Al-Badri: No need to panic over oil price slide
Al-Badri: No need to panic over oil price slide
Abdullah Al-Badri also said output of higher-cost oil supplies such as shale would be curbed if oil remained at around $85 a barrel, while the Organization of the Petroleum Exporting Countries enjoys lower costs and will see higher demand for its crude in the longer term.
Oil’s drop below the $100-mark, the level many OPEC members had endorsed, has raised the question of whether OPEC will cut supply when it meets in November. Al-Badri said OPEC’s output was unlikely to change much next year, adding to signs a decision to cut in November is unlikely.
“I don’t think 2015 will be far away from 2014 in terms of production,” Al-Badri told reporters in London at the annual Oil & Money conference. “There is nothing wrong with the market.”
Brent crude has dropped more than a quarter from above $115 per barrel in June as abundant supplies of high-quality oil such as US shale have overwhelmed demand in many markets, filling stocks worldwide.
But lower prices pose a threat to supply outside OPEC. While OPEC’s oil production costs are low, as much as half of shale output would be under threat if prices remain at current levels, Al-Badri said.
“If prices stay at $85, we will see a lot of investment, a lot of oil, going out of the market,” he told the conference. “About 65 percent of the producers, they have high costs. Not OPEC.”
Al-Badri did not predict the outcome of OPEC’s meeting on Nov. 27, saying the decision was up to the group’s oil ministers, and appealed for calm over the decline in prices.
“We do not see much change in the fundamentals. Demand is still growing, supply is also growing. OPEC is reviewing the situation,” he said.
“The most important thing is we should not panic,” he said. “Unfortunately, everybody is panicking. We really need to sit, and think and see how this will develop.”
He dismissed suggestions that OPEC countries, in setting lower official selling prices for their crude oil, have embarked on a price war to preserve market share.
Al-Badri declined to specify a level at which oil prices might find a floor, saying OPEC did not have a price target but would instead leave that to the market.
“OPEC’s average price will still be $100 at the end of this year so we are fine for 2014,” he said.
“The fundamentals do not reflect this low price.”
“OPEC does not have a price target. We must let the market settle down.”
Brent was trading around $87.30 by 1430 GMT after reaching a four-year low of $82.60 two weeks ago.
Al-Badri said last month that he expected OPEC to lower its oil output target when it meets in Vienna, which would be its first formal output cut since the 2008 financial crisis.
OPEC has a production target of 30 million barrels per day (bpd) and Badri suggested last month that this should be cut to around 29.5 million bpd.
Since then, OPEC members Iran and Kuwait have said a cut in output at the meeting was unlikely. Saudi Arabia has yet to comment publicly.
Al-Badri reiterated that supplies from rival producers, such as shale oil, were not a threat to OPEC long-term and said OPEC had to be ready to pump far more in future.
“In the longer term, OPEC must be ready to produce. Around 2018-2020, US tight oil will slow down,” he said. “By 2040, OPEC must be ready to produce 40 million bpd of oil, and 50 million bpd of liquids, that’s crude and natural gas liquids.”
Asian firms shuffle production around the region as US-China tariffs war rages
- Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China
- Some Asian governments hope for an economic and strategic boost from the US-China conflict
SEOUL/TOKYO: A growing number of Asian manufacturers of products ranging from memory chips to machines tools are moving to shift production from China to other factories in the region in the wake of US President Donald Trump’s tariffs on Chinese imports.
Companies including SK Hynix of South Korea and Mitsubishi Electric, Toshiba Machine Co. and Komatsu of Japan began plotting production moves since July, when the first tariffs hit, and the shifts are now under way, company representatives and others with knowledge of the plans told Reuters. Others, such as Taiwanese computer-maker Compal Electronics and South Korea’s LG Electronics, are making contingency plans in case the trade war continues or deepens.
The company representatives and other sources spoke on condition of anonymity because of the sensitivity of the issue.
The quick reactions to the US tariffs are possible because many large manufacturers have facilities in multiple countries and can move at least small amounts of production without building new factories. Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China.
The US imposed 25 percent duties covering $50 billion of Chinese-made goods in July, and a second round of 10 percent tariffs covering another $200 billion of Chinese exports will come into effect next week. The latter rate will jump to 25 percent at the end of the year, and Trump has threatened a third round of tariffs on $267 billion of goods, which would bring all of China’s exports to the US into the tariff regime.
The tariffs threaten China’s status as a low-cost production base that, along with the appeal of the fast-growing China market, drew many companies to build factories and supply chains in the country over the past several decades.
At SK Hynix, which makes computer memory chips, work is under way to move production of certain chip modules back to South Korea from China. Like its US rival Micron Technology, which is also moving some memory-chip work from China to other Asian locations, SK Hynix does some of its packaging and testing of chips in China, with the chips themselves mostly made elsewhere.
“There are a few DRAM module products made in China that are exported to the US,” said a source with direct knowledge of the situation, referring to widely used dynamic random-access memory chips. “SK Hynix is planning on bringing those DRAM module products to South Korea to avoid the tariff hit.”
Most of SK Hynix’s production won’t be affected, the source added, since China’s dominance in computer and smartphone manufacturing makes it by far the largest market for DRAM chips.
Toshiba Machine Co. says it plans to shift production of US-bound plastic molding machines from China to Japan or Thailand in October.
The machines are used for making plastic components such as automotive bumpers. “We’ve decided to shift part of our production from China because the impact of the tariffs is significant,” a spokesman said.
Mitsubishi Electric, meanwhile, says it is in the process of shifting production of US-bound machine tools used for metal processing from its manufacturing base in Dalian, in northeastern China, to a Japanese plant in Nagoya.
In Taiwan, an executive at notebook PC maker Compal, who declined to be named, said the trade war’s impact had been limited so far, but the company was studying its options.
“We can also use facilities in Vietnam, Mexico and Brazil as alternatives,” the person said. “It won’t be easy because our majority production is in China; no other country can replace that at this moment.”
Smaller companies are exploring their options too. South Korean medical equipment manufacturer IM Healthcare, which makes products including air purifiers, is studying a move to Vietnam or South Korea if the trade conflict intensifies, a source with direct knowledge of the matter said.
Some Asian governments hope for an economic and strategic boost from the US-China conflict. In Taiwan, the government is actively encouraging companies to move production out of China, pledging last month to speed up its existing “Southbound Policy” to reduce economic reliance on China by encouraging companies to move supply chains to Southeast Asia.
Taiwan economics ministry official William Liu told Reuters that the trade war was “a challenge and an opportunity” for the self-ruled island. Taiwan depends on China as an export market, he noted, but at the same time could see a boost in jobs from companies moving operations back home.
Thailand also hopes to benefit from the “flow of technology and investment leaving China during the trade war,” said Kanit Sangsubhan, Secretary-General of the Eastern Economic Corridor (EEC) Office of Thailand, which is coordinating a $45 billion project to attract investment into the country. The EEC last month took some 800 representatives of Chinese companies on a tour around the eastern industrial heartland, and the country’s Board of Investment has done seven roadshows in China this year to woo investors.