A bearish week in oil — but the bulls will run for the rest of quarter one

Last week saw several developments in the oil market that should have raised prices — yet it ended with bearish sentiment. (Reuters/File Photo)
Updated 11 February 2019
0

A bearish week in oil — but the bulls will run for the rest of quarter one

  • The signals for the rest of the first quarter of 2019 are on the upside
  • The US sanctions on Venezuelan oil exports are also affecting the market

RIYADH: Last week saw several developments in the oil market that should have raised prices — yet it ended with bearish sentiment, with Brent easing to $62.10 per barrel, and WTI falling to $52.72.
The signals for the rest of the first quarter of 2019 are, however, on the upside. The market is extremely tight — especially in medium and heavy crude grades. If that continues, the global market will face a huge supply shortage, exceeding the conditions that drove oil prices above $86 last year.
There are several factors behind this. According to a S&P Global Platts survey, OPEC production in January was at its lowest level since March 2015. Crude output plunged to 30.86 million barrels per day (bpd), a fall of 970,000 bpd from December, as new supply quotas went into force on Jan. 1.
On top of that, a potential return of supply from Libya has not yet materialized in the market — with ongoing unrest at the El Sharara oilfield, further restricting supply.
Strong imports from China are also deepening market tightness, with total crude imports at 10.4 million bpd, up around 2.3 million bpd from last year.
This a bullish development. China crude oil imports are still rising despite the trade dispute with the US. This means that the oil-price deterioration due to a global economic slowdown, as predicted by some, is completely wrong.
The US sanctions on Venezuelan oil exports are also affecting the market. Venezuelan oil production had already experienced problems prior to the sanctions, given the deterioration of infrastructure and internal labor problems. S&P Global Platts expects oil output to further fall to below 800,000 bpd by the end of February.
Counter to all this is that US producers continue to put more oil on the market, with output at a record 11.9 million bpd lately, with exports reaching 2.8 million bpd, the fourth-highest number on record.
Yet given the other factors at play, it is intuitive that the tightness in the market will transform into shortage before the end of the first quarter of 2019 — and that will boost prices.


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

Updated 15 February 2019
0

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.”