Saudi Arabia seeks stable, not soaring, oil prices

Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. (Reuters)
Updated 22 September 2018
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Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.


Uber agrees to pay VAT in Egypt

Updated 53 min 50 sec ago
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Uber agrees to pay VAT in Egypt

  • Egypt introduced a law last May regulating ride-hailing apps Uber and Careem
  • Uber has said that Egypt is its largest market in the Middle East
CAIRO: Uber has agreed to pay value-added tax on its services in Egypt, Egyptian officials said on Monday, a move that may help resolve a long-simmering feud with traditional taxi drivers.
The agreement would also apply to other ride-hailing companies, the head of the Egyptian Tax Authority, Abdel Azeem Hussein, said. Egypt’s value-added tax (VAT) rate is 14 percent.
“Reaching an agreement and determining the tax treatment that will be applied to the company Uber and other companies operating in the same area will enhance confidence and cooperation between the authority and the tax community,” state news agency MENA quoted Hussein as saying.
Uber Egypt was not immediately available for comment.
Egypt introduced a law last May regulating ride-hailing apps Uber and Careem, after Egyptian taxi drivers filed a lawsuit arguing that the two companies were illegally using private cars as taxis and were registered as a call center and an Internet company, respectively.
An Egyptian court suspended Uber and Careem’s services in March last year after the taxi drivers’ suit but another court stayed the suspension ruling in April, allowing the companies to operate while the case was appealed to a higher court. A verdict is expected on Saturday.
Careem could not immediately be reached for comment on whether it will pay the VAT.
Uber riders and drivers in Egypt have said they faced various technical difficulties with the Uber app in recent weeks, which two security sources said was linked to data-sharing disputes with Egyptian authorities.
Uber has faced regulatory and legal setbacks around the world amid opposition from traditional taxi services. It has been forced to quit several countries, including Denmark and Hungary.
Uber has said that Egypt is its largest market in the Middle East, with 157,000 drivers in 2017 and 4 million users since its launch there in 2014.