Friday, June 22, 2018

Possibility of supply deficit in the second half

The Organization of the Petroleum Exporting Countries (OPEC) agreed Friday to ease crude output limits, paving the way for fresh crude supply to enter the market, at a meeting in Vienna together with non-OPEC oil producers to discuss output policy. OPEC agreed for a modest increase in oil production by about 1 million barrels per day from July after its leader Saudi Arabia persuaded arch-rival Iran to cooperate amid calls from major consumers to help reduce the price of crude and avoid a supply shortage.

The smaller-than-expected increase agreed upon by major oil exporters also renewed investor optimism. On the New York Mercantile Exchange crude futures for August delivery rose 4.6% to settle at $68.58 a barrel, while on London's Intercontinental Exchange, Brent climbed 3.4% to trade at $75.55 a barrel.

The United States, China and India had urged OPEC to release more supply to prevent an oil deficit that would hurt the global economy. Saudi Arabia and Russia want to raise output, but some other OPEC members, including Iran, have opposed this. Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of US sanctions, have all increased market worries of a supply shortage.

Another big uncertainty for oil is the escalating dispute between the United States and China. If a 25% duty on US crude imports is implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere. If China's import demand dries up, more than 300,000 bpd of US crude will have to find a new destination.

OPEC may meet again in September.

The benchmark RSS4 grade rubber closed at `.126 a kg at Kottayam, while RSS3 grade closed at `.105.44 a kg at Bangkok and Malaysian SMR20 closed at `.92.10 a kg. On National Multi Commodity Exchange July 2018, the futures closed at `.126.34 a kg, August at `.127.23 a kg and September closed at `.126.34 a kg. Tokyo Commodity Exchange June 2018 futures series closed at ¥160 a kg, July at ¥166, August at ¥167.2, September at ¥168.7, October at ¥172 and the contract for delivery in November closed at ¥173.4 a kg.

To read Rubber4U – 1st July 2018 issue:
For 2018-19 Rubber Forecast: