Oil market volatility will continue into 2019, but will settle at solid price

While OPEC has in the past underestimated the growth of the US shale industry, the CEOs of two energy firms on Wednesday stressed that output from the sector would likely slow down. (AFP)
Updated 24 January 2019
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Oil market volatility will continue into 2019, but will settle at solid price

  • Expectation oil prices could settle within the $60 to $70 range
  • OPEC and its allies have been cutting output since 2017 to help support prices

LONDON: Oil market volatility is expected to continue in 2019, but there are expectation prices could settle within the $60 to $70 range — seen as a sweet spot for both producers and consumers.
That was the message that emerged from a panel of global energy leaders at the World Economic Forum in Davos on Wednesday which also heard that US shale output would likely slow.
OPEC and its allies have been cutting output since 2017 to help support prices while US producers looked to ramp up production.
The US has overtaken Russia and Saudi Arabia to become the world’s biggest crude producer, with output approaching 12 million barrels per day (bpd).

 

But while OPEC has in the past underestimated the growth of the US shale industry, the CEOs of energy firms Occidental Petroleum and Hess Corp. on Wednesday stressed that output from the sector would likely slow down.
“I believe not as much money will be pouring into the Permian basin this time. I believe investors will hold companies accountable for returns and a lot of this didn’t happen previously,” Occidental CEO Vicki Hollub said.
Hess Corp. CEO John Hess said shale production now accounted for about 6 percent of global production and would rise to about 10 percent before plateauing.
“Shale is not the next Saudi Arabia. It is an important short-cycle component,” he said.
OPEC Secretary-General Mohammed Barkindo said OPEC wanted to balance supply and demand in the market and had helped the US oil industry by acting to support prices.

FASTFACTS

The US has overtaken Russia and Saudi Arabia to become the world’s biggest crude producer.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”