite the heat, USEP has come in surprisingly mild at slightly below $110/MWh. Then again, who am I to complain. I’ve always been a mild pacifist and all I wish for is a peaceful year (from now on).

Author: Zheng Tianbai, Analyst, iSwitch Energy Team

Disclaimer: iSwitch will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, or any reliance on such information. The opinions expressed in this article are the author’s personal views and must not be construed as representing the opinion of iSwitch as a company.

July Newsletter 2018: Oil Market Review

Another month another newsletter. Where do I even begin? Stockpiles, World Cup, OPEC, Trump, China, Libya, England, Norway and the list goes on and on and on. Basically, a 2018 rendition of Billy Joel’s “We didn’t start the fire”.

Crude Oil Prices: Oil hit a month high of $79.44 in June before retreating to $73.05 on news of US, China trade war.

Let’s start with the metaphorical elephant in the soccer field. France Won! The World Cup! Where’s Croatia?! 2018 is full of surprises. Germany, Brazil, Argentina, Portugal were among the top contenders and despite having some of the most expensive players in the world, they crashed out in a spectacularly. Perhaps it’s the all-star syndrome or just the Russian weather. Who knows? All I can be sure of is that Neymar would definitely have a career in Hollywood should he decide to quit soccer. There was much anticipation for England to perform but alas, they only made it to the semi-finals.

And speaking of Brexit, news from across the pond is as hazy as a Beijing afternoon. The UK PM has come out and claimed that it’s going to be a soft Brexit but never defined what that really means. I think it’s just the default response of the UK government for now. David Davis, the guy in charge of the Brexit negotiations quit and our golden boy Boris left shortly after as well. Theresa May might be out whether she wants to or not. An exodus of these figures would spell an interesting time for the Brexit talks.

Now where would we be without Trump? Probably in a more peaceful world but cé la vi. For as long as I could remember, Trump has been trumpeting (yes, I just did) that oil prices were too high. He was fairly happy after last month’s OPEC meeting but a slew of factors rallied the markets again. No exemption from the Iran sanctions (which is technically US’s doing), Libya’s port got attacked cutting exports by 400k bpd, economy is roaring ahead, US stockpiles were going down and Norway’s oilmen went on strike demanding higher pay. Not even Saudi’s and Russia’s production spike of more than half million barrels per day could prevent Brent rising from a low of $72.47 to a high of $79.55.

To Trump’s credit, he did pressure OPEC to adjust their production forecast up by another million barrels a day and on an completely separate note, imposed tariffs on $234 billion worth of goods on China. Bringing us down to the current $74/75 Brent. Even a record draw on US stockpiles couldn’t reverse the bearish sentiments. Now, US officially said they were in principle fighting against unfair trade practices. But the conspiracy theorist in me thinks Trump did this knowing that he’ll achieve his goal of lower oil prices. Looking at the equity markets and commodities markets, it’s either a brilliant stroke of scorched earth warfare or a chronic exposure to FOX News. Knowing Trump, I really wouldn’t know.

Now, what really terrifies me is that China has yet to seriously respond. They said that they would not take well to aggression but has not penned down any concrete battle plans. That might’ve changed by the time this article is published but I am certainly not looking forward to the inevitable announcement.

All in all, oil is in for another rocky ride. Couple of things to take note of in the coming months:

  • China’s response to the addition 200 billion goods tariff from US
  • US’s position Iran sanction waivers
  • Libya’s oil conflicts are in resolution
  • US crude stockpile levels for the coming months

Oil market aside, let’s take a reflection of this year’s USEP spot price. May 2018 has shown the highest spot average in 3 years. June 2018 has been the third highest and July 2018 is fast becoming a strong contender. I can go on about the some of the highest spot months, but I would quickly run out of 2018.

OEM is starting soon and finally an end to my tormenting wait for a cheap power bill. The agony of watching Jurong residents have their pick at retailers while I am unable to anything about it. Come October (allegedly) I shall foray into the lush jungle that is the OEM to hunt for what we Singaporeans love best; Cheaper stuff.

Author: Zheng Tianbai, Analyst, iSwitch Energy Team

Disclaimer: iSwitch will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, or any reliance on such information. The opinions expressed in this article are the author’s personal views and must not be construed as representing the opinion of iSwitch as a company.

June Newsletter 2018: Oil Market Review

The market has gone through a rollercoaster ride since the beginning of the month with news sentiments swinging prices although it is largely down month to date.

Oil rally has been blunted significantly after announcement of OPEC meeting and trade tariffs between China and US

A historic meeting between the American president Donald Trump and North Korean leader Kim Jong Un occurred in Singapore this month. The world watched and applauded this meeting and what it symbolizes; One step closer to a peaceful Korea. Kim Jong Un was given a Korean popstar’s welcome in Singapore and Donald Trump was actually seen having fibre for lunch.  While all this had little impact on the oil markets, the one lesson we do take away from this is that anything is possible.

The hottest news on the block remains to be the production ambitions of the US, Russia and OPEC. With Iran’s sanctions becoming increasingly likely come November and Venezuela’s oil infrastructure gradually crumbling into disrepair, the 3 mentioned earlier seem more than eager to fill in the gap that will be left open.

At the end of the OPEC meeting on the 22nd June, the Saudis presented everyone with a mathematical conundrum where they stated a production increase of 1mpd with a real increase of only 600 kbpd. The subsequent meeting with the OPEC+ meeting on 23rd June reassured everyone that there will be a real increase of 1mpd. In the meantime, the oil markets went on a rollercoaster ride rallying $3 per barrel before falling back down.

The US charged on ahead with an increased rig count and production with estimated expansion of 1.44mpd this year by the IEA. However, there seems to be a supply bottleneck as the US pipeline flows reaches its maximum capacity. So, until that has been resolved, real US shale production outlook is still uncertain.

In other news, the trade war between US and China has been reignited with fiery and Trump-ian fashion. It has weighed heavily on oil prices, equities, commodities and my heart. After a falling out on talks, new tariffs announced last week are due to take effect in July. A cumulative $250bn worth of tariffs were proposed across multiple products including energy related commodities such as coal and crude oil.

All in all, oil is set for a volatile month. A key event to look out for would the outcome of the trade war between China and US. Personally, I would prefer to go back to a simpler time when I was thought Clinton might win. Then again, I’ll probably be spending as much time wondering about the outcome of the trade war as thinking if I should follow the NCPG’s team picks this year.

Author: Zheng Tianbai, Analyst, iSwitch Energy Team

Disclaimer: iSwitch will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, or any reliance on such information. The opinions expressed in this article are the author’s personal views and must not be construed as representing the opinion of iSwitch as a company.

business chart in color

May Newsletter 2018: Oil Market Review

As you may be aware the oil prices have surged in the past few weeks. We wish to share with you some insights on the oil price and how it may affect your electricity bill.

Oil prices were mainly supported by the possibility of Trump pulling the US out of the JCPOA and re-instating sanctions on Iran in April. This became reality on the 8th of May and provided further upward pressure on oil prices as there is a distinct possibility that the new sanctions will hinder OPEC’s 2nd largest oil producer’s ability to market their crude, hence restricting global supply. The on-going conflict between Iran and Israel has been keeping the market on its toes and risk premium within prices as well. The exact details of the sanctions are uncertain, and these will shed light on how much, if any, of the 3.8 million barrels a day of Iranian production will be affected. The re-election of President Maduro in Venezuela does not help the country’s ailing economy nor it’s oil production which has fallen 400 thousand barrels a day since 2017 and seems like it will restrict global supply further.

As we enter the northern hemisphere summer, and hence the peak driving season within the US, US gasoline demand might shed some light on if demand erosion is happening as oil prices rally to 3-year highs. While drivers mourn the rising petrol prices, the US Shale machine continues to power on as higher prices invigorates the US shale industry. The EIA is predicting that the US will become the world’s largest crude producer by the end of the year in addition to being the biggest consumer. Whether this will throw a wrench in OPEC+’s plan remains to be seen. We’ll learn more on that front over the St. Petersburg International Economic Forum starting this Thursday.

Do keep an eye out on the trade tariffs between US and China as escalations in this area will likely derail the global economy and hence oil demand. Negotiations over the weekend suggests that a truce has been called on this regard but you can never be quite sure with Trump in the driver’s seat…

One thing is for sure though, wholesale electricity prices has followed oil up and so will tariff.

Author: Ross Han, Trading Analyst, iSwitch Energy Team

Disclaimer: iSwitch will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, or any reliance on such information. The opinions expressed in this article are the author’s personal views and must not be construed as representing the opinion of iSwitch as a company.