Oil mixed as Iran sanctions seen tightening market, trade spat weighs on trade

FILE PHOTO A worker inspects a pump jack at an oil field in Tacheng, Xinjiang Uighur Autonomous Region, China June 27, 2018. (Reuters)
Updated 10 August 2018
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Oil mixed as Iran sanctions seen tightening market, trade spat weighs on trade

  • Front-month Brent crude oil futures were at $72.12 per barrel at 0246 GMT, up 5 cents from their last close
  • Despite the possibility of a slowdown in economic growth due to escalating trade tensions, oil markets are for now relatively tight

SINGAPORE: Oil markets on Friday were torn between concerns that the US-China trade dispute would stall economic growth, while Washington’s sanctions against Iran were expected to tighten supplies.
Front-month Brent crude oil futures were at $72.12 per barrel at 0246 GMT, up 5 cents from their last close.
US West Texas Intermediate (WTI) crude futures were flat at $66.81 a barrel.
Despite the possibility of a slowdown in economic growth due to escalating trade tensions, oil markets are for now relatively tight, analysts said, mostly because of sanctions on Iranian oil exports the United States plan to implement in November.
Although many other powers, including the European Union and major Asian buyers such as China and India oppose sanctions, many are expected to bow to American pressure.
“Iranian exports are set for a ‘cliff edge exit’ from the market in Q4 2018,” BMI Research said in a note.
“We do not believe that sanctions have been fully priced into Brent, leaving room for a significant run up in prices toward the end of the year,” it added.
Analysts expect the drop-off in Iranian crude exports to range between 500,000 barrels per day and 1.3 million bpd.
The reduction will largely depend on whether major buyers of Iranian oil in Asia, including India, South Korea and Japan, receive sanctions waivers that would still allow some imports.
It is also not clear whether China, the biggest buyer of Iranian crude, will bow to Washington’s pressure.

Trade dispute

Friday’s markets acted cautiously amid heightened trade tensions between Washington and Beijing.
“The market seems to be focused on fears of reduced demand from China, partially due to the effects of the trade wars between China and the United States,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
In the latest round, China said it would impose additional tariffs of 25 percent on $16 billion worth of US imports, which would include refined products, autos and medical equipment.
Crucially to oil markets, however, crude has been dropped off the list.
Kenneth Medlock of the Baker Institute for Public Policy said Beijing’s decision reflected China’s reliance on imports.
“The issue for the Chinese is that any tariff on US exports (including) oil will likely hurt their economy disproportionately because they have to import,” he said, noting that “US exports will find a home regardless of how the global supply deck is reshuffled.”
US crude exports to China, seen as a tool to reduce America’s trade deficit with Asia’s biggest economy, have soared in the last two years and by the middle of this year were worth around $1 billion per month.


SABIC prepares to meet investors to offer bond

Updated 25 September 2018
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SABIC prepares to meet investors to offer bond

  • The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25
  • SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale

LONDON: Saudi Basic Industries Corp. (SABIC) is preparing to offer its dollar-denominated unsecured bond to the global market with investor meetings due to start this week.
The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25, according to a filing on the Saudi stock exchange on Tuesday.
The Saudi company is likely to be keen to tap into the heightened international interest in the Kingdom’s financial markets following the lifting of some restrictions on foreign investors’ activities at the start of the year.
SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale, alongside HSBC Bank, Mitsubishi UFG Securities EMEA and Standard Chartered Bank acting as joint lead managers, in its Tadawul note.
The proposed issuance has been well-received so far by analysts with ratings agency Moody’s Investor Service assigning an ‘A1’ rating to the proposed senior unsecured notes to be issued by the financial vehicle, referred to as SABIC Capital II, and guaranteed by SABIC itself.
“SABIC’s A1 rating reflects its strong business position in the chemical sector and its ability to weather industry volatility, particularly given its healthy operational cash flows and conservative liquidity profile,” said Rehan Akbar, a senior analyst at Moody’s, in a note on Monday.

 

The bond is anticipated to be used in part to refinance an existing SR11.3 billion ($3 billion) one-year bridge loan raised in January this year to fund the company’s 24.99 percent stake in the Swiss chemical company Clariant, according to the Moody’s note. All regulatory requirements were completed on this acquisition earlier this month.
Cash proceeds from the bond may also be used to repay a $1 billion bond due on Oct. 3, according to Moody’s.
On Tuesday SABIC confirmed that the bond will be used mainly to refinance “outstanding financial obligations” of the company and its subsidiaries.
Analysts at rating agency S&P Global were also upbeat about SABIC’s outlook, with research published on Monday stating that the company has “strong profitability” via its KSA operations and a “strong” liquidity position.
“The debt issuance is helpful for the credit profile in the sense that it extends the company’s debt maturity profile and strengthens its liquidity position,” said Tommy Trask, corporate and infrastructure credit analyst at S&P Global.
The agency currently assigns the petrochemical firm an ‘A Minus’ rating, with a “stable outlook,” which it said reflects its “view on the sovereign as well as its expectations that SABIC will maintain high profitability under current benign industry conditions.”
S&P Global’s report said margins in the global chemical industry will “largely stabilize in 2018 following several years of improvement, attributable to the increase in commodity chemical capacity.”
However, it also warned that a key risk to credit quality is
the trend for mergers and acquisitions within the sector and the “potential negative impact on credit metrics from funding them with debt.”

FACTOID

SABIC operates in more than 50 countries across the world.