Oil market volatility will continue into 2019, but will settle at solid price

While OPEC has in the past underestimated the growth of the US shale industry, the CEOs of two energy firms on Wednesday stressed that output from the sector would likely slow down. (AFP)
Updated 24 January 2019

Oil market volatility will continue into 2019, but will settle at solid price

  • Expectation oil prices could settle within the $60 to $70 range
  • OPEC and its allies have been cutting output since 2017 to help support prices

LONDON: Oil market volatility is expected to continue in 2019, but there are expectation prices could settle within the $60 to $70 range — seen as a sweet spot for both producers and consumers.
That was the message that emerged from a panel of global energy leaders at the World Economic Forum in Davos on Wednesday which also heard that US shale output would likely slow.
OPEC and its allies have been cutting output since 2017 to help support prices while US producers looked to ramp up production.
The US has overtaken Russia and Saudi Arabia to become the world’s biggest crude producer, with output approaching 12 million barrels per day (bpd).

 

But while OPEC has in the past underestimated the growth of the US shale industry, the CEOs of energy firms Occidental Petroleum and Hess Corp. on Wednesday stressed that output from the sector would likely slow down.
“I believe not as much money will be pouring into the Permian basin this time. I believe investors will hold companies accountable for returns and a lot of this didn’t happen previously,” Occidental CEO Vicki Hollub said.
Hess Corp. CEO John Hess said shale production now accounted for about 6 percent of global production and would rise to about 10 percent before plateauing.
“Shale is not the next Saudi Arabia. It is an important short-cycle component,” he said.
OPEC Secretary-General Mohammed Barkindo said OPEC wanted to balance supply and demand in the market and had helped the US oil industry by acting to support prices.

FASTFACTS

The US has overtaken Russia and Saudi Arabia to become the world’s biggest crude producer.


Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

Updated 19 October 2019

Cathay Pacific shelves US dollar bond plans amid Hong Kong unrest

SINGAPORE: Cathay Pacific Airways has shelved plans for its first US dollar debt deal in 23 years, the airline said on Friday, after sources told Reuters that global investors had questioned the pricing due to civil unrest in Hong Kong.

The airline, the biggest corporate casualty of widespread anti-government protests in the Asian financial hub, on Friday lowered its second-half profit expectations, citing “incredibly challenging” conditions in its home market.

Cathay had started meeting investors in Hong Kong and Singapore on Sept. 24 after it mandated four banks to explore carrying out a US dollar denominated bond, according to a term sheet issued at the time, seen by Reuters.

It would have been the first US dollar debt deal for Cathay since 1996 and had been touted as a landmark transaction for the airline given all of its debt is denominated in Hong Kong dollars.

The issuance was to be unrated, and two sources with knowledge of the matter said that Cathay was willing to pay 200 basis points over the US Treasuries rate to secure three-year or five-year funding, with the size and term of the placement dependent on demand.

FASTFACT

12

Cathay has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

However, investors demanded a higher price of at least 300 basis points over US Treasuries, which made the deal more expensive for Cathay, said the sources, who were not authorized to speak publicly about the matter. Cathay’s term sheet had said the transaction would be reliant on market conditions. A Cathay spokesman on Friday said the Hong Kong dollar private placement market was providing more funding opportunities and a debt issuance in that market was completed last month. “We will continue to monitor the US dollar bond market in future,” he said in a statement.

Dealogic data showed that Cathay raised $102 million in October and $64 million in May through Hong Kong dollar denominated deals.

The airline has only carried out 12 bond transactions in the past decade and all were priced in Hong Kong dollars.

Cathay had mandated Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank and HSBC to work on the shelved US dollar bond deal.