Top trader Vitol sees chance of steep oil price fall

Updated 04 November 2013
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Top trader Vitol sees chance of steep oil price fall

LONDON: Oil prices could drop by as much as $15 per barrel should countries such as Libya restore production and sanctions on Iran be eased, forcing some of the most expensive US oil projects to stop pumping, the head of the world’s largest oil trader said.
Ian Taylor, chief executive of Swiss trading house Vitol , said he also expected a number of European refineries to close in the next few years under tremendous competitive pressure from rivals in the Middle East and Asia.
“We see a constant structural length in the dated Brent market and the West African sweet market and we are not quite sure how it clears yet,” Taylor told the Reuters Global Commodities Summit.
“If Libya does come back, God knows where that oil goes... And goodness knows what happens if Iran comes back.”
“Perhaps the only way the market can actually clear properly is to begin to threaten the lower ranges, and therefore begin to threaten some of the higher cost developments and production.”
The US is set to become the world’s biggest oil producer next year, overtaking Russia, and a spike in US oil production has helped offset big supply outages from Libya, Iraq, Iran and Nigeria in recent months.
Taylor said that if most supply problems were solved, European benchmark Brent prices could come down to $90-$95 per barrel from the current $105 while US WTI prices may decline to $80-$85 from the current $95.
“Then I think OPEC might begin to get worried,” said Taylor.
Vitol made a foray into European refining last year and Taylor said the company could look at new opportunities in the future although he said the sector would have to shrink as it faces very low profitability on refining crude into products.
“It has been a disaster over the last two or three months as you all know... I believe that significant portions of the European refining business probably need to close over the next three or four years,” he said.
Taylor said he could see up to one million barrels per day or a roughly one tenth of current capacity in Europe closing down, especially outdated refineries in the Mediterranean.
“I think you’re going to see a constant battle between the big European majors, Europe, the politicians about this... I’m not sure what the result is going to be but the answer is we know the UK does not need seven or eight refineries.”
He added that Vitol could still buy plants.
“It depends what else it brings. If it brings a lot of flow with it you could always value your refinery in a negative sense if there are a lot of other things you get with the deal. But certainly I don’t think you are going to see us keen to pay multiples for refining businesses.”
Vitol and most of its rivals such as Glencore or Gunvor have been chasing bigger trading volumes in recent years to compensate for shrinking profitability amid lower market volatility.
Taylor said he expected the trading environment to remain difficult as traders have to compete with traditional rivals such as oil majors but also increasingly with national oil companies aggressively pursuing incremental trading profits.
“I do expect it to be incredibly tough. I do expect to see a continuation of trading companies buying selective assets to try to increase their optimization possibilities. Volumes among the trading houses will probably come off a little bit rather than increase because at the end of the day demand for oil isn’t going up that much.”
GAS
Taylor said that unless oil prices dropped sharply, there were realistic prospects for liquefied natural gas (LNG) to become a major fuel in the transport sector as big US and Chinese manufacturers were already shifting toward using gas.
“The pollution question in China is huge so they will shift more toward gas for transportation and in power (generation), no matter how high the price is,” Taylor said.
The move will come largely at the cost of lower coal use, which is dirtier than gas but is still the world’s dominant electricity fuel.
“I personally worry that coal is going to be a problem as demand will come off much faster than we think,” Taylor said.
Natural gas is currently less profitable as a fuel for generating power but the US boom in shale gas drilling has led to a collapse in gas prices there. The US is expected to begin exporting LNG by 2015, which many users in Europe and Asia hope will help bring down prices there as well.
Taylor said Vitol was unlikely to invest into LNG assets on a big scale but added that smaller floating LNG terminals could be an option.
In North America, Taylor said Vitol had made investments in pipeline and storage tank capacity in Texas’s Permian basin, but that the firm’s trading focus was likely to remain on seaborne shipments rather than competing directly with inland producers and refineries.
He said news that Philadelphia Energy Solutions’ 350,000-barrel-per-day refinery was bringing in up to one-fifth of the oil output from the Bakken shale fields in North Dakota may provide opportunities in finding homes for oil backed out of the US.
“I think it is significant that people like the Philadelphia refinery are buying in significant amounts of crude by rail, and they were previously one of the biggest buyers of Nigerian crude,” Taylor said.
“Now they’re going to be buying 250,000 barrels per day of railed Bakken crude and very little Nigerian, and that’s the bit of the trade we need to work on.”
US Gulf Coast refiners that benefit from the shale oil boom are supplying the US East Coast and Canada, which will require less North Sea and West African crude, Taylor said.
“Where exactly that crude oil price moves is still a very big question which we haven’t really got to grips with in 2013... I am hoping it will be European refinery systems that get a little bit of a break because obviously they’ve been struggling pretty badly over the last two or three months,” he said.
But at the same time, the increased flow of diesel from the US Gulf Coast to Europe “could potentially put a lot more pressure on margins in Europe and to a certain extent we are seeing that already.”
Asked whether Saudi Arabia would continue to sell large quantities of oil into the United States given the weak price relative to sales elsewhere, Taylor said he could see reasons for Saudi Arabia to keep doing this from a strategic perspective, but no rationale for other exporters.
“For Venezuela and Mexico, who in some ways have greater revenue concerns than Saudi Arabia, arguably they shouldn’t be putting any oil into the US at all at current differentials. The way differentials are at the moment, nobody should be exporting to the US at all.”


INTERVIEW: Karim Sabbagh, DarkMatter CEO — why digital security threats are key issue for governments and businesses

Updated 24 February 2019
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INTERVIEW: Karim Sabbagh, DarkMatter CEO — why digital security threats are key issue for governments and businesses

LONDON: Cybersecurity looks like becoming the big theme of this year, and maybe for many years to come.

In a survey in January by the World Economic Forum, the threat of cyberattack was mentioned as one of the most serious global threats by business leaders; in the Middle East it was an especially worrying concern, second only to the oil price as a perceived risk.

For Karim Sabbagh, that is both a worry and a business opportunity. “The impact on economies and societies is huge. One of the challenges we have as captains of industry and as citizens is that we’re fascinated by the ability we have to digitize things in our day-to-day lives. But the sad part is that for every dollar we spend on new digital enablement, we’re not spending enough on cybersecurity,” he said last week on the sidelines of the IDEX defense exhibition in Abu Dhabi.

Sabbagh is CEO of DarkMatter, the Middle East’s home-grown digital security firm. Amid the guns, tanks and desert camouflage gear at IDEX, he explained to Arab News why we should all be taking the threat of cyberattack much more seriously, and spending a lot more money to defend against it.

“I can show you a demonstration in our booth. I can interfere with your transport network, your airport operations or your power grid. All these things aren’t fiction, they’re all for real,” he said against a backdrop of simulated warfare displays in the UAE’s big defense show.

“The people with bad intent will continue to evolve their techniques and their approaches. So the question isn’t how do I completely eliminate the known risks, but how can I prepare for threats in the future.”

The “people with bad intent” are enemy governments, industrial spies, ransom seekers, or people who “subscribe to a cause,” he said.

“From what we’ve seen … state-led attacks were the most prevalent. In private organizations, it was more about accessing data and using that data for your own commercial benefit,” he added, leaving the distinct impression he knew far more than he was willing to say publicly.

DarkMatter has been in business since 2015, the brainchild of Faisal Al-Bannai, the Emirati entrepreneur probably best known for the Axiom chain of telecom stores he has made into one of the best-known names in Middle East retail.

“He’s the single shareholder, and what he does is quite unique,” Sabbagh said. “Faisal is an entrepreneur, very driven and very passionate, with all the traits you’d like to see from entrepreneurs. He likes to see things through, and has a very long-term view.”

Sabbagh became CEO of the company last year after a stint with SES, a Luxembourg-based firm that provides satellite communications services to the US and other Western governments.

Before that, Lebanon-born Sabbagh worked for many years in the UAE and Saudi Arabia as a partner at management consulting firm Booz & Co., specializing in telecommunications and media.

He takes a broad view of the digital communications business in the five business sectors DarkMatter serves.

“How do I come up with technologies, devices and applications that can give me peace of mind that communication on these devices is secure? As we were doing work on those things, we also started engagement in areas concerning digital transformation, and questions about how the government provides new services that are digitized to all its citizens and residents,” he said.

A key part of DarkMatter’s work is the interaction of humans with technology. Sabbagh cites a recent cyber-attack in Singapore, in which the country’s medical records were accessed and compromised.

After a lengthy audit, the authorities discovered there were two main reasons. One was that on the network there were patches and fixes that weren’t done. So there was something that belonged to the realm of known vulnerability that wasn’t attended to,” he said.

“The second one was human capital. Through human intervention that attack was enabled, not by design but by accident. It boils down to technology and humans, the story of humanity since we invented fire.”

Why is the threat of cyberattack so high up the list of concerns for the Middle East? Sabbagh examined this in a work he co-authored in 2008 entitled “Oasis Economies,” which examined the social tensions created in traditional Arab societies going through the modernization process. He feels the lessons then still apply today.

“My conclusion is that as you try to liberalize economies but try to preserve the social safety net, as you try to liberalize the way people go about their daily lives while preserving the culture, you’re constantly trying to manage these tensions,” he said.

Highly digitized and progressive Arab youths live side by side with more conservative forces, he added.

Smart nations and smart business can’t be truly smart unless they secure their communications.

Karim Sabbagh, DarkMatter CEO

“In one family, even one household, you move from a very traditional way of living to the kids being astrophysicists, building probes to land on the moon. I’m not exaggerating,” he said.

“We have a highly digitized young population, not like the ageing populations of the West. These digital tools are available to them and they can be very productive, but if used inadequately they can be very harmful. So it doesn’t surprise me that the awareness around cyber threats in the region is very pronounced, and rightly so.”

These issues are especially pronounced in Saudi Arabia, which is going through the rapid transformational process of its Vision 2030 reform plan.

The modernization strategy involves the creation of a series of hi-tech hubs such as NEOM, the $500 billion megaproject involving a highly automated conurbation in the Kingdom’s northwest.

“In the old world, the industrial technology and the information technology operated in two different environments, but today there’s a big intersection between them,” Sabbagh said.

“The bigger the intersection the more efficient these businesses are, but the downside is that there’s a bigger attack surface from a cybersecurity standpoint. So the more countries such as Saudi Arabia advance their digitization processes, the more advanced they’ll become, but the downside is that the attack surface expands.”

The solution, he believes, is “defense, defense, defense” against cyberattack. “The best attack is defense,” he added.

Expansion of DarkMatter into Saudi Arabia is one of the priorities for later this year, moving the firm outside its UAE base and complementing existing business centers in Canada, Finland and India. “Saudi Arabia is probably one of the markets we’ll look at very closely,” he said.

One line of defense Sabbagh unveiled at IDEX was the new version of DarkMatter’s successful Katim phone, an ultra-secure and virtually indestructible mobile device that the firm is aiming at the defense, energy and government sectors.

The first version of the device was a big commercial success, but the second is designed to operate in even more hostile environments, with the promise of total data security.

“It’s designed to military standards in terms of ruggedness. Our engineers ran over it in a truck, and I wasn’t amused until they showed me a video of the phone working afterward,” he said.

“You can immerse it in water for 30 minutes and it still works. If the phone detects any attempt to try to interfere with it, either physically or via software, the data stored on it will automatically self-destruct. It’s a leap forward for us,” he added, emphasizing the “quantum resistant crypto protocols” that DarkMatter uses.

What do governments, always protective of data security, think of the new device? “The government is one of the users, as well as businesses where you have critical infrastructure being deployed,” he said.

Sabbagh summed up DarkMatter’s essential business philosophy: “Smart nations and smart business can’t be truly smart unless they can secure their communications. If they aren’t secure I can access their communications, hack them and interrupt their operations. People can give me all the smart slogans they want, but if I can hack you and interrupt your information, that’s not a very smart proposition.”