Oil glut threatens ‘price recovery’

Oil glut threatens ‘price recovery’
Updated 09 February 2016

Oil glut threatens ‘price recovery’

Oil glut threatens ‘price recovery’

PARIS: Oil prices may have rebounded off 12-year lows struck last month, but any hope for a broader recovery in the market would be misplaced, the IEA said, noting OPEC is responsible for the latest glut of supplies on the market.

The International Energy Agency said in its monthly report that “it is very hard to see how oil prices can rise significantly in the short term ... with the market already awash in oil...”
On the contrary, it said .”.the short term risk to the downside has increased.”
Crude prices collapsed from over $100 per barrel in July 2014 to under $30 last month on a slowdown in Chinese growth and as the OPEC oil cartel stepped up output in an attempt to force out higher-cost production.
While low oil prices are usually good for oil consuming nations and global economic activity, investors have uncharacteristically in recent months begun to take the oil price as a proxy for economic demand, roiling global markets in volatility.
After the price for the main international oil contract struck a low below $28 last month, it rebounded to above $35 and now sits around $33.
But the IEA said “before victory over the bearish forces is declared we should look at the main factors driving the optimism.”
It then proceeded to debunk the factors driving the market higher, first among them the prospect of an agreement between OPEC and non-OPEC nations to cut output.
The IEA said “the likelihood of coordinated cuts is very low.”
Another widely-held view in the market is that increases will slow in OPEC production, except for Iran which is returning to the market after years of international sanctions, said the IEA.
But it pointed out that Iraqi production struck a new record in January and that there are indications Saudi Arabia has stepped up shipments.
The Paris-based IEA, with advises oil consuming nations on energy issues, noted that OPEC is currently responsible for the glut of supplies hitting the market the past year.
While non-OPEC production levels are roughly flat from one year ago, at 32.6 mbd in January, OPEC supplies were up by 1.7 million barrels per day (mbd) from a year earlier.
“It is OPEC’s business whether or not it makes output cuts either in alone or in concert with other producers but the likelihood of coordinated cuts is very low,” said the IEA.
At current levels, OPEC production means oil stocks are likely to increase further, it added.
Another driver of the recent bullishness in the crude market has been the view that that low oil prices will boost growth in demand.
But the IEA said it holds on to its “...view that global oil demand growth will ease back considerably in 2016” to 1.2 mbd from a five-year high of 1.6 mbd in 2015.
It trimmed by 0.1 mbd its forecast for world oil demand in 2016 to 95.6 mbd.
The International Monetary Fund last month cut its forecast for global growth this year by 0.2 percentage points to 3.4 percent.
While this would still be an improvement from 3.1 percent in 2015, the IEA noted the forecast is “heavily caveated with risks to growth in Brazil, Russia and of course slower growth in China,” noted the IEA.
“Economic headwinds suggest that any change will likely be downwards,” it added.
The IEA also expressed doubt that the value of the US dollar, the currency in which oil is traded could be a sustainable factor to boost consumption.
While the value of the dollar has dipped in recent weeks as prospects of a series of interest rate hikes recedes, thus making oil cheaper to buy in other currencies, the IEA noted concerns over the state of the global economy work in favor of the US currency.
“...the dollar is still likely to remain strong as it benefits from its safe haven status with other economies faring relatively worse,” it said.
Another factor driving oil prices higher is expected output cuts in non-OPEC production later this year.
The IEA, which forecasts a net drop of 0.6 mbd in 2016, noted that drops in production have so far been slower than the market has predicted.
“Perhaps resilience still has some way to go,” it said.
In Asian trading on Tuesday, the price of Brent crude edged up two cents to $32.90 per barrel, while the main US contract, WTI, climbed 31 cents to $30.00.


Saudi fintech startup secures $1.2m seed funding

Saudi fintech startup secures $1.2m seed funding
Updated 59 min 30 sec ago

Saudi fintech startup secures $1.2m seed funding

Saudi fintech startup secures $1.2m seed funding
  • The Kingdom has proved to be a fruitful market for investment in startups

RIYADH: A Saudi financial technology company has raised $1.2 million in seed funding.

Hakbah’s success comes six months after the Riyadh-based startup received regulatory approval from the Saudi Central Bank (SAMA) to operate in the Kingdom.

The specific investors behind the financing have not been revealed.

Founded in late 2018 by Naif AbuSaida, Hakbah specializes in alternative saving and savings groups.

On its LinkedIn profile, the firm describes its mission “is to digitize financial habits by developing innovative savings products that help increase financial inclusion, support a non-cash society, and bridge the gender gap in savings.”

Hakbah graduated from the DIFC Fintech Accelerator Program 2019 in Dubai.

The Kingdom has proved to be a fruitful market for investment in startups. Saudi Arabia recorded a 35 percent year-on-year increase in the number of investment deals in the technology startup sector last year, according to a new industry report.

A study by data research platform Magnitt found that the Kingdom accounted for 18 percent of the 496 investment deals throughout the Middle East and North Africa (MENA) region last year.

Saudi Arabia, the UAE, and Egypt were the largest markets, accounting for 68 percent of total deals. However, while the Kingdom saw the number of investment deals increase by more than one-third, the UAE and Egypt witnessed volume decreases of 17 percent and 10 percent, respectively.

When it came to the monetary value of the deals, Saudi Arabia recorded a surge of 55 percent year-on-year to $152 million.

Nabeel Koshak, CEO at Saudi Venture Capital Co., said: “Saudi Arabia is witnessing an increase in the quality and quantity in the deal flow of startups. I am thrilled by the distinguished entrepreneurs who are creating fast growth and scalable startups.

“Despite the slowdown of (the coronavirus disease) COVID-19, Saudi Arabia saw a record increase in venture capital funding (55 percent) in 2020 compared with 2019.”

In its predictions for this year, Magnitt forecast that Saudi Arabia would overtake Egypt by total number of investments and capital deployed and become second only to the UAE in the rankings.