Trump vows to rescue US oil amid further crude market turmoil

Petroleum storage tanks at the BP Indiana Tank Field. A global oversupply, reduced demand and lack of storage space lead to further turmoil on global crude markets Tuesday. (AP)
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Updated 22 April 2020

Trump vows to rescue US oil amid further crude market turmoil

  • President pledges funds to save industry jobs
  • OPEC talks amid convulsions in market

DUBAI: US President Donald Trump vowed on Tuesday to save the US oil industry and OPEC producers held “virtual” crisis talks amid continued convulsions on global crude markets.

As OPEC leaders tried to chart a way forward, Saudi Arabia pledged every effort to restore stability. “The Kingdom continues to closely monitor the situation in the oil markets and is prepare to take any additional measures in cooperation with OPEC+ and other producers,” a spokesman said.

Oil markets endured another day of record-setting declines after Monday’s “wipeout” of American oil. Brent crude, the Middle East benchmark, plunged to as low as $17.50 a barrel, the lowest level for two decades, before recovering to about $24.

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West Texas Intermediate, the American standard savaged by markets on Monday when it traded at a $40 negative price for May delivery, climbed back into positive territory at just over $10 a barrel. Worryingly for US producers, however, WTI for June delivery fell by 43 percent to $11.50 a barrel.

Sources in the Saudi oil industry played down suggestions that OPEC would discuss further cuts on top of the historic reductions just over a week ago, but those may be implemented earlier than May, when they were scheduled.

Russia — the other key partner to the cuts package agreed by OPEC+ — did not take part in Tuesday’s talks,and Energy Minister Alexander Novak said there was “no need to dramatize” the American oil fall.

Trump said the US government would help American oil companies threatened with bankruptcy by the dramatic collapse of WTI. “We will never let the great US oil and gas industry down,” he said.

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“I have asked the secretary for energy and the secretary to the treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future.”

Monday’s collapse of WTI, sparked by the ending of a monthly contract and a lack of storage, was still being chewed over by energy experts.

“Some may dismiss Monday’s fall into negative WTI prices as a quirk of the futures market on the last day before a contract ended,” said Jim Burkhard, vice president and head of oil markets at IHS Markit consultancy. “But the fact that prices went this low at all reflects brutal market forces that will not disappear with the expiration of a single monthly contract.”

About 30 per cent of global oil demand has evaporated in the past month as big economies have locked down under the impact of the COVID-19 pandemic.

A Saudi energy official downplayed reports that a “flotilla” of super tankers was at sea heading to the US with a cargo of 50 million barrels of crude for delivery next month. The Kingdom had so far this month supplied only a relatively small amount of crude to US destinations, including the Motiva refinery in Texas, the official said.


Tadawul launches derivatives trading

Updated 38 min 31 sec ago

Tadawul launches derivatives trading

  • It is part of the Financial Sector Development Program initiative of the Vision 2030 strategy to diversify the economy
  • Derivatives trading is common in many of the world’s biggest stock exchanges, but is rare in the Middle East

DUBAI: Tadawul, the Saudi Arabian stock exchange, is to launch trading in derivative products at the beginning of next month in a bid to further enhance growth of the Kingdom’s capital markets.

Khalid Al Hussan, chief executive of Tadawul, said the move was “further evidence of our commitment to providing our investors with diversified, innovative products and services to meet all their needs.”

The first derivative that will be traded will be an index futures product, the Saudi Futures 30, based on the MSCI Tadawul 30 index launched last year. Other sophisticated financial instruments will be gradually introduced, Al Hussan said.

“Today, we can proudly say that our capital market is not only the largest in the region but also developing faster than most exchanges in terms of both the products and the services we offer,” he added. 

Derivatives trading is common in many of the world’s biggest stock exchanges, but is rare in the Middle East.

Derivatives traders deal in comparatively complicated instruments like futures, options and swaps which allow them to hedge equity trading risk, expand investment opportunities and enhance liquidity.

Al Hussan acknowledged that they do, however, introduce their own element of risk, compared with traditional equity trading.

“That is why we did not launch derivatives products before the full operation of our clearing house, which will act as an intermediary between sellers and buyers.

“We believe that the regulations and the procedures of Muqassa (the securities clearing centre) that are in place today are there to protect, or at least to manage, these types of risks,” he said.

He added that Tadawul had launched an education program for investors in the new products, especially for retail investors, who would be able to experience real-time simulated trading in derivatives via a training program.

The derivatives launch is part of the Financial Sector Development Program initiative of the Vision 2030 strategy to diversify the economy away from oil dependency.

“It is a significant step in introducing sophisticated market products and creating a trading environment attractive to local as well as international headers and traders,” Al Hussian said.

The move was welcomed by professional investors. Tarek Fadlallah, chief executive of Dubai-based Nomura Asset Management, told Arab News: “This is a major milestone in the development of the Saudi capital markets. It is likely to encourage greater participation by both local and foreign institutional investors.”