Oil prices hold above $60 per barrel while a trade war looms over the markets as retaliation from China is highly anticipated. VW is having a facelift launching a new SUV in August.
Healthy demand on Oil, Concerns on Oversupply
Oil prices experienced a chopped session on Wednesday, supported by healthy global demand but at the same time held back by a rise in U.S. production that is undermining efforts led by producer cartel OPEC to cut supplies and prop up markets.
After the crude oil inventories regarding last weeks’ stockpiles in the US, the West Texas Intermediate crude oil futures touched a bottom at $60.11 per barrel on Wednesday before climbing back, above $61 per barrel.
Prices were receiving some support from healthy demand. Yesterday, the Organization of the Petroleum Exporting Countries (OPEC) said that in 2018, oil consumption was expected to grow by 1.62 million barrels per day.
The surge in U.S. crude output is poisoning the markets, which hit another record last week by rising to 10.38 million bpd, up by more than 23% since mid-2016.
According to the International Energy Agency, the U.S. crude production, which has already overtaken that of top exporter Saudi Arabia, is expected to rise above 11 million bpd later this year, taking the top spot from Russia.
OPEC on Wednesday raised its forecast for non-member oil supply to almost double the growth predicted in November of 2017. OPEC and several other non-OPEC producers led by Russia began cutting supply in January of 2017 to erase a global surplus of crude that had built up since 2014. A combination of those cuts and rising U.S. output mean that OPEC is losing market share.
Trump target’s $60 Billion tariffs on China
Trump eyes tariffs on up to $60 billion Chinese goods; tech, telecoms, and apparel targeted. Trump wants to punish China for its investment policies that effectively force U.S. companies to give up their technology secrets in exchange for being allowed to operate in the country, as well as for other IP practices Washington considers unfair. He is targeting Chinese high technology companies and the tariffs will be associated with an intellectual property investigation.
U.S. equities started the day yesterday with declines following weaker than expected U.S. retail sales. The US retail sales data provided the last major economic indicator prior to the Federal Reserve’s policy decision next week. An increase on the interest rate at the meeting is assumed as a done deal. The open question now remains on whether U.S. policy makers will lift their expectations for the pace of future hikes.
The trade uncertainty was also reflected on the U.S. equities as the Dow Jones fell sharply on Wednesday and closed 248 points lower. Boeing contributed the most to the Dow’s decline, falling 2.5%. The drop comes after a report said President Donald Trump wishes to slap $60 billion of tariffs on Chinese goods. Investors feared China could target the aerospace giant in retaliation.
The S&P 500 lost nearly 0.6% due to weak performances in materials, industrials and consumer staple companies. The tech-heavy index Nasdaq composite dropped 0.2%.
Volkswagen’s Chinese SUV will join markets globally
Volkswagen enters the profitable and fast-growing category of SUV’s that will help fund its electric-car initiatives, and plans to sell the sport-utility vehicle it developed with Chinese partner SAIC Motor Corp. across the globe.
VW is trying to reposition itself after the 2015 diesel-emissions scandal crushed the brand’s reputation and cost about 2.8 billion euros last year. The new model, named the Volks-SUV for now, is expected to be introduced in China in August. By 2020, additional production plants will start in Argentina, Mexico and Russia. The goal is to sell 400,000 Volks-SUVs per year.
Boosting its SUV offerings also helps the brand, while developing key technology for sister nameplates including Audi, Skoda and Seat. VW is relying on sales in the SUV sector to generate the necessary funds to create electric vehicles.
VW expects SUV vehicles to account for 40% of sales volume by 2020. It will introduce more than 10 fully or partly battery-powered cars in China in the same timeframe. The group will invest 22.8 billion euros over the next 5 years, including some 6 billion euros alone on new technology and electric-car development. The target for the operating margin is between 4% and 5% of sales this year, versus 4.1 percent in 2017, as demand for SUVs remains strong.