Oil drops on demand concerns as US shale set for new record

Saudi Arabia is cutting crude exports to drain global oil inventories as surging US shale output and a weakening Chinese yuan cast a shadow over global crude prices. (Shutterstock)
Updated 13 August 2019

Oil drops on demand concerns as US shale set for new record

  • Saudi Arabia to keep crude exports below 7 million bpd in August and September to balance market

LONDON: Oil prices dropped on Tuesday after see-sawing throughout the session as lingering concerns over global demand and rising US output offset expectations for major producers to further curtail supply. Brent crude futures were down 45 cents, or 0.7 percent, from the previous settlement at $58.12 a barrel in London afternoon trade. The international benchmark
has lost more than 20 percent since hitting its 2019 high in April. US West Texas Intermediate (WTI) futures were at $54.34 per barrel, down 59 cents, or about 1 percent.
A deepening trade war between the US and China, the world’s two largest economies and energy consumers, has weighed heavily on oil prices in recent months.
China’s central bank lowered its official yuan midpoint for the ninth straight day to a fresh 11-year low on Tuesday. A weaker yuan raises the cost of dollar-denominated oil imports into China, the world’s biggest crude oil importer.
Booming US shale oil output also continues to chip away at efforts to limit the global supply overhang, weighing on prices.
US oil output from seven major shale formations is expected to rise by 85,000 barrels per day (bpd) in September to a record 8.77 million bpd, the Energy Information Administration forecast in a report.

HIGHLIGHTS

• US-China trade wars weigh on demand.

• US shale set to rise to new high in September.

• Weaker yuan raises cost of oil imports to China.

The startup of a major pipeline between the Permian shale basin and the Gulf Coast means that more crude can be exported, adding to global supplies.
“The big test now is whether the shale producers can keep growing production at these lower price levels,” said Callum Macpherson, head of commodities at Investec.
“This could be the start of a readjustment process from the artificially high prices OPEC is implicitly trying to maintain down to something more in line with the marginal shale production costs,” Macpherson said.
Saudi Arabia said last week it planned to keep its crude exports below 7 million bpd in August and September to help drain global oil inventories.
OPEC and its allies, known as OPEC+, have agreed to cut 1.2 million bpd of production since Jan. 1.


Saudi Aramco sets IPO share price between 30-32 riyals

Updated 6 min 54 sec ago

Saudi Aramco sets IPO share price between 30-32 riyals

  • Saudi Aramco intends to buy $1 billion worth of shares for employee

DUBAI: Saudi Aramco’s multibillion-dollar initial public offering (IPO), probably the biggest in history, shifted to full gear as its share price was announced and subscription to the world’s biggest oil company commenced on Sunday.

Saudi Aramco set an indicative share price between 30 and 32 riyals for the 1.5 percent of its oustanding shares – or about 3 billion shares of its 20 billion regular shares – that it would offer for the domestic part of its public offering. The blockbuster IPO could be worth least $24 billion, and values the state-owned oil giant at up to $1.71 trillion.

The offering – or book-building – period for institutional subscribers, which started today, closes on December 4 while the retail offering for individual investors will begin on November 21 and will end on November 28. Individual investors will subscribe based on a price of 32 riyals, the top end of the price range, the company noted in a document.

The final pricing for the Aramco shares would be announced on December 5, and Saudi Tadawul  – the Kingdom’s stock exchange – would make an announcement when initial trading day would be, the company added.

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For more of our coverage of the Aramco IPO, click here.

To view key Aramco IPO documents, click here.

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Samba Capital & Investment Management Company has been designated as issue manager while National Commercial Bank, Saudi British Bank, Samba Financial Group, Saudi Investment Bank, Alawwal Bank, Arab National Bank, Albilad Bank, Aljazira Bank, Riyad Bank, Al Rajhi Bank, Alinma Bank, Banque Saudi Fransi and Gulf International Bank were named as receiving banks.

If there are applications for more than the 0.5 percent on offer — amounting to 1 billion shares — allocations to private investors will be scaled back proportionate to demand; if there are fewer applications than the 0.5 percent when all maximum applications are satisfied, private investors can have the over-payment refunded either in cash via the receiving banks or in the form of extra shares in Aramco.

There is an incentive mechanism in the IPO whereby Saudi investors will receive a bonus one-for-ten allocation of shares, up to a maximum of 100 shares, if they do not sell shares in the market for a period of six months after dealings begin in December, at a date still to be determined.

Saudi Aramco also intends to buy $1 billion worth of shares for employees under a plan to incentivize executives and staff members alongside the IPO next month.

The plan — which was disclosed in the IPO prospectus — will involve Aramco buying the shares from the government and making them available for employees under special terms.