Oil market ‘well balanced’ in 2019, says Saudi adviser

Russia revealed that it will use about $3.3 billion from its National Wealth Fund to pay back oil firms this year as part of a deal to keep down domestic gas and diesel prices. (Reuters)
Updated 20 April 2019
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Oil market ‘well balanced’ in 2019, says Saudi adviser

  • Russia expects to use about $3.3 billion from its National Wealth Fund this year to pay back oil
  • OPEC+ countries agreed last year to cut oil production as part of a global program to support crude prices and balance the market

PARIS/MOSCOW: Ibrahim Al-Muhanna, an adviser to the Saudi energy minister, said on Friday he expected the oil market to be “well balanced” this year.
“This year, we have seen the implementation of the OPEC Plus decision. It is possible to extend the cut until the end of the year depending on market conditions,” Al-Muhanna told an oil summit in Paris.
The OPEC+ group agreed last year to cut production, partly in response to increased US shale output.
Meanwhile, it emerged on Friday that Russia expects to use about 210 billion roubles ($3.3 billion) from its National Wealth Fund this year to pay back oil as part of a deal to keep down domestic gasoline and diesel prices.
The government and oil firms agreed to cut wholesale domestic fuel prices last year to keep a lid on petrol and diesel costs, a politically sensitive issue.
Under the deal, which runs from Nov. 1 until June 30, oil companies are allowed only to slowly increase petrol and diesel costs, which started to rise due to stronger global oil prices.
Russia is part of a global agreement to cut oil production aimed at propping up crude prices, a major source of state revenues. But that is hitting it back at home as the cost of gasoline is one of the key factors affecting inflation — and the central bank’s main policy rate.
Alexei Sazanov, head of the nance ministry’s tax department, told reporters that in February alone the state paid oil companies back 20-30 billion roubles for keeping fuel prices under control.
Russia is using the National Wealth Fund (NWF) as a buffer against potential external shocks and to pay out pensions or support some important large projects at home. The spending rules are strict as the state wants to preserve the fund.
Sazanov said that for 2019 as a whole, the payout from the NWF to the oil firms was estimated at 210 billion roubles.
“If we are paying the cash, we want to get a quality service in return. This service should result in the fact that the consumer should see prices at the fuel filling stations based on levels we pay back to the oil companies,” Sazanov said.
Under a “fiscal rule,” any revenue from oil prices higher than $40 per barrel goes into the NWF, which is part of Russia’s gold and foreign exchange reserves, held by the central bank.
The NWF currently stands at $59 billion and is expected to quadruple to over $200 billion, or 12 percent of gross domestic product, in 2021.


Oil prices climb on improving US demand signs, OPEC agrees to meeting date

Updated 11 min 15 sec ago
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Oil prices climb on improving US demand signs, OPEC agrees to meeting date

  • After swelling to near two-year highs, US crude stocks fell by 3.1 million barrels last week
  • Members of the OPEC agreed to meet on July 1

TOKYO: Oil prices rose nearly 2 percent on Thursday on signs of improving demand in the United States, the world’s biggest crude consumer, and as OPEC and other producers finally agreed to a date for a meeting to discuss output cuts.
Brent crude futures rose $1.13, or 1.8 percent, to $62.95 a barrel at 0611 GMT. They dropped 0.5 percent on Wednesday.
US West Texas Intermediate (WTI) crude futures were up 90 cents, or 1.7 percent, at $54.66 a barrel. WTI fell 0.26 percent in the previous session.
“It’s a very mixed bag of factors. In the US (oil) demand is likely to be picking up into summer and the OPEC meeting looks like there’s going to be an extension or even more cuts is a possibility,” said Phin Zeibell, senior economist at National Australia Bank.
After swelling to near two-year highs, US crude stocks fell by 3.1 million barrels last week, compared with analyst expectations for a draw of 1.1 million barrels, the Energy Information Administration (EIA) said.
Refined products also posted surprise drawdowns due to a rise as gasoline demand ticked higher on a weekly basis and surged 6.5 percent from a year ago.
Members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to meet on July 1, followed by a meeting with non-OPEC allies on July 2, after weeks of wrangling over dates.
OPEC and its allies will discuss whether to extend a deal on cutting 1.2 million barrels per day of production that runs out this month.
Momentum for an agreement appeared to be building as the United Arab Emirates’ energy minister told Al-Bayan newspaper that an extension is “logical and reasonable.”
Expectations the US Federal Reserve could cut interest rates at its next meeting and confirmation that the chief US trade negotiator will meet his Chinese counterpart before a meeting between President Donald Trump and Chinese President Xi Jinping next week are also supporting markets.
“Fresh stimulus from the largest economies will greatly improve the demand side argument. A positive outcome with the US — China would be icing on the cake,” said Edward Moya, senior market analyst at brokers OANDA.
Tensions remain high in the Middle East after last week’s tanker attacks, which boosted oil prices. Fears of a confrontation between Iran and the United States have mounted, with Washington blaming Tehran, which has denied any role.
In the latest escalation, Iran’s elite Revolutionary Guards have shot down a US “spy” drone in the southern province of Hormozgan, the Guards’ news website Sepah News said on Thursday.
“The geopolitical side is the wild card and can’t be predicted, not just the Iran concerns but also the trade meeting between Trump and Xi,” said Zeibell, adding “we expect to see an improvement in oil prices over the next month or two.”