Oil prices on the rise as cuts kick in

Oil prices on the rise as cuts kick in
An oil pump is seen at sunset outside Scheibenhard, near Strasbourg, France, October 6, 2017. (Reuters)
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Updated 16 May 2020

Oil prices on the rise as cuts kick in

Oil prices on the rise as cuts kick in
  • The sustained recovery in oil prices comes after a week in which producers committed to even bigger cuts than the record 9.7 million bpd reduction agreed in the revived OPEC+ agreement
  • Oman, a relatively small player in the Gulf oil market, weighed in with its own cuts yesterday, pledging to reduce output by up to 15,000 bpd from June

DUBAI: Global oil prices ended the week on a high after further big commitments to rebalancing crude markets in the face of the pandemic-driven fall in demand.
Brent crude, the global benchmark, stayed firm above the $30 mark, ending the day just short of $32 in European trading — its third consecutive daily rise.
West Texas International (WTI), the US standard, jumped 4.4 percent to just short of $30, easing fears of another plunge into negative territory when the contract for June delivery expires next week.
The sustained recovery in oil prices comes after a week in which producers committed to even bigger cuts than the record 9.7 million barrels per day (bpd) reduction agreed in the revived OPEC+ agreement between producers led by Saudi Arabia and Russia.
The Kingdom pledged an extra 1 million bpd of voluntary cuts last week, followed by smaller reductions from Kuwait and the UAE.
Oman, a relatively small player in the Gulf oil market, weighed in with its own cuts yesterday, pledging to reduce output by up to 15,000 bpd from June.
The International Energy Agency (IEA) calculated that oil supply would fall to a nine-year low this month, down 12 million bpd to around 88 million barrels.
“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” the IEA said.
Saudi Arabia’s cut of more than 4 million bpd is the largest component of that reduction, followed by Russia. The US is going through its own more gradual reduction as high-cost shale operations are scaled back and some producers file for bankruptcy.
Oil demand is a more uncertain element in the equation. Some analysts said that demand of as much as 30 million bpd, about a third of the world’s consumption, was lost at the height of lockdowns last month.
The IEA said that the fall in demand over the year — though the most severe the energy industry has ever suffered — might be less than initially expected. It calculated that total demand would be 91.2 million barrels this year, down from 100 million last year.
Some experts believe the recovery could be faster than predicted. Roger Diwan, vice president of financial services at US energy consultancy IHS Markit, said that by the second half of next year demand could be almost completely made up.
“It may be hard to comprehend now. But barring a second wave of the pandemic, nearly all pre-COVID demand could return by the second half of 2021. If that transpires, it could even lead to a market squeeze in the medium term as supply destruction hinders the ability of supply to keep up with recovering demand.
“But make no mistake, the road to oil price recovery will likely be choppy and plagued with stop-and-go rallies and selling cycles until some level of certainty is restored,” he added.
Saudi Arabia, as a global “swing producer,” will gain from any upturn. The Kingdom’s energy ministry last week announced the discovery of two new oil fields, with more details to be released once geological surveys are complete.


Jack Ma video reappearance fails to soothe all investor concerns

Jack Ma video reappearance fails to soothe all investor concerns
Updated 59 min 45 sec ago

Jack Ma video reappearance fails to soothe all investor concerns

Jack Ma video reappearance fails to soothe all investor concerns
  • Ma had not appeared in public since Oct. 24, after he blasted China’s regulatory system
  • Chinese regulators have set about reining in Ma’s financial and e-commerce empires

HONG KONG: Billionaire Jack Ma’s 50-second video reappearance has done little to resolve Alibaba Group’s troubled relationship with regulators that is making some investors hesitate about owning the Chinese e-commerce giant’s stock.

Relief at Ma’s first public appearance added $58 billion in market value on Wednesday as Alibaba’s Hong Kong-listed stock soared, though doubts crept in a day later and the stock fell more than 3 percent as the broader market steadied near two-year highs.

Ma had not appeared in public since Oct. 24, when he blasted China’s regulatory system. That set him on a collision course with officials and led to the suspension of Alibaba fintech affiliate Ant Group’s blockbuster $37 billion IPO.

A source familiar with the matter said Ma cleared his schedule late last year to keep a low profile, prompting discussion at Alibaba about when and how he should reappear to assure investors.

It was decided he should do something that would appear as part of his normal routine, rather than anything overt that could irk the government.

While Ma has stepped down from corporate positions, he retains significant influence over Alibaba and Ant, and the regulatory crackdown on his business empire coupled with his absence was a concern for some investors.

There was skepticism that Ma’s brief reappearance meant all was well with his businesses.

“The coast is not all clear for Alibaba and it is a judgment call whether you believe the company can still thrive in the changing environment,” said Dave Wang, a portfolio manager at Singapore’s Nuvest Captial, which owns Alibaba stock.

“Without some skepticism, the price would be a lot higher,” he said, adding his firm had increased exposure to China and with it Alibaba, which he believes can prosper over the medium to longer term.

Two of the company’s investors in the US who have sold out or reduced positions in Alibaba said they needed more reassurance about the company and the regulatory environment before reconsidering the stock.

“One of our top criteria is leadership and we were investing in Alibaba because I really respect Jack Ma as a leader,” said William Huston, founder and director of institutional services at independent investment advisory firm Bay Street Capital Holdings in Palo Alto, CA, with assets under management of $86 million.

“We all know that just because he showed up ... doesn’t necessarily explain what is going on.”

Huston, whose firm cut its holding in the Chinese firm last year from 8 percent of its portfolio to less than 1 percent, said the halting of the Ant IPO in November had caused uncertainty, and that Alibaba was “not a prudent investment” for it going forward.

David Kotok, chairman and chief investment officer at Cumberland Advisers, Florida, which has about $4 billion in assets, said he held Alibaba last year but also sold as the Ant IPO was pulled.

“When you don’t know what to do in an evolving situation like this you can’t use traditional securities analytics to reach decisions. We are standing aside and watching,” Kotok said.

Chinese regulators have set about reining in Ma’s financial and e-commerce empires since the Ant IPO suspension, which has weighed on its stock that remains below levels prior to the cancelation of the Ant IPO.

“What his actual state is will be completely up to Beijing to reveal to us,” Leland Miller, CEO of US-based consultancy China Beige Book.

“What we do know is whether Jack is running around, Jack is hiding or something else, Alibaba is not in the clear. There is a lot more of the story still to see.”

Some investors are, however, betting on long-term potential for Alibaba in the world’s second-largest economy.

Dennis Dick, a proprietary trader at Bright Trading, who holds Alibaba shares, said he had protected against a potential fall when speculation about Ma’s whereabouts began by buying put options.

He covered those puts earlier in January on a report that Ma was OK and retains a long position in the stock.

“We have been investors for many years ... there’s a very strong team of executives and Alibaba is bigger than just one person,” said a Hong Kong based long-only investor, declining to be named as he was not authorized to speak to the media.