Oil drops 1 pct as economic outlook weakens, US supply surges

With surging US oil supply also unsettling markets, Brent crude futures fell 56 cents, 0.8 percent, to settle at $65.74 a barrel. (Reuters/File Photo)
Updated 09 March 2019
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Oil drops 1 pct as economic outlook weakens, US supply surges

NEW YORK: Oil prices fell about 1 percent on Friday after disappointing US job growth revived concerns about a slowing global economy and weaker demand for oil.
With surging US oil supply also unsettling markets, Brent crude futures fell 56 cents, 0.8 percent, to settle at $65.74 a barrel. The international benchmark gained 1 percent for the week.
US West Texas Intermediate (WTI) crude futures fell 59 cents, or 1 percent, to settle at $56.07 a barrel. WTI rose 0.5 percent for the week.
US job growth almost stalled in February, with the economy creating only 20,000 jobs amid a contraction in payrolls in construction and several other sectors. The report dragged down US stock markets, along with oil futures.
Financial markets also took a hit after comments on Thursday from European Central Bank President Mario Draghi, saying the European economy was in “a period of continued weakness.”
“If we see equity markets continue to sink, it will eventually drag energy prices lower with it,” Brian LaRose, a technical analyst at United-ICAP.
The European and US economic weakness comes as growth in Asia is also slowing.
China’s dollar-denominated February exports fell 21 percent from a year earlier, representing the biggest drop in three years and far worse than analysts had expected, while imports dropped 5.2 percent.
“We’ve witnessed this week a rekindling of worries about demand growth,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
So far oil demand has held up, especially in China, where imports of crude remain above 10 million barrels per day (bpd). Yet a slowdown in economic growth could eventually dent fuel consumption and pressure prices.
On the supply side, oil has received support this year from output cuts led by the Organization of the Petroleum Exporting Countries. Saudi Arabia’s crude oil production in February fell to 10.136 million barrels per day (bpd), a Saudi industry source told Reuters.
US sanctions against the oil industries of OPEC members Iran and Venezuela have also supported futures.
But the United States is giving individuals and entities more time to wind down certain financial contracts or other agreements related to Venezuela’s state-owned oil company, the US Treasury Department’s Office of Foreign Assets Control (OFAC) said.
Meanwhile, US crude production has increased by more than 2 million bpd since early 2018 to 12.1 million bpd, making America the world’s biggest producer.
Investment bank Jefferies said US output growth was largely being fueled by onshore shale production, which had recently benefited from investments by Exxon Mobil and Chevron.
However, US energy firms this week cut the number of oil rigs operating for a third week in a row to the lowest level in 10 months, General Electric Co’s Baker Hughes energy services firm said on Friday.


INTERVIEW: Sotheby’s boss sees Saudi Arabia as important supplier and buyer in auction room

Updated 14 min 51 sec ago
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INTERVIEW: Sotheby’s boss sees Saudi Arabia as important supplier and buyer in auction room

HOUSTON: When Tad Smith and I spoke early last week, we had one overriding thing in common: jet lag.
I was one day into an ordeal that, on past experience of West-East long-haul air travel, would last at least a week.
The 53-year-old chief executive officer of Sotheby’s, the international auction house, was midway through his torment, with the major part of a round-the-world tour of the firm’s main offices still ahead of him. “It’s a crazy week,” he said. I fuzzily concurred.
Smith’s week had begun by ringing the bell at the New York Stock Exchange, where Sotheby’s is the oldest listed company, to celebrate its 275th anniversary. Sotheby’s is older than the US, and older still than the UK, which it predates by 57 years. That is some legacy.
The thrust of recent strategy, however, has been toward the East, the next stop on Smith’s world tour. Just a few weeks ago, the firm reported better-than-expected earnings figures for 2018, boosted by $1 billion in sales from its Hong Kong hub — the best performance since it started in Asia 45 years ago.
It was achieved against some tricky macro-economic headwinds. “In the middle of the year the Chinese stock market softened a bit, and throughout the year expectation for Chinese growth softened,” Smith said.
There was also the growing threat throughout the year of a looming trade war between the US and China, and the risk that Sotheby’s might fall victim to anti-American sentiment on the part of Chinese buyers. So do Chinese customers perceive Sotheby’s as an American organization?
“I think they perceive us as a global company based in the US. We have literally centuries of British roots, so in so far as they think of it at all they also might think we’re in Britain,” he said.
Of course, Sotheby’s is offering Asia something more refined than soya beans or oil-rig equipment, which have become bargaining pieces in the trade war negotiations. Old masters, luxury jewelry and watches, and fine wines — $100 million worth of it last year — are its stock-in-trade. Up-market real estate and vintage motor cars are handled through franchise operations that use the Sotheby’s brand, or through partnerships.
Smith explained the dynamic of the luxury auction business. “We’re encouraging people to provide us things that we then sell. We have both the need to get supply in, so we can fill our sales rooms, and the need to get demand in, so we can sell our items,” he said.
Several factors determine that balance between supply and demand, such as the number of estates that become available, financial pressures on asset-rich people, and — sometimes — family feuds. But the most important factor, “the crucial marginal growth driver,” he said, was “discretion.”
“If people are feeling their things will sell at acceptable prices, they’re more likely to sell and our sales will get larger. Anything that affects the psychology and dampens or conversely strengthens a prospective seller’s confidence that something will sell, will affect our business. If people don’t think trade wars or anything like that will affect them, they won’t sell,” he said.
Smith was in Dubai, at the firm’s offices in the swanky art hub, the Gate Village in the financial center, to spread the 275th birthday cheer and to prepare for an auction of rare watches this week. A previous sale of precious time-pieces attracted $2.6 million of sales.
“The Middle East is a very important part of what we do. When I came in four years ago as CEO we began the effort to invest in a permanent office in the UAE. We thought that having a very senior and more invested presence here would be important for our business, and we’re thrilled with the result. So, yes, the Middle East, all the way across the GCC countries, is very important for us,” he explained.
Saudi Arabia will continue to be an important part of that strategy, both in terms of supplying works for sale and as a plentiful source of buyers.
“Saudi Arabia has a rich archaeological, architectural and cultural history, and — with the establishment of MISK and the Al-Ula project — it is clear there is a keen focus, both on preserving that history, and on developing the artistic scene there. This kind of focus naturally means there is an interest in the range of works and services, including educational initiatives, that we offer,” he said.
Are customers in the Middle East vendors or purchasers? “On balance, the Middle East is a significant provider of great objects to sell, but the most attractive portion of it for us is their buying. Mideast is a net purchaser, and that reflects their obvious wealth and financial importance,” he said.
What are people in the region buying? “Well, how about a spectacular Rembrandt for the Louvre in Abu Dhabi,” he said, in reference to the work “Study of the head and clasped hands of a young man as Christ in prayer” by the Dutch master bought at Sotheby’s London for £10 million ($13 million) last year and recently unveiled at the UAE capital’s new center of culture.
“They are buying beautiful art from all parts of the world. They’re buying amazing, dazzling watches, they’re buying incredible jewelry, with a really robust aesthetic and great taste. People with better taste than mine say they have great taste,” Smith said.
The region also increasingly supplies the rest of the Sotheby’s network with art works from its rich cultural tradition. “We have a huge demand from our clients to buy modern Islamic and modern contemporary Arabic and Iranian art. In the past four years we sold over $125 million worth of Islamic and Middle Eastern art to clients from all over the world. That’s what’s interesting about the Middle East sales — it attracts clients globally. It’s a big market for us,” he said.
It is also a rapidly changing global market place. The traditional image of an art sales room — a posh man with a gavel declaiming incomprehensibly in a smoke-filled baroque salon — is all in the past. “For one thing, it’s not necessarily a man, it can often be a woman,” said Smith, before outlining the rapid technological changes overtaking the art auctions business in the digital age.
“Last year 37 percent of things sold worldwide were sold online. It was an important year. More lots we’re purchased online than by any other method, either in the room or on the phone.
It was the first time in the company’s nearly three centuries of history. It’s grown gangbusters,” he said.
Sotheby’s has already tested a new time-based bidding system, along the same principle as used by eBay, which could soon lead to an all-electronic auction system. “That is a gigantic leap forward where you have electronic buying and electronic consignments. You can take your phone, fill an electronic form on our website and you can consign things that way too. Electronic consignments and sales will be a rapidly growing proportion of our business in the coming years,” he said.
Smith’s background is in keeping with the task of introducing 21st-century techniques to a business with 18th-century origins. A McKinsey alumni, he was an executive with various companies in the entertainment, leisure and information businesses, before joining the Madison Square Garden Company, the group that runs the iconic New York entertainment venue and other sports and leisure operations.
As with the rest of the companies that Smith has worked for, Sotheby’s is entering the digital age in a hurry. “Each of them has a certain creative part of the business that is attached to another part that is a selling organization and the support services for that, and crucially all of them are increasingly dependent on digital marketing technologies,” he said, like a true digital executive.
But the job with Sotheby’s appears to mean more to him than just another bit of Internet-age experimentation. “This really isn’t work, it’s a gift to be in an organization with these talented people and these beautiful objects and the ability constantly to learn. For the past four years I’ve had the opportunity to learn more about art and collectibles and jewelry and watches, and to see all parts of the world,” he said.
The only frustration of the role? He thought for a brief moment. “Jet lag,” he answered.