WEEKLY ENERGY RECAP: Falling oil prices revive concerns about the slow pace of recovery

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Updated 06 September 2020

WEEKLY ENERGY RECAP: Falling oil prices revive concerns about the slow pace of recovery

Oil prices retreated after last week’s rebound as Brent dropped to $42.66 per barrel and WTI weakened to $39.77 per barrel, dipping below the $40 barrier for the first time since June.

A weak outlook for global oil demand has revived concerns about the slow pace of recovery from the COVID-19 pandemic, with especially weak gasoline demand in the US at the end of the summer driving season.

Prices should have been supported by positive industrial data from the US and China. Oil inventories also declined for the sixth week in a row, which would usually have been another positive for the price.

Instead, a number of factors are now testing prices, including the approaching decline in China’s crude imports in September and October which are set to fall for the first time in five months as oil buyers struggle to find room to store record volumes of crude that were snapped up while prices
were low.

As China’s diesel and jet kerosene exports slumped in July and August, Chinese refiners have reduced their runs, while floating storage remains around 80 million barrels.

The sudden weakening of China crude oil imports at the end of the summer season, will adversely affect purchasing for October-loading barrels and will leave some spot barrels still available and unsold in the market.

More importantly, refinery maintenance season has been deliberately timed to occur during this period of historically low refining margins. Refiners may extend the maintenance season as a result which would put further pressure on the oil price.

The impact of Hurricane Laura on the US Gulf coast oil industry was muted because many refineries were shutting down anyway.


Saudi Arabia looks to cut spending in bid to shrink deficit

Updated 01 October 2020

Saudi Arabia looks to cut spending in bid to shrink deficit

  • Saudi Arabia has issued about SR84 billion in sukuk in the year to date

LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as it seeks to reduce its deficit. This compares to spending of SR1.07 trillion this year, it said in a preliminary budget statement.

The Kingdom anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year.

Saudi Arabia released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness.

The unemployment rate among Saudis increased to 15.4 percent in the second quarter compared with 11.8 percent in the first quarter of the year.

The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending.

Saudi Arabia has already issued about SR84 billion in sukuk in the year to date.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. 

“This, in turn, has helped diversify its funding sources compared with what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year,” the ratings agency added.