The Daily Dose; IEA Offers Something for Everyone

-IEA raises demand forecast, but frets over the quarantine economy

-Libya is not back in action. Iran is getting restless

The market situation is setup for another down day for crude oil prices. Strict OPEC discipline and exuberance over previous economic data on jobs has not been enough to keep the momentum going for black gold in recent sessions. The trade structure, meanwhile, continues to paint a picture of a glut, with the International Energy Agency reporting global stockpiles on the rise.  And while the stubbornness of the pandemic dominates the headlines in the economic press, geopolitical issues continue to present problems. Libya’s National Oil Corp. lifted force majeure on all its ports, though Libyan chaos has been a consistent factor since 2011. Elsewhere, Iran remains a target of saboteurs, with explosions erupting near military installations in western Tehran early Friday.

Brent crude is slipping further away from a run at $45 per barrel as malaise starts to set in amid bleak prospects for widespread economic recovery. The global benchmark was down 1.3% as of 8 a.m. to trade at $41.80 per barrel. Brent is on pace for a 2% contraction on the week.

In customary fashion, the IEA in its monthly market report for July offered a bit of something for everyone. The agency raised its forecast for global demand by 500,000 barrels per day, to 91.7 million bpd, citing stronger-than-expected deliveries in the quarantine economy. The IEA attributed the growth in part to increased demand in China, which reported strong growth in both automobile production and sales for June. In North America, the IEA noted that supply-side pressures were easing on the back of lower output from the US shale patch. And a survey from the Reuters news agency, meanwhile, found the Canadian economy is primed for a short-term recovery.

For the bears, the IEA reported crude oil inventories among OECD members are more than 200 million barrels above the five-year average and US commercial stockpiles are close to record highs. Refinery intake will remain, meanwhile, below 2018 levels. On the coronavirus, the IEA noted recent outbreaks serve as a “disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside.”

The market may also be reacting to word that Liberian-flagged Aframax Kriti Bastion became the first to load from the Es Sider port in Libya since January 17. Libya’s National Oil Corp. announced Friday that it lifted force majeure declarations on “all oil exports from Libya.” At its peak, Libya could be delivering some 1 million barrels per day to a market already reeling from too much supply. The return of exports, however, is fraught with risk. Libya is a global chessboard of sorts, with rival powers jockeying for influence over the North African oil producer. France and Turkey spent much of June trading barbs over military operations, while the NOC itself has complained of Russian interference on the ground. Mustafa Sanalla, the head of the NOC, said the cost to repair Libyan oil infrastructure damaged by years of civil war could run into the billions of dollars.

“For NOC, the work has just started,” he said in a statement.

Elsewhere, some form of lashing out is expected from Iran, which has been the apparent target of saboteurs for much of July. Backed into a corner, Iran has shown its ability to disrupt maritime traffic in the Persian Gulf. Last year, it was Iranian military equipment that struck Saudi Aramco facilities, causing a 14% spike in Brent in September. Media reports early Friday stated there were power outages in western Tehran after an explosion near several military and training facilities. Israel, with possible support from exiled opposition group Mujahedin-e Khalq, was thought to be behind recent incidents near the Natanz nuclear research facility in Iran. Abbas Mousavi, a spokesperson for the Iranian Foreign Ministry, said in a statement Friday that it was too early to point fingers, though security officials were busy investigating the details.

“If they conclude that foreign elements have been involved, they will announce it, and there will be consequences,” he said.

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