Saudi Arabia raises oil output amid fears of supply crunch

Gas is flared off at Khurais oilfield. Saudi crude shipments rose during May to 7.16 million bpd, up 250,000 bpd month-on-month. (Reuters)
Updated 13 June 2018
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Saudi Arabia raises oil output amid fears of supply crunch

  • The IEA noted that only Saudi Arabia and OPEC’s other Middle East members have the ability to ramp up production swiftly to alleviate any supply shortages in the market.
  • US President Donald Trump blamed OPEC for excessive oil prices. “Oil prices are too high, OPEC is at it again. Not good!”

LONDON: Saudi Arabia posted the biggest month-on-month increase in oil supply of any OPEC country in May, according to the latest report from the International Energy Agency (IEA).
The Kingdom’s production was up 100,000 barrels per day (bpd) to 10.02 million barrels. Domestically, more crude was burned in Saudi power plants during the month, partly due to higher air-conditioning use.
The IEA noted meanwhile that only Saudi Arabia and OPEC’s other Middle East members have the ability to ramp up production swiftly to alleviate any supply shortages in the market. That is viewed as vital in the event of further output drops from Venezuela, and expected shortfalls from Iran when US sanctions bite later this year.
The report estimated that Middle East OPEC countries could increase production in fairly short order by about 1.1 million bpd, and there could be more output from Russia.
After oil prices surged to $80 a barrel in mid-May, Saudi Energy Minister Khalid Al-Falih said that the Kingdom, along with other producers, would ensure the availability of adequate supplies to offset any potential shortfalls.
According to information from data intelligence company Kpler, Saudi crude shipments rose during May to 7.16 million bpd, up 250,000 bpd month-on-month.
“However, even if the Iran-Venezuela supply gap is plugged, the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption. It is possible that the very small number of countries with spare capacity beyond what can be activated quickly will have to go the extra mile,” the IEA said.
US President Donald Trump yesterday blamed OPEC for excessive oil prices. “Oil prices are too high, OPEC is at it again. Not good!” Trump tweeted on Wednesday, the second time in two months he blamed the bloc for higher oil prices.
Saudi Aramco is moving ahead with plans to raise output from offshore oil fields by more than 1 million bpd by 2023 to compensate for declining onshore production and to sustain overall capacity, which now stands at around 12 million bpd.
Aramco has invited bids to build new units to expand the Marjan oil field from 500,000 bpd currently to 800,000 bpd. Aramco also recently invited bids to boost the 300,000 bpd Berri field by 250,000 bpd. The expansion effort also includes the 550,000 bpd Zuluf field, where capacity will be raised by 600,000 bpd.
In May, the IEA said, higher flows from Saudi Arabia, Iraq and Algeria outweighed a fall in Nigerian supply and further losses in Venezuela, lifting OPEC crude production by 50,000 bpd to 31.69 million bpd. Crude oil output was nonetheless down 610,000 bpd on 2017 due to Venezuela’s sharp decline.
For 2019, IEA anticipates growth of 1.4 million bpd due to a “solid” economic background and an assumption of more stable prices. Demand growth for 2018 is also forecast at 1.4 million bpd.
But downside risks were growing in the wake of the G-7 bust-up involving President Donald Trump and his Western allies.
Dangers included the possibility of higher prices amid trade disruptions prompted by the tariffs war unleashed by the US against China, but which has also sucked in the EU, Canada and Mexico.
There were already signs of a slowdown in the growth of global trade volumes, the IEA said, which was “a concern.”


INTERVIEW: SABB Managing Director David Dew steering through historic transaction in Saudi banking

Updated 20 October 2018
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INTERVIEW: SABB Managing Director David Dew steering through historic transaction in Saudi banking

DUBAI: David Dew has been working in banking in the Middle East and other emerging markets for 40 years, and you might think he has seen it all. But the merger between SABB and Alawwal in Saudi Arabia — which he is steering through to completion next year — is a career achievement for him.
“I think it’s a clear case of a win-win situation, and all our stakeholders will get benefit from it. It’s a genuinely exciting landmark transaction, and a significant transformation for the Kingdom,” he said.
It is a historic transaction, Dew explains. “It is the third biggest banking merger in the history of the region — the other two were in the UAE with significant government ownership — so SABB-Alawwal is also the biggest private banking merger for 20 years. It’s the first since the Capital Market Authority (CMA) was formed and the first since the new takeover rules came in.”
The merger will create the third biggest bank in the Kingdom by assets, loans and deposits, and — perhaps more significant in the current financial environment — forge a bank that is unashamedly international in its outlook. The transaction has its origins in the different imperatives of foreign banks operating in the Kingdom. Saudi Arabia has been identified as a global growth market by HSBC, which holds 40 percent of SABB — full name the Saudi British Bank.
Alawwal — the “first bank” in Arabic, reflecting its long heritage in the Kingdom — was dominated by a consortium of foreign banking interests, notably cash-strapped RBS (Royal Bank of Scotland) of Britain. RBS and its consortium partners — from Spain and Holland — wanted to reduce their overseas footprint. Getting out of Alawwal was a logical move from that perspective.
RBS and the Spanish bank Santander — which would each have about 4 percent of the enlarged company — have undertaken not to sell their shares for six months after completion.

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BIO

 

Born: Farnborough, UK, 1955

Education

•Farnborough Grammar School

•University of Cambridge, MA in Economics

Employment

•British Bank of Middle East, Oman

•Various positions around the world with HSBC

•Managing director, SABB

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The foreigners’ different strategic interests might have been the original spark for the merger, but Dew firmly believes it is in the best interests of the Saudi banking business, and bank customers. “Our first stakeholder is the Kingdom, and the merger is a great example of why and how Vision 2030 is actually working. It’s showing that Saudi Arabia is open for business. An important part of the Vision plan is the financial sector development program, and this merger shows it is working.
“The idea is to grow and develop capital markets, and this will help the Kingdom do that. It’s the kind of thing that just might not have happened even a few years ago.”
The next set of stakeholders he is working to satisfy is the regulatory establishment. The deal has been quite a long time in gestation, and much of that time has been taken up in getting it just right from a regulatory standpoint. “It’s taken a bit longer than you might have expected, but the regulators have been with us all the way — the CMA, the Saudi Arabian Monetary Authority, and the Ministry of Finance. All good things take time, and it is more important to do it right than to do it quick,” he said.
The next key group of stakeholders are the shareholders on both sides. In addition to HSBC and the RBS consortium, there are big investors in both banks in the shape of the Olayan conglomerate, and the government agency the General Organization for Social Insurance. Both have recused themselves from involvement in the merger negotiations. But both boards have recommended the merger terms.
“We’ve explained the business rationale and made a compelling case to them that the merger creates value. There will be a circular from both parties to all shareholders, we hope, by the end of the year.”
The next stakeholders on the list are the customers. “I know it’s a cliche that the customers are all important, but it’s true, and they will see real benefits,” Dew said.
Comprising as much as 75 percent of the new bank’s business, the corporate sector will be crucial. “It will be the leading corporate bank by lending, and will offer other products, too, for example trade finance. It will also be the leading cash management business, and a significant foreign exchange provider.
“I think it will occupy a powerful corporate position and overall will be a bellwether for the underlying economy, so it will be followed closely by anybody interested in the Kingdom’s business,” Dew explained. With a market capitalization of about SR65 billion ($17.33 billion) and a sizeable free float on the Tadawul, it will be valuable proxy for investment in the modernizing Kingdom.
The new bank will also use its connection with HSBC’s powerful investment banking operation in Saudi Arabia to help satisfy customers’ needs in that segment.
In the retail sector, it will never be as big as NCB or Al Rajhi, market leaders with more than 50 percent of the retail market between them. But with about 10 percent of the Kingdom’s retail market, Dew feels it will be approaching the “tipping point” at which it becomes a serious player.
“The home loans market is critical. We estimate we’ll have 16 percent of that market, which is vitally important to the changes that are happening in the Kingdom,” he said. It will also have around 20 percent of the Saudi credit card market, he estimated.
“We will redouble our efforts to offer a good SME (small and medium-sized enterprises) proposition. SABB has not done enough in this sector, but we will do more, and the ability to do it will be enhanced by the merger,” he added.
“For corporate customers, we will be able to offer the biggest balance sheet and underwriting capability, which adds up to more ‘muscle’ for corporate clients. For retail customers, we will offer additional scale and focus, especially on the digital side. This is the future for the retail banking business, and we will build on Alawwal’s strengths here. They are pretty good in digital already. They have punched above their weight,” Dew said.
The final group of stakeholders are the employees. “Again it is trite to say ‘We are nothing without our people,’ but I happen to believe it. We have promised and we mean it, that there will be no involuntary redundancies. That does not mean there will be no losses through attrition. People come and go all the time, so that is only natural,” Dew said.
The new bank will have 4,800 employees, more than 90 percent of them Saudi citizens and 20 percent women. Its new chairperson will be Lubna Olayan, head of the eponymous conglomerate and one of the leading business figures in the Kingdom. “She has a track record in business, leadership expertise and international connectivity. To have somebody like that as chair of the new bank is an incredibly powerful statement. She will also be the first female chair of a listed Saudi company,” said Dew, who will be managing director of the new entity.
The bank will start operating in what Dew sees as an improving economic and financial environment in the Kingdom, with the long-promised privatization and initial public offering program materializing. “Two years ago, growth and bank lending were falling. In 2018 there has been a modest but significant improvement, and I do believe next year is going to show further improvement.”
On the geopolitical background, always a big factor in the business climate in the region, he brings a historical perspective to bear.
“When I came here 40 years ago, Israel-Palestine was the big issue. Since then, the region has become even more complicated and volatile. But business has navigated through these problems and I’m confident it will do so again. It’s all about having strong foundations,” he said.