Recent drone attacks have wreaked havoc on the Saudi Aramco oil facilities along with imposed sanctions on Venezuela and Iran. These events should all be pointing one direction for the crude prices…..up. Instead of the anticipated price increase, the recent fear of recession has helped keep the market in check.
Global factors have helped level off the potential demand spike. Since the beginning of 2016 Venezuela has decreased oil production steadily. Production dropped to 500,000 barrels per day from the 2016 highs of 2.5 million barrels per day. Conversely, Iran has shown a slight uptick since 2016 at just under 3 million barrels per day and plateaued at 3.75 million barrels per day through mid-2018. After the plateau, however, there has been a sharp drop following U. S. sanctions to approximately 2 million barrels per day.
Initially the prevailing thoughts on recovering the oil production from the drone attack on Saudi Aramco’s oil facilities, is that it would only take a few days for bring back the majority of the capacity. Later in the week, it was expected it could take months, as reported by The Wall Street Journal. In an effort to recover the lost crude, there is an extra demand on the supertanker fleets. Brokers from London and Singapore said daily spot quotes were near $30,000 prior to the drone attacks. Since the attack, the supertanker spot quotes have been hovering around $43,000, also according to the Wall Street Journal.
Tanker capacity is also commanding a premium currently due to 25 of the largest crude tankers being adapted to receive a special exhaust system that will tie into the IMO2020 standards. The new exhausts will trap sulfur emissions, or be retrofitted to utilize cleaner marine fuels.
On the recession front: According to Forbes, retail sales and industrial production are not showing signs of slowing down. At first glance this seems to be uplifting news, but upon further historical review, there may be room for concern. Generally recessions follow recent increases in economic strength. This is one of the reasons why many struggle to predict the timing of a recession.