WEEKLY ENERGY RECAP: Despite sell-off, spot market is tight

Workers are seen at the damaged site of Saudi Aramco oil facility in Abqaiq, Saudi Arabia. (Reuters)
Updated 06 October 2019

WEEKLY ENERGY RECAP: Despite sell-off, spot market is tight

  • Demand is strong for Arabian Gulf crude grades after a return to pre-attack production

Oil prices continued to deteriorate for the second week in a row. Brent crude dropped below the $60 barrier for the first time in a month. 

Brent fell to $58.37 per barrel which is close to the level it was before the attacks on Saudi Aramco oil facilities on Sep. 14. 

WTI also fell to $52.81 per barrel. 

Worrying economic news continued to put downward pressure on the market. However, the focus should not be on the slowing economic outlook that is detached from oil market fundamentals. 

The market continues to shrug off the possibility of serious supply threats. Conventional oil discoveries have plunged to a seven-decade low with no signs of any speed recovery amid lower capital expenditure investments. 

This coincides with OPEC oil output falling to an eight-year low in September.

At the same time, output from the US and Russia, also fell to 11.81 million bpd and to 11.24 million bpd respectively.

Right after the Saudi Aramco attacks, many speculators took advantage of the short-lived price spike as a major opportunity to sell older positions and lock in profits. 

However, after oil prices plunged for the second week in a row, money managers reduced their net long positions in Brent futures.

That was largely because speculators have been discouraged by the weakening macroeconomic outlook which of course implies weakened demand for oil.

However, demand remains strong for Arabian Gulf sour crude grades despite a return to normal Saudi pre-attack production levels.

The physical spot market remains extremely tight, reflected in steep Dubai backwardation and higher official sales prices (OSP) for November Arabian Gulf sour crude grades. 

The Russian crude grade, ESPO, also fetched high premiums despite the restoration of supply in the Kingdom. 

Brent-linked crudes are still not economically cheap enough to flow into Asia to compete with the Arabian Gulf sour crudes.

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


Mubadala has invested $100bn in US, eyes China

Updated 2 min 19 sec ago

Mubadala has invested $100bn in US, eyes China

Abu Dhabi: Abu Dhabi state investor Mubadala Investment Co. has invested $100 billion in the US, more than 40 percent of its roughly $240 billion portfolio, Deputy CEO Waleed Al-Muhairi said on Tuesday.

“What that tells you is that from our perspective the risk reward equation works in the US,” he said at the SALT conference in Abu Dhabi, adding that most of the investments are direct, with a small portion indirectly invested through funds.
He said the remaining part of the portfolio is almost equally split between three regions — the UAE, Europe and Asia.
Muhairi said Mubadala has invested $2 billion in China in 15-16 sectors from its $10 billion UAE China fund and could step up investments in the mainland.
“China is the UAE’s largest trading partner, it is an important economic relationship for us,” he said.
Mubadala would want to participate in some “shape, way or form” in the growth of China, which could become the largest economy in the world, Muhairi said.
Technology is a focus for Mubadala, he added.
Mubadala has invested $15 billion in Softbank’s Vision Fund I and recently announced plans to invest $250 million through two funds in technology firms in the Middle East and North Africa.