Bears ignore tight market as oil prices stay volatile

The Total Culzean platform is pictured on the North Sea, about 70 kilometers east of the Aberdeen, on April 8, 2019. Oil prices have continued to fall since the second half of May. (AFP / ANDY BUCHANAN)
Updated 09 June 2019

Bears ignore tight market as oil prices stay volatile

RIYADH: Oil prices have continued to fall since the second half of May as some commentators described the volatile market as the worst four-week run since the 2008 financial crisis. 

If that is an accurate description of the market, then we should also consider the retreat in major equity share indexes such as the S&P 500 and the Dow Jones.

Oil prices rebounded slightly at the end of the week on the news that OPEC+ will probably continue its output cuts throughout the year. Brent and WTI crude prices rose to $63.29 and $53.99 per barrel respectively.

However, falling oil prices for the past month have not taken the strength out of the forward curves, which still suggest tight physical crude oil markets. 

We can observe the tightness in the market in the forward curve of Brent futures, where deliveries in future months are cheaper than current prices. 

This scenario, known in the oil trading sector as “backwardation,” is a fundamental support to the market that is not reflected in oil prices.

The latest data from the Energy Information Administration (EIA), shows US inventories featured more than 22 million barrels in crude, gasoline and diesel stocks. 

Crude inventories have risen in three of the last four weeks despite expectations for declines.

Strong China oil imports and increased US refinery utilization that reached a 4-month high above 90 percent, hardly denote an economic slowdown.

The rise in US inventories has acted to either drive speculators away from bets on higher prices or to encourage bearish speculators to short the market and bet on lower prices, which is one of the factors behind oil price weakness in recent months.

Speculators have taken advantage of the price fall by increasing their bearish bets, a change from recent weeks that was more about these same speculators closing out bets that prices would rise. 


Saudi mall operator Arabian Centres bucks retail malaise as profits surge

Updated 6 min 26 sec ago

Saudi mall operator Arabian Centres bucks retail malaise as profits surge

  • Mall operator defies online shopping pressure by lowering discounts to tenants, boosting occupancy and rental revenues

LONDON: Arabian Centres, the Saudi mall operator which went public in May, said first-quarter consolidated net profit almost trebled to SR227 million ($60.53 million) as occupancy edged higher across its shopping centers. Revenues increased by about 2.5 percent over the year to SR572.5 million.

The results helped to propel the group’s shares 3 percent higher on Tuesday.

The group said that it boosted performance by offering lower discounts to its tenants which helped to drive rental revenues. Like-for-like occupancy across all malls increased  to 93.2 percent from 92.4 percent in the year earlier period. Finance costs fell by about 65 percent from a year earlier to SR73.9 million.

FASTFACT

 

27 - Arabian Centres plans to expand its mall portfolio to 27 within four years.

Retailers across the Middle East are coming under increased pressure as more consumers shop online, while at the same time, tourists are spending less in dollar-pegged economies because their purchasing power has been cut by the strength of the greenback. Still, in Saudi Arabia, the under-served retail market is expected to receive a boost from rising investment in the entertainment sector, especially new cinemas.

“Faced with the rising challenge of online shopping, the brick-and-mortar retail segment has sought to diversify its offering to secure its customer base, providing an increased range of leisure and entertainment facilities,” said Oxford Business Group, in a report analyzing emerging trends in the Saudi retail sector.

“The reintroduction of cinemas to the Kingdom in April last year ... is expected to increase retail footfall,” it said.

Arabian Centres, majority-owned by Fawaz Alhokair Group, listed its shares on the Tadawul stock exchange in May — the first to do so in the Kingdom under Rule 144a, allowing the sale of securities, mainly to qualified institutional buyers in the US.

The group aims to expand to 27 malls within four years.