Oil prices reach 3-month high as OPEC output falls

Oil prices reach 3-month high as OPEC output falls
Output by the Organization of the Petroleum Exporting Countries (OPEC) has fallen sharply over the past two months to its lowest level in four years. (Reuters)
Updated 26 February 2019

Oil prices reach 3-month high as OPEC output falls

Oil prices reach 3-month high as OPEC output falls
  • The US crude oil inventory build could not push oil lower
  • Brent seems to have moved back above $70 per barrel amid a tight market

RIYADH: Oil prices continued to rise slowly for a second consecutive week, reaching a three-month high. The US crude oil inventory build could not push oil lower. Brent seems to have moved back above $70 per barrel amid a tight market.
Output by the Organization of the Petroleum Exporting Countries (OPEC) has fallen sharply over the past two months to its lowest level in four years, to 30.8 million barrels per day (bpd) in January, causing any oil surplus to disappear. This might move the oil market into a deficit toward the end of the first quarter.
By the weekend, Brent crude rose to $67.12 per barrel and WTI rose to $57.26 per barrel. The Brent / WTI spread remains wide at $9.86 per barrel. The wide spread helps traders to hedge US crude oil exports that help increase the flow heading East.
This is the reason behind US exports jumping to above 3 million bpd in the last two weeks. The Energy Information Administration (EIA) reported US crude output at 12 million bpd for the first time last week, up from 11.9 million bpd the week prior.
The surge in US crude oil exports has brought stronger competition for West African light sweet crudes heading to the Asian market, as the arbitrage economics remain highly favorable for more US crude purchases, especially with lower freight costs to Asia that have fallen by about a third since early December 2018, S&P Platts Global reported.
OPEC output cuts kept Dubai crude relatively expensive amid medium / heavy sour crude tightness in the market. This supply tightness pushed Dubai crude’s discount to Brent to narrow to a record low in January and early February.
However, the Dubai benchmark moved steadily higher and reached a premium of $0.20-$0.30 per barrel to Brent by mid-February. This has led to robust trading activities in the physical market amid tightening medium / heavy sour crude oil supplies, which was further tightened after the loss of the heavier Venezuelan grades that made heavy crudes priced more competitively.
Global refiners already suffer from poor refining margins for naphtha and gasoline (the light ends of a crude barrel), while rising US production puts more light sweet crude oil in a global market that is already saturated with these crude supplies, necessitating refineries worldwide to sweeten their blends as much as they can economically handle.
Since the global market is already soaked with gasoline and naphtha refined products, that is depressing refining margins, while refiners are having to pay more to secure supplies of the medium / heavy sour crudes. The constrained medium / heavy crude market has supported fuel oil prices that have escalated, while its inventories are at low levels, especially for high-sulfur fuel oil.

  • Faisal Mrza is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalmrza.

Canadian firm pulls out of Carrefour takeover after France insists ‘No’

Canadian firm pulls out of Carrefour takeover after France insists ‘No’
Updated 20 min 16 sec ago

Canadian firm pulls out of Carrefour takeover after France insists ‘No’

Canadian firm pulls out of Carrefour takeover after France insists ‘No’
  • Carrefour has more than 12,300 stores in more than 30 countries and employs 320,000 people worldwide
  • Canada's Couche-Tard has offered to take over the French supermarket giant for 16 billion euro ($19.5 billion)

PARIS: Canadian convenience store chain Couche-Tard has reportedly pulled out of a multi-billion euro takeover of supermarket giant Carrefour after the French government said it would veto the deal.
Negotiations over the 16 billion euro ($19.5 billion) deal ended after a meeting between the French Minister of the Economy Bruno Le Maire and the founder of Couche-Tard Alain Bouchard, Bloomberg news agency said, citing sources.
French ministers had insisted Friday they would not agree to the takeover because it could jeopardize food security, an even more important consideration given the coronavirus pandemic.
In an attempt to reassure ministers, Bouchard had promised to invest billions in Carrefour, said he would maintain employment for two years and that the group would be listed on the Paris Stock Exchange in parallel with Canada, Bloomberg reported.
Contacted by AFP, neither Couche-Tard nor Carrefour had confirmed the information on Friday evening.
Although talks had stopped, anonymous sources cited by Bloomberg said negotiations could resume if the French government changes its position.
But on Friday, France’s Economy Minister made his choice public, telling BMTV and RMC: “My position is a polite, but clear and definitive ‘No’.”
“Food security is a strategic consideration for our country and one does not just hand over one of the large French distributors like that,” Le Maire said.
“Carrefour is the biggest private sector employer in France with nearly 100,000 employees,” he noted, and the group accounts for 20 percent of the food distribution market in the country.
The French statements have not convinced the Canadian government.
A Canadian federal source said while they could understand concerns over allowing a foreign firm to take over such a large national employer, concerns over food security were unsubstantiated.
“But we cannot accuse a leading Canadian company like Couche-Tard of endangering the food sovereignty of an entire country,” the source, who requested anonymity, told AFP.

'Food sovereignty'
On Wednesday, Couche-Tard submitted a non-binding offer for Carrefour, valuing the group at more than 16 billion euros ($19.5 billion).
Le Maire made clear immediately that he was not in favor of a deal involving “an essential link in food security for the French, of food sovereignty.”
The government’s reaction had caused “surprise” at Carrefour itself, according to sources who said the comments were “premature” given that merger discussions had barely begun.
“We haven’t decided yet whether the interest shown is attractive for us,” one company official said on condition of anonymity earlier in the week.
Carrefour has more than 12,300 stores of various formats in more than 30 countries and in 2019 generated a net profit of 1.3 billion euros ($1.5 billion) on revenue of 80.7 billion euros ($97.4 billion).
It employs 320,000 people worldwide.
Couche-Tard has a worldwide network of more than 14,200 stores and earned a net profit of $2.4 billion on sales of $54 billion in its last complete year.
In the United States and several European countries, as well as in Latin America and southeast Asia, it operates under Circle K and other brands.