Last week in oil: The big Brent recovery as Iran sanctions loom

the close of last week, the Brent crude price had risen to $75.82 a barrel, with WTI (Nymex) also up late on Friday. (AFP)
Updated 25 August 2018
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Last week in oil: The big Brent recovery as Iran sanctions loom

RIYADH: At the close of last week, the Brent crude price had risen to $75.82 a barrel, with WTI (Nymex) also up late on Friday.
Oil prices rose amid the fall in US crude inventories by 5.84 million barrels, the biggest drop in four weeks. Cushing, Oklahoma inventories were at multi-year lows, 40 million barrels down since mid-May. This was attributed to record-high US refining use amid healthy refining margins, and the summer driving season’s robust demand. Also, there has been a disruption of Syncrude production in Alberta since June.
The recovery in oil prices last week was also due to a tightening market as a result of the upcoming Iranian oil supply disruption.
Further tightening in the market came as S&P Global Platts figures showed sharply lower oil exports from Iran for the first half of August, down to 1.68 million barrels per day compared to July exports that averaged 2.32 million barrels per day.
In addition to the lack of upstream investment and new technologies, as the European oil supermajors have walked away from investing in Iranian upstream projects, Iran’s old oil fields are operating under severe production constraints and despite any cutback in exports, those fields will not be mothballed.
Instead they will keep pumping oil at a slow and steady pace. Iran will return to the 2012–2015 scenario, where it accumulated crude in floating storage vessels waiting for sanctions to end. This is the only way Iran can maintain production from its old wells. While Iran will still be producing, there will be fewer buyers.
Together, China and India have been the two largest purchasers of Iranian crude at about 1.2 million barrels per day. Unlike during the previous 2012-2015 sanction period, both China and India are trying in advance to navigate to other suppliers to partially replace Iranian crude. During the previous sanctions, China and India slightly trimmed their Iranian oil imports, but oil-to-goods swaps continued. When Iran had fewer customers both nations benefited from deeper discounts and took advantage of better terms. These trade swaps took years to settle.
It’s already clear that China and India are adopting different strategies in regard to Iranian oil. China is one of the biggest buyers of US oil exports. However, given the current China-US trade dispute, the Asian giant does not want to lose its Iranian crude imports. China has already been hit with the loss of Venezuelan crude, due to the collapse of production in the beleaguered South American nation. Now, China is indicating that it is still willing to purchase crude from Iran, even going so far as to switch to shipping the crude on vessels owned by the National Iranian Tanker Co.
On the other hand, India needs to maintain easy access to the US financial system and to do so it must aim to comply with the US sanctions policy. Like China, India has also lost access to 300,000 barrels per day of crude from Venezuela. It is aiming to purchase more oil from the US, Mexico, Azerbaijan and the Arabian Gulf, but replacing nearly 600,000 barrels per day of Iranian crude is a major undertaking. It seems that the economies of China and India are both vulnerable to the tightening oil market and uncertainties over supplies later this year, when US sanctions against Iran will start to bite.


Saudi Arabia relaxes ownership limits for foreign investors

Updated 26 June 2019
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Saudi Arabia relaxes ownership limits for foreign investors

  • Capital Market Authority chairman, Mohammed El Kuwaiz said, ownership in the Saudi capital market by financial investors had increased threefold this year
  • The move aims to help enhance the market’s efficiency and attractiveness and to expand the institutional investments base

RIYADH,: Saudi Arabia has relaxed a 49% limit for foreign strategic investors in shares of listed companies, aiming to attract billions of dollars of foreign funds as the Kingdom opens up the region’s largest bourse to a more diverse investor base.
The country has introduced a raft of reforms in recent years to make its stock market, the region’s biggest, attractive to foreign investors and issuers.
The move aims to help enhance the market’s efficiency and attractiveness and to expand the institutional investments base, the regulator, the Capital Market Authority (CMA), said in a statement on its website.
The Saudi stock market, which opened to foreign investors in 2015, has seen an upsurge in foreign fund flows since the start of the year due to its inclusion in the emerging markets indexes.
“In the beginning of this year, we had only one percent ownership in the Saudi capital market by financial investors, today it is over three percent, that’s more than a threefold increase,” CMA chairman, Mohammed El-Kuwaiz told Reuters in an interview.
“Our hope is that we can see a similar increase in terms of pace and magnitude as we start to create more avenues for foreign investors to come in to the market,” he added.
There will be no minimum or maximum ownership limit, although the owners must hold the shares for two years before they can sell.
Kuwaiz said huge demand from non-financial foreign investors pushed the CMA to grant approval on an exceptional basis to a number of strategic foreign investors to increase their holdings in Saudi listed companies. These included transactions at an insurance firm and a local bank.
Foreign investors have been net buyers of Saudi equities over the past few months, with purchases worth 51.2 billion riyals ($13.6 billion) until May 30. They currently own 6.6% of Saudi equities, of which 3.15% is owned by strategic foreign investors.
Local shares were incorporated into the FTSE emerging-market index in March and the MSCI emerging market benchmark in May this year. The country’s Tadawul All-Share Index is up 11 percent year-to-date.
Strategic foreign investors can take stakes in listed companies by buying shares directly on the market, or through private transactions and via initial public offerings.
Asked how this move would reflect on the Aramco IPO, planned for 2021, Kuwaiz said it would assure that the market has the physical regulatory and investor infrastructure to accommodate a company as large and as extensive as Saudi Aramco.