Saudi energy minister says market to remain oversupplied by March 2018

Saudi Arabia's Energy Minister Khalid al-Falih talks to journalists before the beginning of a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, on May 25, 2017. (REUTERS/Leonhard Foeger/File Photo)
Updated 17 November 2017
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Saudi energy minister says market to remain oversupplied by March 2018

BONN, Germany: The world will still have a surplus of oil by end-March next year, Saudi Arabia’s energy minister said on Thursday, signaling a willingness to extend output cuts when OPEC meets at the end of November on whether to extend caps well into 2018.
Khalid Al-Falih also said he did not want oil prices to rise too fast and too soon to shock consumers, adding that the exit from production cuts would be gradual to make sure market reaction is smooth.
“We need to recognize that by the end of March we’re not going to be at the level we want to be which is the five-year average, that means an extension of some sort,” he said, referring to inventory levels in the developed world.
“We have gone over 50 percent in reducing excess inventories but that means we still have some excessive inventories that we need to drain,” he told journalists on the sidelines of the UN climate conference in Bonn, Germany.
“We don’t want any spikes in price that shock the market. We don’t want any price movements that are unhealthy for demand. We don’t think we’ve seen any of that yet but that’s a potential especially if God forbid we have disruptions in any major country. We’re hopeful none of this will happen.”
Asked about the most recent spike in oil prices to a two-year high this month he said, “I am not distracted by short-term gyrations in prices and I certainly don’t spend time looking at hedge funds and the flows into financial investment instruments.”
Falih said it was too early to make an assessment on a possible extension to OPEC’s global oil output cuts now, but said Saudi Arabia favors making an extension decision at the next OPEC meeting at the end of the month.
“The November 30 meeting will be an important milestone to announce the way forward. My preference is to give clarity to the market and announce on November 30 what we’re going to do.”
He said Riyadh was in extensive consultations with all colleagues around the world within and outside OPEC.
Asked whether Russia was committed, Falih said: “I have had extensive consultations with my Russian colleagues and I will have some more in the next two weeks, but I know one thing is that the Russians are committed to working with Saudi Arabia and with the rest of the 24 countries that have come together last year.”
He said OPEC will have a better picture closer to the meeting on market fundamentals that will help in making the decision.
“We are waiting for October data to be fully developed and shared with the technical team,” Falih said.
“We’re also waiting for better projections of the fourth and first quarter which are typically lower demand and we will have picture of supply from sources that are not part of the deal. That will give us better predictions on when markets will balance as well as finishing the consultation.”
Asked how OPEC would deal with potential supply shocks to the market including from OPEC member Venezuela where oil production hit a 28-year low recently, he said OPEC’s reaction would depend on the length of the disruption.
“If anything is extended then we will take proper action to make sure that consumers around the world are not short of oil.”
“I assure you that nobody will be short of oil but at the same time we will not stop our current action until global inventories are rebalanced,” he said.

Exit strategy
Asked what OPEC’s exit strategy from the supply control deal was, Falih said it would be one of gradual adjustment.
“We’ve done our reduction in a gradual way at the beginning of this year and it has worked beautifully so far.”
“We will be very mindful when the agreement ends ... so that we don’t enter a period of excess supply that builds inventories again,” he added.
Falih said Saudi Arabia’s market share remains “healthy” despite the cuts to its exports.
“We’re still number one or number two in all the major markets that we target like Japan, China, Korea, India.”
But in the United States, he said, Saudi Arabia deliberately trimmed its supply because it was an oversupplied market. He said USexports were already at 2 million bpd and the Americas as a region is also a major producer.
“The US has access to Canadian, Mexican, Venezuelan, the US Gulf of Mexico and of course shale production.”
Saudi Arabia’s action in the United States was unique to the country but was not intended to be permanent.
“Once the supply curbs are lifted we’ll probably be back in the US to make sure that our customers receive Saudi crude.”


China’s real estate investment slows as caution sinks in

Updated 19 October 2018
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China’s real estate investment slows as caution sinks in

  • Property increases downside risks to economy
  • September new construction starts up by a fifth

BEIJING: Growth in China’s real estate investment eased in September and home sales fell for the first time since April, as developers dialled back expansion plans amid economic uncertainties and as additional curbs on speculative investment kicked in.
A cooling market could increase the downside risks to the world’s second-largest economy, which faces broader headwinds including an intensifying trade war with the United States.
However, while analysts acknowledge increasing caution in the property market, they say investment levels are still relatively high, suggesting a hard landing remains unlikely.
Growth in real estate investment, which mainly focuses on residential but also includes commercial and office space, rose 8.9 percent in September from a year earlier, compared with a 9.2 percent rise in August, Reuters calculated from National Bureau of Statistics (NBS) data out on Friday.
“I think overall, China’s real estate market is still resilient, and the decline in sales is within our expectations,” said Virginia Huang, Managing Director of A&T Services, CBRE Greater China.
“There is no sign that the government has relaxed their control, but it still has many methods and tools to support the market if the economy deteriorates rapidly,” Huang said.
Real estate has been one of the few bright spots in China’s investment landscape, partly due to robust sales in smaller cities where a government clampdown on speculation has been not as aggressive as it is in larger cities.
The market has struggled as authorities continued to keep a tight grip over the sector, ramping up control in hundreds of cities. Transactions fell sharply over the period dubbed “Golden September and Silver October,” traditionally a high season for new home sales.
Property sales by floor area fell 3.6 percent in September from a year earlier, compared with a 2.4 percent gain in August, according to Reuters calculations, the first decline since April. In year-to-date terms, property sales rose 2.9 percent in the first three quarters.
China’s central bank governor Yi Gang said last week he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
The government has implemented four RRR cuts this year, releasing hundreds of billions in new liquidity to the market.
China has for several years pushed a deleveraging campaign to reduce financial risks, clamping down on shadow banking and closing many “grey” financing channels for real estate firms.
For many highly leveraged developers, there are already signs of increasing caution as exemplified by a surge in failed land auctions due to tight liquidity and thinning margins.
New construction starts measured by floor area, an indicator of developers’ expansion appetite, rose 20.3 percent in September from a year earlier, compared with a 26.6 percent gain in August, Reuters calculations showed.
That’s against the backdrop of seemingly looser funding conditions for China’s real estate developers, who raised 12.2 trillion yuan ($1.76 trillion) in the first nine months, up 7.8 percent from the same period a year earlier, the NBS said.
The growth rate compared with a 6.9 percent increase in January-August period.
“Many developers will face lots of maturing debt by the end of this year, and there are perceived risks in the economy, so they will be more cautious,” Huang said.
China’s housing ministry is considering putting an end to the pre-sale system that developers use to secure capital quickly, in an effort to crack down on financial risks in the property sector.
China’s home prices held up well in August, defying property curbs. But analysts expect additional regulatory tightening and slowing economic growth will soon take the wind out of the property market’s sails.
The National Bureau of Statistics will release September official home price data on Saturday.