Oil giants are far apart on eve of crucial output talks

The oil price, which has rebounded from lows this week after the intervention of US President Donald Trump, gave few clues to the market’s view. (Reuters)
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Updated 09 April 2020

Oil giants are far apart on eve of crucial output talks

  • Saudi Arabia, Russia believe deal can be done but ‘significant bridges’ must be crossed[

DUBAI: Big oil producers are divided over the way forward on the eve of two days of “virtual” talks aimed at rebalancing the global market.

Industry sources in Saudi Arabia and Russia told Arab News on Tuesday they were still hopeful of an agreement to cut oil output at a meeting on Thursday of OPEC and non-OPEC members, the so-called OPEC+ group.

But they said issues remained to be resolved, and a full agreement may be delayed until after Friday’s meeting of G20 energy ministers under the Saudi presidency.

The oil price, which has rebounded from lows this week after the intervention of US President Donald Trump, gave few clues to the market’s view. Trading in Brent crude, the Middle East benchmark, was quiet until a late surge of nearly 4 percent to nearly $34 a barrel.

Trump has said he “expected” cuts in oil output of up to 15 million barrels a day, but most experts believe that is impossible, even if US producers join in.

Reports from Moscow suggested Russia was considering cuts of 1.6 million barrels a day, but President Vladimir Putin’s spokesman said there were significant differences to be bridged before a deal could be done, especially with regard to US involvement.

“There are different concepts and they cannot be equated,” he said. “The natural decline in US oil production cannot be compared with reductions to stabilize oil markets.” US producers have slashed capital expenditure and oil output in the face of plunging global demand.

The Texas oil and gas regulator, Ryan Sitton, said US producers were likely to “organically” cut 4 million barrels of oil per day over the next three months, but cuts of 20 million barrels were needed from OPEC+ countries. Industry experts said this was unlikely.

“Trump has made a big mistake by blaming Saudi Arabia and Russia. He will be shocked when oil prices remain low even if we have a 10 million barrel cut,” said Anas Al-Hajji, managing partner of Texas oil consultancy Energy Outlook Advisers.  

JP Morgan, the big US bank with a long-standing relationship with Saudi Arabia, said the most it expected from the OPEC+ talks was a commitment to cut 4.3 million barrels a day.

“The Saudis want to keep pressure on oil prices in order to gain a larger market share and concessions from Washington,” the bank said.

Influential energy expert Daniel Yergin predicted cuts of 10 million barrels, including America’s “natural decline.”

“The collapse in world oil demand and low prices are driving large spending cuts among oil companies around the world. The largest cuts in percentage terms so far are coming from north America,” he said.

Oman’s bond market return a key test for reform path

Updated 21 October 2020

Oman’s bond market return a key test for reform path

  • After becoming ruler in January, Sultan Haitham made shaking up and modernising state finances a top priority

DUBAI: Oman’s return to the international bond market this week will be a test of its ability to convince investors that long-awaited fiscal reforms have started to put it on a sustainable financial footing.

Oman, rated below investment grade by all the major credit agencies, announced on Monday plans to issue bonds with maturities of three, seven and 12 years, in what would be its first global debt sale this year.

Sultan Haitham, who became Oman’s ruler in January, has made shaking up state finances one of his priorities.

But investors would like to see more concrete steps being taken and, after a further sovereign downgrade last week, may require the new bonds to offer a significant premium over the country’s existing debt.

“The new sultan has done some good things — rationalizing the number of ministries, the implementation of VAT, plans to generate additional tax revenues, and they still have sovereign assets,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

“There is positive momentum but it will take time for that credibility to build.”

According to a bond prospectus, Oman has begun talks with some Gulf countries for financial support.

“I don’t think this will actually be taken into consideration by investors unless there is a tangible announcement from Gulf countries with a tangible support package,” said Zeina Rizk, executive fixed income director at Arqaam Capital.

Oman will likely price the new three-year bonds in the high 4 percent area, the seven-year tranche in the high 6 percent and the 12-year in the mid-to-high 7 percent area, implying a premium of at least 50 basis points (bps) over its existing curve, she said.

Two other investors, who did not wish to be named, said the paper could carry a 25 bps premium over existing secondary trading levels.

Sources have previously told Reuters Oman would target over $3 billion with the new deal.

“If they take $3 to 3.5 billion, you will have a market indigestion for Oman, and I’m sure people will ask to be compensated for this risk,” Rizk said.