Oil rises on expected OPEC cuts, but surging US supply drags

US output has surged by almost a quarter since the start of the year. (Reuters)
Updated 16 November 2018
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Oil rises on expected OPEC cuts, but surging US supply drags

  • Prices were mainly supported by expectations OPEC would start withholding supply soon
  • US output has surged by almost a quarter since the start of the year

SINGAPORE: Oil prices rose on Friday amid expectations of supply cuts from OPEC, although record US production dragged.
US West Texas Intermediate (WTI) crude oil futures were at $56.84 per barrel at 0353 GMT, up 38 cents, or 0.7 percent, from their last settlement.
Brent crude oil futures were up 48 cents, or 0.7 percent, at $67.10 per barrel.
Prices were mainly supported by expectations the Organization of the Petroleum Exporting Countries (OPEC) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.
OPEC’s de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5 percent of global supply, sources told Reuters this week.
However, Morgan Stanley warned a cut by the Middle East dominated producer group may not have the desired effect.
“The main oil price benchmarks — Brent and WTI — are both light-sweet crudes and reflect this glut,” the US bank said.
“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”
Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said that “OPEC cuts are inherently temporary (because) all they can do is shift production from one period to another.”
While OPEC considers withholding supply, US crude oil production reached another record last week, at 11.7 million bpd, according to US Energy Information Administration (EIA) data published on Thursday.
US output has surged by almost a quarter since the start of the year.
The record output meant US crude oil stocks posted the biggest weekly build in nearly two years.
Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.
This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.
“Oil bulls, us included, have capitulated and we no longer see oil climbing to $95 per barrel next year,” Bank of America Merrill Lynch said in a note.
While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.
“We expect 2019 oil demand to reach 101.1 million bpd,” natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100 million bpd this year.
At the same time, the firm said production outside North America was set to disappoint.
Add OPEC’s expected supply cuts, and Goehring & Rozencwajg said “those investors who are able to adopt a contrarian stance ... and stomach the volatility ... are being presented with an excellent investment opportunity” to buy into oil after the recent slump.
Bank of America agreed, saying “we believe oil is oversold and will likely bounce up from the current levels, as OPEC+ dials back production in December.”


Saudi Arabia aims to achieve e-payment target of 70%

Updated 22 February 2019
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Saudi Arabia aims to achieve e-payment target of 70%

  • Reform plan seeks cashless society
  • E-payments could exceed $22bn in next four years

RIYADH: Saudi Arabia wants to achieve an e-payment target of 70 percent by 2030, a banking official told Arab News on Thursday, as the country moves toward becoming a cashless society.

Talat Hafiz, from the Media and Banking Awareness Committee for Saudi Banks, said online or cashless transactions were part of the Vision 2030 reform plan.

The Financial Sector Development Program (FSDP) was one of the initiatives to support the economic growth goals of Vision 2030, he added.

“Basically it is to transfer Saudi society from being heavily cash dependent in buying goods and services to a cashless society using digital and electronic payment,” he told Arab News. “One of the FSDP’s main targets is to increase and improve the percentage of non-cash utilization, from 18 percent in 2016 to 28 percent in 2020. However, the goal will increase of course with the target to 70 percent by 2030.”

Hafiz, in an Arab News column published earlier this month, said the Saudi Arabian Monetary Authority (SAMA) had been encouraging electronic payments and settlements in order to reduce the reliance on cash.

SAMA had introduced a number of e-payment systems in the last two decades to help consumers and institutions, he wrote, such as the Saudi Arabian Riyal Interbank Express and the online bill payment portal SADAD.

Earlier this week Apple Pay was launched in the Kingdom, joining the cashless roster of payment methods available to Saudi consumers.

A cashback service operated by credit card companies, where a percentage of the amount spent is paid back to the cardholder, was introduced last year in Saudi Arabia.

An illustration of how direct debit works, courtesy of the Saudi Arabian Monetary Authority (SAMA).

“All of these efforts collectively from the SAMA side are to reach the ambitious goal of the FSDP.”

Hafiz explained that e-payments saved time and effort and allowed people to access service and goods around-the-clock. 

“This is basically why SAMA is very active and now we see SAMA and the National Payment System are responsible and leading (the country) toward a cashless society by achieving the target set by 2030.”

Last February the Amazon-owned Payfort online payments service registered a new company in Saudi Arabia.

According to the “Payfort State of Payments 2017” report, Saudi Arabia and the UAE are the fastest growing markets in the region for electronic payments.

The report estimates that Saudi Arabia conducted $8.3 billion of payment transactions in 2016, showing 27 percent year-on-year growth.

E-payments in the Kingdom are expected to double over the next four years to reach more than $22 billion, the report added.