Oil prices climb as US threatens sanctions against Venezuela

RBC Europe predicted that US sanctions on Venezuela could nearly double projected output shortfalls from the troubled exporter. (AFP)
Updated 25 January 2019

Oil prices climb as US threatens sanctions against Venezuela

  • ‘The oil market is partially pricing in the risk to Venezuela’s crude production, which has been plummeting in recent years’
  • RBC Europe predicted that sanctions could nearly double projected output shortfalls from the troubled exporter

LONDON: Oil prices edged up on Friday as turmoil in Venezuela increased the chances of tighter global supply if the US makes good on signals that it could impose sanctions on Venezuelan exports.
But fresh data on surging US fuel stocks and worries about US-China trade talks weighed on prices.
Brent crude oil futures were at $61.17 a barrel at 0955 GMT, up 8 cents, or 0.13 percent. Earlier on Friday, the international benchmark crude rose as high as $61.92.
Brent, however, has shed about 2.4 percent since the start of trade on Monday and is on track to post its first week of losses in four weeks.
US West Texas Intermediate (WTI) crude futures were at $53.34 per barrel, up 21 cents, or 0.4 percent.
Amid violent street protests, Venezuela’s opposition leader Juan Guaido declared himself interim president this week, winning recognition from Washington and parts of Latin America.
Nicolas Maduro, the country’s leader since 2013, responded by breaking relations with the US.
“The oil market is partially pricing in the risk to Venezuela’s crude production, which has been plummeting in recent years,” Vandana Hari of Vanda Insights said.
RBC Europe predicted that sanctions could nearly double projected output shortfalls from the troubled exporter.
“Venezuelan production will decline by an additional 300,000-500,000 barrels per day (bpd) this year but such punitive measures could expand that outage by several hundred thousand barrels.”
Global oil markets are still well supplied, however, thanks in part to surging output in the US.
Record US production would likely offset any short-term disruptions to Venezuelan supply due to possible US sanctions, Britain’s Barclays said in a note. The bank cut its 2019 average Brent forecast to $70 a barrel, from $72 previously.
The output surge has swollen US fuel stocks, and crude inventories rose by 8 million barrels last week, according to official data released on Thursday.
But demand may start to stutter because of a global economic slowdown, which is likely to dent fuel consumption.
A trade dispute between the US and China and tightening financial conditions around the world have hurt manufacturing activity in most economies and dragged China’s growth last year to the weakest in nearly 30 years.
According to Reuters polls of hundreds of economists worldwide, a synchronized global economic slowdown is underway and would deepen if the US-China trade war escalated.


Virtual certainty? Bankers ask if success of remote roadshows will last

Updated 2 min 5 sec ago

Virtual certainty? Bankers ask if success of remote roadshows will last

  • All over the world, companies and their advisers have given up on the traditional multi-city investor roadshow

HONG KONG: Who needs expensive lunches at glitzy hotels and fancy restaurants to court investors for bond deals or the sale of new shares on the stock exchange?

In a world governed by quarantine and social distancing rules, even lead managers on multi-billion dollar deals have had to curtail travel and drop the personal touch in favor of video conferences and phone calls to woo potential investors.

Warner Music Group is one of more than a dozen companies that launched an initial public offering (IPO) in the aftermath of the COVID-19 pandemic and saw its shares soar on the first day trading. “The wear from a virtual roadshow is much less than the wear and tear on the old normal roadshow. I was pleasantly surprised,” Warner Music Group CEO Stephen Cooper said following this company’s IPO this week.

Some investors were also happy with the switch, because they saved time traveling to meetings with companies and their IPO advisers.

“When you meet face-to-face, you have to get everyone together into the lift, some people need to get their Starbucks … that one hour turns into one-and-a-half hours,” said Khiem Do, head of Greater China investments at Barings in Hong Kong.

All over the world, companies and their advisers have given up on the traditional multi-city investor roadshow — lasting up to two weeks — in favor of virtual sessions that only last a few days.

So far the change has worked. US IPOs excluding those of special purpose acquisition companies have yielded average gains of 35 percent, according to data firm IPOScoop. The S&P 500 Index has risen only around 6.6 percent in that period.

“In New York City you would normally do six or seven one-on-one meetings plus a group event. Boston is about the same. Now you can do at least nine in a day with no travel time,” said Taylor Wright, co-head of US equity capital markets at Barclays.

However, Wright and other bankers questioned whether virtual roadshows will completely replace physical gatherings when the pandemic subsides. They said that many companies behind the IPOs of the last few weeks had warmed up investors in person before the pandemic, and younger companies may not be able to court investors only virtually.

“If roadshows cannot carry on, I feel some investors won’t be willing to invest as happily,” said Zhenro Properties chief financial officer Kenny Chan, speaking in mid-May.