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 energy giant to invest $3bn in Bangladesh’s power sector

Updated 22 October 2019

Saudi energy giant to invest $3bn in Bangladesh’s power sector

  • Experts say deal will usher in more economic and development opportunities for the country

DHAKA: Saudi Arabia’s energy giant, ACWA power, will set up an LNG-based 3,600 MW plant in Bangladesh after an agreement was signed in Dhaka on Thursday.

The MoU was signed by ACWA Chairman Mohammed Abunayyan and officials from the Bangladesh Power Development Board (BPDB), officials told Arab News on Monday.

According to the agreement, ACWA will invest $3 billion in Bangladesh’s energy development sector, of which $2.5 billion will be used to build the power plant while the rest will be spent on an LNG terminal to facilitate fuel supply to the plant. Under the deal, ACWA will also set up a 2 MW solar power plant.

In recent months, both countries have engaged in a series of discussions for investment opportunities in Bangladesh’s industry and energy sectors. 

During the Saudi-Bangladesh investment cooperation meeting in March this year, Dhaka proposed a $35 billion investment plan to a high-powered Saudi delegation led by Majed bin Abdullah Al-Qasabi, the Saudi commerce and investment minister, and Mohammed bin Mezyed Al-Tuwaijri, the Saudi economy and planning minister.

However, officials in Dhaka said that this was the first investment deal to be signed between the two countries.

“We have just inked the MoU for building the LNG-based power plant. Now, ACWA will conduct a feasibility study regarding the location of the plant, which is expected to be completed in the next six months,” Khaled Mahmood, chairman of BPDB, told Arab News.

He added that there are several locations in Moheshkhali, Chottogram and the Mongla port area for the proposed power plant.

“We need to find a suitable location where the drift of the river will be suitable for establishing the LNG plant and we need to also consider the suitability of establishing the transmission lines,” Mahmood said.

“It will be either a JV (Joint Venture) or an IPP (Independent Power Producer) mode of investment, which is yet to be determined. But, we are expecting that in next year the investment will start coming here,” Mahmood said.

BPDB expects to complete the set-up process of the power plant within 36 to 42 months.

“We are in close contact with ACWA and focusing on the successful completion of the project within the shortest possible time,” he said.

Abunayyan said that he was optimistic about the new investment deal.

“Bangladesh has been a model for the Muslim world in economic progress. This is our beginning, and our journey and our relationship will last for a long time,” Abunayyan told a gathering after the MoU signing ceremony.

Economists and experts in Bangladesh also welcomed the ACWA investment in the energy development sector.

“This sort of huge and long-term capital investment will create a lot of employment opportunities. On the other hand, it will facilitate other trade negotiations with the Middle Eastern countries, too,” Dr. Nazneen Ahmed, senior research fellow at the Bangladesh Institute of Development Studies (BIDS), told Arab News.

She added that Bangladesh needs to weigh the pros and cons before finalizing such contracts so that the country can earn the “maximum benefits” from the investment.

“It will also expedite other big investments in Bangladesh from different countries,” she said.

Another energy economist, Dr. Asadujjaman, said that Bangladesh needs to exercise caution while conducting the feasibility study for such a huge investment.

“We need to address the environmental aspects, opportunity costs and other economic perspectives while working with this type of big investment. Considering the present situation, the country also needs to focus on producing more solar energy,” Dr. Asadujjaman told Arab News.