Saudi Arabia’s surprise cut transforms oil market outlook

Saudi Arabia’s surprise cut transforms oil market outlook
Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia, May 21, 2018. (Reuters)
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Updated 20 January 2021

Saudi Arabia’s surprise cut transforms oil market outlook

Saudi Arabia’s surprise cut transforms oil market outlook
  • From a situation at the end of last year when there was talk of Brent crude “stuck” at $50-$55 per barrel, many experts are now looking for upward of $60 in 2021
  • The “big three” of the American financial scene — Bank of America (BoA), Goldman Sachs and JP Morgan (JPM) — have all recently come out with positive outlooks for oil

DUBAI: Suddenly, the outlook for oil prices has changed dramatically.
From a situation at the end of last year when there was talk of Brent crude “stuck” at $50-$55 per barrel, many experts are now looking for upward of $60 in 2021, with some of the more bullish targeting $65 by this summer.
The “big three” of the American financial scene — Bank of America (BoA), Goldman Sachs and JP Morgan (JPM) — have all recently come out with positive outlooks for oil for the rest of the year.
BoA said a number of macroeconomic factors “could all combine to push oil above the $60 mid-2021 target we introduced back in June last year,” and acknowledged that the oil price could “easily overshoot” its projections.
JPM said a “supercycle” in oil prices — a scenario where surging demand and tightly controlled supply led to prices significantly, albeit temporarily, above current levels — could be on the horizon.
In perhaps the most bullish recent prognosis, analysts at Goldman Sachs — already among the most optimistic in the business — brought forward the date by which they expect Brent to hit $65. They now think it will be at that level six months earlier, in July this year.
“The events of the first weeks of the year have sharply reduced the risks that the market rebalancing gets derailed,” Goldman said.
So what has happened to change sentiment so significantly? While there is a range of positive economic news — from the global rollout of vaccines to a general surge in commodity prices signaling a pick-up in industrial activity — this has been tempered to some degree by the increased number of COVID-19 cases in many parts of the world.
But what appears to have made the difference for the energy analysts was the surprise decision by Saudi Arabia earlier this month to cut an extra 1 million barrels per day from its output. This unilateral reduction — greeted by the Kingdom’s OPEC+ partner Russia as a “new year present” — headed off simmering tensions within OPEC+ and accelerated the drain of global oil inventories still high after the oil market chaos of 2020.
“The unilateral and unexpected production cut from Saudi will offset in our view the near-term negative hit to demand from a quickly spreading virus,” Goldman said.
The cut by Saudi Arabia — which its Energy Minister Prince Abdul Aziz bin Salman said was a reflection of its role as “guardian of the oil industry” — will keep March production at low levels just as global oil demand rebounds sharply as vaccine rollouts encourage more global economic activity.
The other positive factors for Brent, according to Goldman, are the US presidential transition, which is likely to lead to a $2 trillion stimulus package by Joe Biden, and the continuing tight financial discipline within the American shale industry, which is unlikely to significantly raise production until oil hits $65 per barrel.
BoA pointed to the general increase in commodity prices — not just crude oil — as a sign that global economic growth was resuming, especially in Asia.
Regardless of the generally more benign global economic outlook, JPM highlighted the critical role the Saudi oil cut had played in the new bullishness for Brent, and for the longer-term outlook.
“The short-term supply cut demonstrates that Saudi is willing to cut deeper if demand is at risk, and ensures a sustained OECD (Organisation for Economic Co-operation and Development) inventory drawdown, also capable of absorbing increased supply from Libya and Iran.”
It is too early to call the end of the pandemic economic shock, but at least in global energy markets it looks as though rebalancing of supply and demand is well on track.
The oil price is reflecting that optimism too. Brent is now trading at above $56 per barrel — a post-pandemic high.


Theeb Rent-a-Car to list 30% of shares in IPO this month

Theeb Rent-a-Car to list 30% of shares in IPO this month
Updated 02 March 2021

Theeb Rent-a-Car to list 30% of shares in IPO this month

Theeb Rent-a-Car to list 30% of shares in IPO this month

RIYADH: Theeb Rent-a-Car, a Riyadh-based car rental company, plans to float 30 percent of its share capital in an initial public offering (IPO) later this month.

The company issued an IPO prospectus last month to the Saudi Stock Exchange (Tadawul), in which it outlined the many factors that enable it to compete with its current and potential competitors and the factors it sees for its future growth.

The Saudi Capital Market Authority (CMA) last October approved Theeb’s request to offer a 30 percent stake as part of its IPO, representing 12.90 million shares on Tadawul.

The company’s strategy is to continue seeking growth in the car rental services sector by opening new branches, whether at airports, inside cities, or in new mega projects in which the need for car rental is likely to increase.

According to Argaam, Theeb Rent a Car reported a net profit of SR41.9 million ($3.97 million) for the first nine months of 2020, an increase of 8 percent on the same period in 2019.

Short-term leasing accounted for 44.8 percent of revenue, followed by long-term leasing (30.2 percent) and used car sales (25 percent).

Offering daily, weekly and monthly rental services, it operates through 48 outlets across the Kingdom. With 264,131 customers as of March 2020 – a 3 percent year-on-year increase – Theeb has an 8.8 percent share of the short-term car leasing market. It competes with the likes of Al WAFAQ, with a 6.9 percent market share, followed by Budget Saudi (6.9 percent), Arabian Hala (4.6 percent), Key Car Rental (3.5 percent) and SEERA (3.2 percent).
 


Own goal? Shaky finances ruin China’s dream to be a global football power

Jiangsu FC on Sunday said they had
Jiangsu FC on Sunday said they had "ceased operations" — just three months after winning the Chinese Super League. (AFP/File Photo)
Updated 02 March 2021

Own goal? Shaky finances ruin China’s dream to be a global football power

Jiangsu FC on Sunday said they had "ceased operations" — just three months after winning the Chinese Super League. (AFP/File Photo)
  • Jiangsu FC on Sunday said they had "ceased operations" — just three months after winning the Chinese Super League

SHANGHAI: Five years ago, China under President Xi Jinping pledged to become a football power by 2050. But the financial collapse of the newly crowned Chinese champions raises fresh questions over that lofty goal.
Jiangsu FC on Sunday said they had "ceased operations" — just three months after winning the Chinese Super League — in a move described as "shocking" by state media.
After rushing in to curry favour with Xi and the Communist Party, burnt investors are retreating again and last year 16 teams pulled out of Chinese football. More are set to follow.
It is a far cry from when the Super League broke the Asian transfer record five times in less than a year, culminating in Chelsea midfielder Oscar joining Shanghai SIPG for 60 million euros in January 2017.
Argentine striker Carlos Tevez was lured by Shanghai Shenhua in the same transfer window on reported wages of 730,000 euros a week, the highest in the world.
But state-run Xinhua news agency said this week that soaring salaries and transfer fees, as clubs vied to outspend each other, had created "a bubble" that is now bursting.
Citing Chinese Football Association statistics, Xinhua said average expenditure in the 2018 season for the Super League's 16 clubs was about 1.1 billion yuan ($170 million), against average income of 686 million yuan.
"The CSL club expenditure is about 10 times higher than South Korea's K League and three times higher than Japan's J-League," CFA president Chen Xuyuan said in December, when salary caps were announced.

Journalist Ma Dexing said that in 30 years covering Chinese football he has seen more than 200 clubs close, indicating a wider problem beyond the current crisis and the coronavirus pandemic, which delayed the Super League for months last year and forced it behind closed doors.
Tianjin Tigers, a Super League mainstay since its founding in 2004, are expected to dissolve within days and Hebei FC's parent company is drowning in debt.
"The fundamental reason is that the foundation of Chinese professional football is too weak," Ma, who has 1.5 million followers on China's Twitter-like Weibo platform, wrote in a column.
Clubs are built and run by companies which have little connection to the communities where they are based, Ma explained.
"Therefore the survival of China's professional clubs directly depends on the economic situation of the enterprise or company," he wrote.
"Once the company or enterprise has problems, the club ceases to exist."
That's what happened to Jiangsu FC, who were until recently called Jiangsu Suning, named after their backers.
The Suning conglomerate, which also owns Serie A leaders Inter Milan, is in financial peril and has cut the team loose.
A recent CFA order for clubs to drop sponsors from their official names -- supposedly to help foster a deeper footballing culture -- was the "last straw" for some investors, the Beijing News said.

Speaking to AFP last year, CFA secretary-general Liu Yi said a healthy Super League was central to China's football ambitions, which include hosting and even winning a World Cup.
Concerned about clubs' high spending and the lack of opportunities for Chinese players, the CFA imposed a 100 percent transfer tax in 2017 on incoming foreigners, plus recent salary and investment caps.
The Shanghai Observer said clubs must abandon single-owner models in favour of multiple stakeholders including "government, enterprises, communities and even individuals".
"Super League clubs cannot only rely on blood transfusions from their parent company but must attract more sponsorship, match-day income (and improve) transfer market operations, etc.," it said in an opinion piece.
Liu told AFP that China remains committed to its ambitious long-term plans, pointing out that foreign stars including Oscar, Paulinho and Marouane Fellaini remain in the Super League.
But the short term is uncertain.
A more frugal Super League is expected to kick off in the spring but with coronavirus concerns persisting, the CFA is yet to announce a start date. Given Jiangsu and Tianjin's problems, it's also unclear which teams will be involved.
Meanwhile, the men's national side has moved up just five places in the FIFA rankings since China revealed its football dreams in 2016. They are now 75th, just above war-ravaged Syria.
China has reached only one World Cup, in 2002, when they failed to score a goal or win a point in their three group games.


Aramco CEO sees improvement in demand for oil in 2021 

Amin Nasser, president and chief executive of Saudi Aramco. (CERAWeek)
Amin Nasser, president and chief executive of Saudi Aramco. (CERAWeek)
Updated 02 March 2021

Aramco CEO sees improvement in demand for oil in 2021 

Amin Nasser, president and chief executive of Saudi Aramco. (CERAWeek)
  • Amin Nasser also warns certain job types might not return after ‘biggest crisis in a century’
  • Current oil demand is at 94 million barrels, compared with pre-pandemic levels of 100 million

DUBAI: Amin Nasser, president and CEO of Saudi Aramco, sees an improvement in demand for oil this year, especially in the second half, but he is worried about the risk of a “jobless recovery” for the global economy.

Speaking virtually at CERAWeek, an annual energy conference organized by the information and insights company IHS Markit in Houston, Texas, Nasser said there has already been “quite an improvement” in oil demand compared to the drastic reductions during the pandemic lockdowns last year, especially in China and East Asia. 

“Indian demand is almost the same as pre-COVID,” he told oil market expert Daniel Yergin.

“There has been an impact that we see in the West and the US. But with the rapid deployment of vaccines, we are seeing good cause for optimism and recovery in demand.”

Current oil demand is at 94 million barrels, compared with pre-pandemic levels of 100 million, and Nasser expected this to rise to 99 million barrels by the end of the year. 

“I see demand and the market improving from here, especially in the second half of this year,” he said.

But Nasser said he expected “harsh realities” as a result of the economic damage from the pandemic, which he described as the “biggest crisis in a century” for the oil industry.

“There has been a huge impact on small- and medium-sized businesses, and more on employment,” Nasser said. “Rapid technology advances were already having an impact on jobs, especially low-skill repetitive-type jobs, reducing jobs and creating inequality in the market in different parts of the world.

“Today we are seeing a recovery taking place and usually this is linked to job creation and higher employment. My big worry over the long term is a jobless recovery where certain jobs are not going to return.”

Nasser said Aramco, the world’s biggest oil company, used risk-management systems to help it respond quickly to the pandemic, which also significantly accelerated its use of digital and remote operating processes.

During the same CERAWeek forum, the CEO of US energy firm Chevron Corp., Mike Wirth, said the key lesson learned from the crisis was the “essential nature” of the oil business. 

Despite the unprecedented shock to oil markets, he said demand destruction only amounted to about 9 percent: “This demonstrates how important our industry is to the world economy.”


Saudi Aramco, Chevron chiefs see global oil demand recovery

Saudi Aramco, Chevron chiefs see global oil demand recovery
Updated 02 March 2021

Saudi Aramco, Chevron chiefs see global oil demand recovery

Saudi Aramco, Chevron chiefs see global oil demand recovery
  • Amin Nasser says global demand could reach 99 million barrels per day in 2022

Global oil demand is recovering and could return to around pre-pandemic levels next year, the chief executive of Saudi Aramco told an oil and gas conference on Tuesday.
Global demand for oil is likely to recover from the second half of the year and could reach 99 million barrels per day (bpd)in 2022, Amin Nasser said at IHS Markit's online CERAWeek conference.


Diesel demand has recovered globally due to door-to-door deliveries, though jet fuel lags as people avoid long flights, said Chevron CEO Michael Wirth, who spoke on a panel with Nasser.
Oil demand improving in China, India and East Asia, with vaccine deployment as "cause for optimism" in the West, Nasser said.


OPEC says general oil market outlook is positive as energy industry gathers

OPEC says general oil market outlook is positive as energy industry gathers
Updated 02 March 2021

OPEC says general oil market outlook is positive as energy industry gathers

OPEC says general oil market outlook is positive as energy industry gathers
  • Resilient Asia supports oil demand
  • OPEC+ to meet on Thursday
LONDON: OPEC sees the oil market’s outlook as positive in general and the uncertainty that dominated last year is easing, the group’s secretary general said.
“This is a major turnaround from a year ago,” Mohammad Barkindo was quoted as saying on Twitter on Tuesday.
He added that positive global economic developments and resilient demand in Asia were encouraging.
Barkindo spoke ahead of joint technical committee (JTC) meeting for the Organization of the Petroleum Exporting Countries and its allies led by Russia, a group know as OPEC+.
The JTC reviews oil market supply and demand balances as well as compliance of members of the alliance with the agreed cuts.
“It looks good and healthy,” an OPEC delegate said, referring to the latest supply and demand balance for 2021.
“But there are still some thoughts to be cautious,” he added.
Oil company executives at CERAWeek by IHS Markit said that crude demand will rise over the coming decade and that the fossil fuel will remain a crucial part of the energy mix even as renewables draw increasing attention.
Climate change and renewable fuels are taking center stage at this year’s gathering of energy leaders, investors and politicians from around the globe, with oil companies trying to reorient their portfolios after the coronavirus pandemic eroded demand and caused the loss of thousands of jobs.
The industry scaled back investments and cut budgets as prices crashed in 2020, but investments are likely to rebound by next year, said Lorenzo Simonelli, chief executive officer of oil services company Baker Hughes.
“Hydrocarbons are still going to be essential for providing energy to the world,” Simonelli said. “Especially as you look at the near-term future.”
Oil demand may continue to climb over the next decade even as countries work to comply with the Paris climate agreement’s goals for cutting emissions, said Hess Corp. CEO John Hess.
“We don’t think peak oil is around the corner — we see oil demand growing for the next 10 years,” said Hess.
“We’re not investing enough to grow oil and gas in the future,” he said, saying that prices would need to rise to support that investment.