LONDON (Reuters) - Oil prices fell on Monday, weighed down by gloomy economic prospects in Europe and Asia and a related strengthening in the U.S. dollar, which makes fuel imports for countries using other currencies more expensive.
The softening comes a week after crude prices hit 2016 highs on the back of a quicker-than-expected rebalancing in physical oil markets.
Brent crude oil futures fell to $49.74 per barrel, at 1327 GMT, down 80 cents, after trading as low as $49.61.
U.S. crude was down 72 cents at $48.35 a barrel.
Commerzbank analyst Carsten Fritsch said worries that Britain will vote later this month to leave the European Union, which sent stocks spiralling lower on Monday, could also erase more of oil's recent gains.
"The most recent oil price increase was driven by bullish market sentiment," Fritsch told the Reuters Global Oil Forum. "A Brexit could turn market sentiment around."
The dollar has risen 1.2 percent from June lows against a basket of currencies, lifted by Brexit worries, concerns over Asia's economy and the prospect of a potential hike in U.S. interest rates.
There are also concerns about faltering growth in China, largely due to industrial over capacity and spiralling debt.
On Monday, the European Central Bank also said the fall in oil prices over the past two years would add less to global growth than earlier thought and the overall impact could even be negative.
Even the Organization of the Petroleum Exporting Countries (OPEC), while forecasting that the world oil market would be in better balance in the second half of 2016, warned there is "still a massive global supply overhang".
Oil traders have already sold out of long positions that have profited from an almost doubling in crude prices since hitting over decade lows earlier this year.
"Oil may be looking healthier than it has in a very long time, but it is not yet out of the woods," Barclays said in a note.
Despite this, some of the supply disruptions that have helped to buoy prices could persist. On Monday, the Niger Delta Avengers group that has claimed the bulk of the attacks on the country's oil infrastructure over the past several months, spurned proposed talks with the government.
Additionally, some analysts expect oil demand in Asia and especially China to remain strong,
Vehicle sales in China rose 9.8 percent to 2.1 million units in May, the China Association of Automobile Manufacturers said on Monday, in the strongest year-on-year growth since December 2015.
In the first five months of 2016, sales were up 7.0 percent.
"Against the backdrop of low international oil prices, Chinese crude oil demand will remain well supported this year as demand continues to gain traction from stockpiling activities and refining use," energy consultancy FGE said.
"We expect Chinese crude oil imports to grow by 730,000-760,00 bpd this year," it said.
By Libby George
(Additional reporting by Henning Gloystein in Singapore; Editing by Jason Neely and Alexander Smith)
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The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
The engine oil market has grown up around 10 to 12% in the last three years because of various reasons, mostly because of the rise of automobiles.
According to the Bangladesh Road Transport Authority (BRTA), the number of registered petrol and diesel-powered vehicles is 3,663,189 units.
The number of automotive vehicles has increased by 2.5 times in the last eight years.
The demand for engine oils will rise keeping pace with the increasing automotive vehicles, with an expected 3% yearly growths.
Mostly, for this reason, the annual lubricant consumption raised over 14% growth for the last four years. Now its current demand is around 160 million tonnes.
The overall lubricants demand has increased also for the growth of the power sector, which has created a special market for industrial lubricants oil.
The lubricants oil market size for industries has doubled in the last five years due to the establishment of a number of power plants across the country.
The demand for industrial oil will continue to rise at least for the next 15 years, as the quick rental power plants need a huge quantity of lube oil to run.
The industries account for 30% of the total lubricant consumption; however, it is expected to take over 35% of the overall demand in the next 10 years.
Mobil is the market leader with 27% market share; however, market insiders say that around 70% market shares belong to various brands altogether, which is still undefined.
It is already flooded with many global and local brands.