WEEKLY ENERGY RECAP: Wake-up call for the oil industry

WEEKLY ENERGY RECAP: Wake-up call for the oil industry
A flare stack is pictured next to pump jacks and other oil and gas infrastructure on April 24, 2020 near Odessa, Texas. (AFP)
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Updated 26 April 2020

WEEKLY ENERGY RECAP: Wake-up call for the oil industry

WEEKLY ENERGY RECAP: Wake-up call for the oil industry
  • Money managers have increased their net-long positions in Brent crude futures and options.

The oil market has come through the most frenetic week in its history — especially so for the US WTI grade that controversially was allowed to fall into negative territory.
On April 20 it closed at an almost unbelievable minus $37 per barrel (for the end of May contracts) before recovering to $16.94 per barrel.
Despite the drama, the US measure finished the week only $1.30 lower than the previous week closing.
It was also a roller-coaster ride for Brent crude, which tumbled to a 21-year-low, first dropping to about $16 before recovering to $21.44.
Money managers increased their net-long positions in Brent crude oil futures and options by 22,665 contracts to 134,119 for the week ending April 21, which represents a six-week high. It will be interesting to see how many of the these options and futures will be translated into physical deliveries.
Although WTI plunged into negative history for the time, net long positions for US crude futures and options also rose by 51,991 contracts to 209,734 over the week. That represents a three-month high. So clearly the expectation is that US oil prices will rise.
The market anomalies of the last week again highlight the disconnect between underlying supply and demand for physical oil on the one hand and the trading of oil-based financial instruments on the other. It is a wake-up call for an industry long blighted by speculation.
As the world emerges from COVID-19 quarantines, oil market fundamentals will likely improve. But we should not forget the chaos of the last week and the urgent need for more transparent international oil benchmarks that it signals.


Egypt spent $100bn on govt projects in 7 years

Egypt spent $100bn on govt projects in 7 years
Updated 13 June 2021

Egypt spent $100bn on govt projects in 7 years

Egypt spent $100bn on govt projects in 7 years
  • The minister said these structural reforms could play a vital role in accelerating economic recovery from the coronavirus

CAIRO: Egypt’s infrastructure spending during the last seven years amounted to EGP1.7 trillion ($100 billion), according to the country’s Minister of Planning and Economic Development Hala El-Said.

The spending had a direct impact on Egypt’s ranking in the Global Competitiveness Index as it focused on improving the quality of roads and providing uninterrupted power to the private sector and citizens, she said on Saturday.

She also said the government was taking several measures to boost public-private partnerships to expedite economic growth, and that the government had founded the first Egyptian sovereign fund designed to carry out projects in partnership with the private sector.

The minister said that, to strengthen such partnerships, the government kept the private sector and other stakeholders in the loop while formulating economic policies and regulations.

One example was a recent investment law, which encouraged the participation of the private sector and its increased collaboration with the public sector.

The minister said these structural reforms could play a vital role in accelerating economic recovery from the coronavirus pandemic, as well as boosting overall growth.

El-Said said the government was proceeding with the implementation of structural reforms that would protect African economies from external shocks in the future.


Private sector partnerships created 400k jobs for Saudis since 2018

Private sector partnerships created 400k jobs for Saudis since 2018
Updated 58 min 34 sec ago

Private sector partnerships created 400k jobs for Saudis since 2018

Private sector partnerships created 400k jobs for Saudis since 2018
  • Saudi Arabia seeks to raise $54.5 billion over the next 4 years through its privatization program

RIYADH: Jobs have been created for about 400,000 Saudi nationals as a result of 11 Saudization agreements put in place since 2018, the Argaam website reported, citing information from Abdullah Abuthnain, vice minister of human resources and social development at the Ministry of Human Resources and Social Development.

Increased privatization and Saudization of roles are the key goals of the Kingdom’s Vision 2030 program.

Finance Minister Mohammed Al-Jadaan last month said that Saudi Arabia is seeking to raise about $54.5 billion over the next four years through its privatization program.

Al-Jadaan expects to raise $38 billion through asset sales and $16.5 billion through public-private partnerships, he told the Financial Times.

The Saudi government has identified 160 projects in 16 sectors, including asset sales and public-private partnerships through 2025.

Asset sales will include government-owned hotels, television broadcasting towers, and cooling and water desalination plants.

The plan does not include Public Investment Fund entities or the sale of other assets of Saudi Aramco. The new privatization law will be enacted in Saudi Arabia in July this year.

The National Privatization Center (NCP) in March also announced the creation of the Registry of Privatization Projects, a comprehensive central database of information and documents related to projects targeted for privatization.

According to the director general of Strategic Communication and Marketing at the NCP, Hani Al-Saigh, the new system seeks to enhance the existing privatization system. One of its most important roles will be to strengthen existing governance and ensure fairness and transparency.

“The law allows participants from the private sector to set up a committee to submit grievances related to the bidding and selection procedures of privatization projects and lay the regulatory basis to compensate the aggrieved in case the gap cannot be addressed,” he told Arab News.

A report by the National Labor Observatory issued in April this year indicated that the percentage of Saudization in the private sector rose to 22.75 percent in the first quarter of 2021 compared to 20.37 percent during the same period last year.

Recent data has shown that seven major job groupings in the private sector have achieved Saudization figures of more than 50 percent. While the rate across the private sector as a whole is around a quarter, Al-Eqtisadiah newspaper reported that the financial and insurance sector had achieved a rate of 83.6 percent, followed by public administration, defense, and mandatory social insurance (71.9 percent), mining, and quarrying activities (63.2 percent), education (52.9 percent), and information and communications (50.7 percent).

Saudi Arabia has the lowest dependence on foreign labor among Gulf Cooperation Council countries at around 77 percent, while Qatar has the highest, at about 94 percent, according to data from S&P Ratings.

While the Saudization figure is moving in a positive direction, some sectors face challenges. In December, the Saudi government added accountancy to the list of professions set to be Saudized, announcing that 30 percent of all accounting jobs at all local Saudi private sector companies with at least five accounting professionals must be filled by Saudi nationals. 

The ruling will come into effect on June 21 this year, and it is predicted that the move will create around 9,800 job opportunities for Saudi accountants.


Egypt launches KSA marketing drive to boost tourism

Egypt launches KSA marketing drive to boost tourism
Updated 13 June 2021

Egypt launches KSA marketing drive to boost tourism

Egypt launches KSA marketing drive to boost tourism
  • Saudi Arabia ranked among the top countries for travel to Egypt before the pandemic

RIYADH: Saudi Arabia is among the top markets for tourism in Egypt, and now that the Kingdom has opened its borders for international travel, the Egyptian Tourism Promotion Board (ETPB) is ramping up its marketing drive in the Kingdom.

Ahmed Youssef, chairman of the ETPB, told Arab News: “Revenues from tourism reached the highest point at $12.6 billion in 2019. Saudi Arabia ranked among the top countries for travel to Egypt before the pandemic. The Saudi market represents the first and most important Arab market, ranking fifth for visitors to Egypt. The trend continued into the first two months of 2020 that recorded 8 percent year-on-year growth in terms of numbers and revenues, with 2.4 million tourists visiting the country during this period.”

Tourism is a big revenue generator for Egypt, reaching $13 billion in 2019. About 3.5 million visitors traveled to the country last year, compared to 13.1 million in 2019. Although numbers are still below pre-pandemic levels, many establishments have resumed operations in a bid to kick-start the tourism sector, the chairman said.

Saudi Arabia is an important market for Egypt, which is why the ETPB is making significant investments in promotional activities.

“Now that the country has opened its borders for international travel, we plan to run promotions in partnerships with Saudi tour operators,” Youssef said. “In addition, we have incentive programs in place for the aviation industry, where airport landing and housing fees have been discounted by 50 percent. We also launched a digital campaign in the GCC, especially in Saudi Arabia, starting the last week of Ramadan (May 2021).”

“We are already seeing strong interest from travelers based in Saudi Arabia, especially Arab families. Our two countries share similar culture and values, which, in addition to the relative proximity, makes Egypt a highly attractive destination for Saudi tourists,” he said.

Wego, one of the biggest online travel marketplaces in the Middle East and North Africa (MENA) region, said in the run-up to the resumption of international travel on May 17 that Egypt topped the list of desired destinations.

Youssef said: “Our main goal now is not to measure the number of tourists but to reassure visitors that Egypt is a safe tourist destination. Saudi Arabia has now opened its borders for its nationals to travel again. We have also started receiving tourists from Saudi Arabia and we are hoping they will enjoy their time here.”

Egypt has adopted strict precautionary measures to limit the spread of COVID-19 while taking steps to support the economy, including the tourism sector.

The World Travel and Tourism Council (WTTC) granted Egypt its Safe Travels stamp, the ETPB chairman said.

“We have introduced the requirement for tourists to carry a negative COVID-19 PCR test certificate from their country issued up to 72 hours before the time of departure (96 hours for travelers arriving from Japan, China, Thailand, the US, Canada, South America, as well as London Heathrow, Paris and Frankfurt airports). Exceptions apply to travelers arriving by plane at the most frequented tourist destinations — Sharm El-Sheikh, Taba, Hurghada, and Marsa Alam — who can do a PCR test upon arrival at a cost of $30,” Youssef said.

The ETPB is targeting tourism revenue of $8 billion and aiming to attract 8 million overseas visitors in 2021. Demand is expected to stabilize and lead to a growth in reservation rates for the 2021-2022 winter season.

“We hope the numbers will return to pre-pandemic levels by fall 2022,” Youssef said.


King Salman Energy Park wins US green building award

King Salman Energy Park wins US green building award
Updated 16 min 58 sec ago

King Salman Energy Park wins US green building award

King Salman Energy Park wins US green building award
  • SPARK is being built on an area of 50 square kilometers

RIYADH: The King Salman Energy Park (SPARK) has been awarded the 2021 US Green Building Council (USGBC) Leadership Award for the Middle East in recognition of its environmentally friendly approach to construction and development.

SPARK was the first industrial city in the world to obtain Leadership in Energy and Environmental Design (LEED) Silver Certification.

Developed by the US Green Building Council, LEED aims to reduce the environmental impact of the construction process, limit resource use, reduce carbon emissions and proactively address climate change.

Saif Al-Qahtani, president and CEO, said in a press statement: “At SPARK, we are committed to ensuring sustainable solutions are continuously implemented as we grow to become the leading energy-centric ecosystem in the world. 

“We have achieved many firsts in our initial stages of development and will continue to adopt and support innovative initiatives that help improve the quality of life for our people, while also strengthening our business and the Kingdom’s economy. 

“We are very proud of our team and the work they have done to guarantee SPARK provides long-term value and supports national and regional programs aimed at building a more sustainable future.”

The 2021 USGBC Leadership Award recipients are selected from among USGBC’s around 10,000 member organizations and the 106,000 LEED commercial projects in more than 180 countries.

SPARK is being built on an area of 50 square kilometers. Phase one will be 14 square kilometers, in addition to a dedicated logistics zone and dry port. SPARK announced in March that 80 percent of the project’s first phase was officially complete.

Oilfields Supply Center Ltd. (OSC) announced in April it is to invest $570 million in building a center at SPARK.


WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?
Updated 13 June 2021

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?

WEEKLY ENERGY RECAP: If oil prices were below $70, would IEA still tell OPEC to open taps?
  • OPEC+ has done a tremendous job and has successfully managed to contain the largest oil demand shock in history

Oil prices continued their rally for the third week in a row, amid confidence in the strong oil demand outlook and accelerating vaccinations allowing people to travel more.

On the week closing, Brent crude rose to $72.69 per barrel. West Texas Intermediate (WTI) rose to $70.91 per barrel.

International benchmarks’ futures forward curves are further tightening, and the Arabian Gulf Dubai benchmark is trading at its steepest backwardation market structure for almost a year, which indicates supply tightness.

Brent crude seems to have settled above the $70 mark since the beginning of June. WTI closed the week above $70 for the first since October 2018, but back then it had moved steeply downward and ended that year at $45 per barrel even though oil inventories from the Organization for Economic Co-operation and Development (OECD) were at 19 million barrels above their five-year average.

The June monthly oil market report of the Organization for the Petroleum Exporting Countries (OPEC) kept the second half of 2021 oil demand growth unchanged at 96.58 million barrels per day (bpd), up 5.95 million from 2020 when demand was at 90.63 million bpd.

OPEC reported that OECD April commercial oil inventories fell to 25 million barrels below the latest five-year average, around 34 million barrels higher than the pre-pandemic 2015–2019 average, and 160 million barrels lower than the same month a year ago. This means that OPEC+ has done a tremendous job just one year on from the largest oil output cuts in history, and has successfully managed to contain the largest oil demand shock in history.

The US Energy Information Administration (EIA) June Short-Term Energy Outlook came with bearish notes that the market remains subject to heightened levels of uncertainty related to the ongoing economic recovery from COVID-19.

However, the EIA sees the global crude oil market balancing in the third quarter of this year. It predicts a decline in oil prices, and expects Brent crude to average $68 per barrel this year and $60 in 2022 as global oil production increases.

The EIA expects US oil output to rise to 11.8 million bpd in 2022. Though WTI has breached the $70 mark for the first time since October 2018, the US still produces 10.8 million bpd through the Permian Basin, where the rig count rose to its highest level since April 2020.

The International Energy Agency (IEA) June report came with huge contrasts as it forecast that global oil demand is set to return to pre-pandemic levels by the end of 2022, but reported that OECD oil inventories fell 1.6 million barrels below the pre-pandemic 2015-2019 average for the first time in more than a year.

How can the IEA suggest to OPEC to open the taps while it forecasts oil demand to surpass pre-pandemic levels by the end of 2022? If prices were below the $70-per-barrel mark, would the IEA still suggest to OPEC to loosen oil output cuts?

The latest figures from the Commodity Futures Trading Commission on June 8 showed that long positions on crude oil futures on the New York Mercantile Exchange numbered 661,994 contracts, up 15,477 from the previous week (1,000 barrels for each contract).

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