Oil prices are rising this morning in what the International Energy Agency (IEA) calls a false dawn.
In its most recent report, the IEA predicted a bleak outlook for the global oil market and the prospects for economic growth in the United States, Europe and China. Despite acknowledging that global energy demand surged to a five year high of 2.2 million barrels a day in the fourth quarter, putting global demand in 2015 at 1.6 million, in 2015 they say that is about as good as it gets. The IEA says that demand growth peaked in 2015 and this year oil demand growth will fall back considerably in 2016 to 1.2 million barrels a day. This is due to what they say will be slowdowns in Europe, China and the United States.
The IEA says that recent support, because of speculation of OPEC production cuts, are built on false hopes. The IEA says that global excess supply may reach 2.0 million barrels per day during the first quarter, and a further 1.5 million barrels a day in the second quarter.
Further stock-building of 300,000 barrels a day is forecast in the second half of the year. "With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term." Later today we will see if the U.S. based Energy Information Administration is as negative for the market.
We are seeing more concerns about the health of oil companies and some banks. Reuters reported that U.S. oil and gas pipeline companies, including Williams Companies and Kinder Morgan, have contracts worth billions of dollars that might be at risk as Chesapeake Energy Corp aims to slash its debts amid collapsing energy prices. Chesapeake said on Monday it had no plans to file for bankruptcy after sources told Reuters that the firm, whose debt is eight times its market value, asked its longtime counsel to look at restructuring options.
Bloomberg reports that Deutsche Bank AG, under pressure over its ability to pay coupons on the riskiest debt, has just bought itself some time. Bloomberg says that Germany’s largest bank on Monday reassured investors that it has sufficient funds after the shares plunged the most in almost seven years, eroding almost €2 billion ($2.2 billion) in market value. Deutsche Bank rebounded after it said in a statement that it’s able to meet obligations on its additional Tier 1 notes both this year and next, with Officer Marcus Schenck telling employees the capital position remains “strong.”
This comes as Japanese stocks fall as the yield on Japan’s benchmark 10-year government bonds fell to zero for the first time. Uncertainty on interest rates and crackdowns on stock trading in China is adding to the appetite for gold that went above $1200.00 an ounce for the first time in seven months.
The FT reports that price reporting agency Platts has moved to protect the Brent benchmark from dwindling North Sea production. The FT says that dated Brent is the global oil marker used by traders and companies to price around two-thirds of the world’s physical crude market. It also underpins billions of dollars of trading in futures, options and other derivatives.
Yet the production of the four physical streams that underpin the benchmark, Brent, Forties, Oseberg and Ekofisk, is falling. To try and save the Benchmark status, Platts has been looking at ways of introducing more liquidity, or oil. In the past it has floated the idea of adding crudes from the immediate neighbourhood — such as Norwegian Troll or Danish Troll — or from further afield, such as Russian Urals.