The International Energy Agency (IEA) slashed its estimate for global oil demand growth for the second consecutive month on Friday, citing intensifying trade concerns amid fears of a global recession.
The energy agency’s closely-watched report comes as world oil markets have undertaken a dramatic shift in recent months, switching from supply-side risks like OPEC’s output cuts or U.S. sanctions against Iran and Venezuela to worries about deteriorating demand growth.
Crude futures have turned a 45% price rally in the first four months of 2019 into a fall of more than 15% since the start of April.
“The main focus I think we should be looking at here is that until very recently the geopolitical factors related to Iran and Venezuela and Libya… they were at the forefront of people’s minds,” Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC’s “Street Signs Europe” on Friday.
“Now we are starting to see that confidence in demand is taking over and that is the main driving factor behind the current state of the oil market.”
‘Cannot be complacent’
A recent slide in oil prices was temporarily reversed on Thursday, following attacks on two oil tankers in one of the world’s key shipping routes.
The incident in the Gulf of Oman off the coast of Iran pushed crude futures up as much as 4.5% in the previous session. It was the second time in less than a month that tankers had been attacked in the world’s most important zone for oil supplies, with hundreds of millions of dollars’ worth of oil passing through the shipping lane every year.
Washington quickly blamed Iran for the attacks, but Tehran has denied the allegation.
“I think we are realizing that, although we cannot be complacent, the situation is not yet representing a major threat to the security of oil supplies to the very important Strait of Hormuz,” the IEA’s Neil Atkinson said.
On the demand side, the IEA followed OPEC by downwardly revising its global oil demand growth forecast for 2019 on Friday.
The energy agency said it now expects oil demand growth to reach 1.2 million barrels per day (b/d) this year. That’s a downward revision of 100,000 b/d from the IEA’s previous projection.
Global oil demand is estimated to have risen by just 250,000 b/d year-on-year in the first quarter of 2019, the IEA said, reflecting the lowest annual growth since the fourth quarter of 2011 — when the price of Brent averaged $109.
Looking beyond the end of 2019, the IEA expects global oil demand growth to rebound to around 1.4 million b/d in 2020.
“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock, and the OPEC countries are sitting on 3.2 million b/d of spare capacity,” the IEA said Friday.
“This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices.”
Saudi Arabia’s Energy Minister Khalid al-Falih attends a press conference at the end of the 13th meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC and non- OPEC countries in Baku on March 18, 2019.
Mladen ANTONOV | AFP
The IEA cited various reasons for slowing global oil consumption, including: a warm winter in Japan, a slowdown in the petrochemicals industry in Europe, tepid gasoline and diesel demand in the United States and the worsening trade outlook.
The U.S. and China have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.
Expectations that trade officials from world’s largest economies will clinch a deal on the side-lines of a G20 meeting in Osaka on June 28-29 have been fading in recent days.
OPEC also cited persistent trade tensions between Washington and Beijing as a risk to economic growth and fuel demand.
The Middle-East dominated group said in a monthly report published Thursday that oil output had slipped to a 5-year low in May. It comes at a time when OPEC and its allied partners are considering whether to extend a six-month deal to hold down output.
Alongside Russia and nine other nations, top oil exporter Saudi Arabia struck a deal with the rest of OPEC to keep 1.2 million b/d off the market from the start of January. The energy alliance, often referred to as OPEC+, says it will carefully consider the economic outlook when it meets in coming weeks.
“The key variable that presents a complication for Saudi Arabia and OPEC+ is a potential breakthrough between the U.S. and China that would bolster demand for oil — but this outcome is extremely unlikely,” Ayham Kamel, head of Eurasia Group’s Middle East and North Africa practice, said in a research note published Thursday.
“Even in such a scenario, OPEC+ would still extend the agreement but adjust the quotas to allow for higher production,” Kamel said.
Q2 net profit falls 18% amid Popular costs
Santander said on Tuesday second-quarter net profit fell 18% from a year earlier, due to one-off restructuring costs from its acquisition of troubled lender Banco Popular and a weak performance in Britain.
The euro zone’s largest bank in terms of market cap — which took over Banco Popular in June 2017 — reported a net profit of 1.39 billion euros ($1.56 billion) for the April to June period, topping analysts’ expectation of 1.29 billion euros in a Reuters poll.
Steady growth in Latin America business volumes, where it makes 46% of its earnings, was not enough to offset charges of 706 million euros, mainly in Spain.
Like its European rivals, Santander is struggling to lift earnings from loans in its home market with interest rates hovering at historic lows.
“We have delivered the strongest underlying quarterly performance in over 8 years, reflecting the progress that we have made in our commercial and digital transformation,” Jose Garcia Cantera, chief financial officer of Santander, told CNBC’s “Squawk Box Europe.”
“Our businesses in both North and South America continue to perform extremely well and while the charges relating to ongoing infrastructure in Europe have impacted attributable profit — something that we anticipated — we are already starting to see the value that this will create going forward,” Cantera said.
Net interest income, a measure of earnings on loans minus deposit costs, was 8.95 billion euros, up 5.6% from the second quarter of last year and 3.1% higher against the previous quarter due to a solid lending growth in Latin America.
Analysts had forecast a NII of 8.76 billion euros.
In Britain, its third-largest region, profit fell 41%, partly due to restructuring costs of 26 million euros and provisions of 80 million euros.
Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank’s strength, of 11.3%, compared with 11.23% in the previous quarter.
Shares of the bank were up over 2% shortly after the opening bell.
Coca-Cola raises revenue forecast after earnings beat
Coca-Cola on Tuesday reported quarterly earnings and revenue that beat analysts’ expectations, driven by sales of its namesake soda brand.
Shares of the company jumped 5.6% in early trading. The beverage giant’s stock, which has a market value of $230.6 billion, is up 14% in 2019. Shares of rival PepsiCo, which are valued at $182.8 billion, have been closing the gap with Coke, rising 18% over the same period.
“Our strategy to transform as a total beverage company has allowed us to continue to win in a growing and vibrant industry,” CEO James Quincey said in a statement.
Here’s what the company reported for its fiscal second quarter compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Adjusted earnings per share: 63 cents, adjusted, vs. 61 cents expected
- Revenue: $10 billion vs. $9.99 billion expected
The beverage giant reported net income of $2.61 billion, or 61 cents per share, up from $2.32 billion, or 54 cents per share, a year earlier.
Excluding items, Coke earned 63 cents per share, topping the 61 cents per share expected by analysts surveyed by Refinitiv.
Net sales rose 6% to $10 billion, narrowly beating expectations of $9.99 billion. Coke raised its full-year outlook for revenue and now expects organic revenue growth of 5% rather than 4%.
“We think the dollar is towards the end of a strong cycle,” CFO John Murphy said.
The company attributed its strong performance during the quarter to 4% volume and transaction growth in Coke’s namesake brand. Its Zero Sugar line once again saw double-digit volume growth across the globe.
Quincey told analysts that nearly 25% of the company’s revenue now comes from new or reformulated beverages, up from 15% just two years ago.
During its second quarter, Coke partnered with Netflix to bring back New Coke and help promote the third season of “Stranger Things.” It also rolled out Coca-Cola Plus Coffee in more markets, as the company expands into different kinds of caffeinated drinks.
That includes Coke’s first energy drink under the Coca-Cola brand. Coca-Cola Energy uses caffeine from naturally derived sources and is available in 14 countries, including Japan and South Africa. By the end of 2019, the beverage giant plans to bring it to Mexico, Brazil and four more countries.
Quincey declined to share any plans to sell Coca-Cola Energy in the U.S. but said it would benefit the company to wait to learn more from early markets before entering its home market. In July, an arbitrator ruled that Coke can peddle the energy drink under the terms of its contract with Monster Beverage.
The company has also launched its first product line with Costa Coffee since it acquired the U.K. coffee brand in January for $4.9 billion. The canned coffee drinks contain double shots of espresso and will launch in Poland and China this year. There are no plans to introduce the ready-to-drink coffee beverages in the U.S.
Coke reiterated its fiscal 2019 earnings forecast, saying that earnings per share could fall or rise by 1%. The company had pointed to currency fluctuations, Fed rate hikes and changing tax rates as reasons for its gloomy earnings projection. Murphy told analysts on the conference call Tuesday that “currencies have gotten worse,” but he expects a more “benign” currency environment in 2020.
Net sales in the Asia Pacific and Europe, Middle East and Africa segments were flat for the quarter, largely due to the impact of currency. Revenue in Latin America fell 6% because of a 13% currency headwind, although Coke said it had strong performance in Mexico and Brazil. Quincey told analysts that Mexico’s economic growth is slowing, so the company is tweaking its strategy for the country.
North America was the only region to reported net revenue growth. Price hikes and packaging initiatives helped propel revenue growth of 2%. The company said that it saw strong performance from soda, water, sports drinks, juices and dairy and plant-based beverages.
Correction: An earlier version misstated the amount of the Costa deal. It was $4.9 billion when it closed, according to a Coca-Cola spokesperson.
Daimler, Bosch get green light for automated valet parking system
Daimler and Bosch have been granted approval to roll out an automated parking system in Stuttgart, Germany.
In an announcement Tuesday, German auto giant Daimler said that the automated valet service would be introduced at the parking garage of the Mercedes-Benz Museum. It will be accessed using a smartphone app and will not need a safety driver.
Daimler said that the system was the “world’s first fully automated driverless SAE Level 4 parking function to be officially approved for everyday use.”
Five “levels” of driving automation have been defined by SAE International, a global association of over 128,000 engineers and technical experts. At Level 4, a vehicle can drive itself under limited conditions and “will not operate unless all required conditions are met.” At Level 5, a vehicle’s automated driving features can drive it under all conditions.
Michael Hafner, who is head of drive technologies and automated driving at Daimler, said in a statement Tuesday that gaining approval from authorities in Baden-Wurttemberg set “a precedent for obtaining approval in the future for the parking service in parking garages around the world.”
Hafner went on to add that the project paved the way “for automated valet parking to go into mass production in the future.”
The infrastructure for the system in Stuttgart has been supplied by Bosch, with Daimler providing the technology in the vehicles, which display turquoise lighting to indicate they are in driverless mode.
When the driver of a vehicle with the appropriate technology reaches the car park, they get out and use their smartphone to send their car to a space. The vehicle then drives to that space and parks up.
Sensors from Bosch assess the “driving corridor” of the garage and its surroundings, sending the vehicle all the information it needs. The vehicle processes this data to plot its maneuvers and route, driving up and down ramps to move through the garage if required. If an obstacle is detected, the vehicle will stop.
Around the world, major businesses are working to develop autonomous driving systems. It was only last week that another car giant, Groupe PSA, announced it was conducting tests in the Spanish city of Vigo to “advance the development of autonomous driving”.
The collaboration with the Automotive Technology Centre of Galicia will focus on a number of areas, including the protection of vulnerable users; automated valet parking; autonomous driving in urban areas; and “optimal speed regulation” when vehicles approach traffic lights.
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