US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 

US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 
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Mauston, Wisconsin USA - October 31st, 2021: Joe Biden stickers on fuel pumps saying I Did That due to high fuel prices (shutterstock)
US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 
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Updated 24 November 2021

US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 

US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 

LONDON: Despite warning from analysts, US President Joe Biden finally announced the release of crude oil from the country’s strategic stockpile, a unilateral move first mooted by his Energy Secretary Jennifer Granholm in October, as he seeks to curb inflationary pressure in the US economy.

Gasoline prices nationwide are averaging about $3.40 a gallon, more than double their price a year ago, according to the American Automobile Association.

Biden confirmed the release from the US Strategic Petroleum Reserve on Tuesday after months of failed pressure by the President to convince OPEC to hike production amid rising gasoline prices in America - currently at a seven year high - and heightened worries that rising inflation could derail the post Covid-19 economic recovery.

The move, which will make 50 million barrels of oil available from the SPR in conjunction with releases from China, India, Japan, South Korea, and the UK, underlines the intense domestic pressure the President is under as his poll ratings tumble.

The Indian government also announced it would release 5 million barrels of oil from strategic reserves in coordination with other buyers. 

The rules of the International Energy Agency (IEA) – the inter-governmental group charged with managing global supply - specifically state that reserves should only be released to manage market shocks, such as wars or natural disaster, not as a mechanism to correct market imbalances caused by lack of investment and rising demand.

Natasha Kaneva at JP Morgan said the unilateral emergency sale from the SPR, without coordination with the IEA, was unprecedented.

She said: “Presidentially-directed emergency releases have occurred only three times over the last 30 years and all happened before the US shale revolution significantly reduced US dependence on imported crude.”

It is also the first time the US has involved China in any coordinated action to release oil reserves, although China, which is only an affiliate member of the IEA, has so far failed to release all the details of its release.

Giovanni Staunovo at UBS described the release as a “big headline number” but added that the “details provide a less strong narrative”.

He said: “Fifty million barrels from the US is above the market expectations, but the effective volume is much smaller, only 32mb. Moreover,18mb of the 50mb were already planned to be sold next year, now this amount is sold at the start of the year instead of later in 2022.”

He added: “Also the amount being so far mentioned from other countries joining the US looks more symbolic.”

The Strategic Petroleum Reserve was created after the 1973 energy crisis. Two sites in Louisiana and two in Texas currently hold oil in caverns hollowed out of salt domes — mountainous salt deposits that are almost entirely underground.

The most obvious risk in releasing reserves, as Goldman Sachs commented in a recent note, is that it can only offer a short-term solution to Biden for what is clearly a structural problem in the market.

However, a bigger immediate issue will be how OPEC+  responds when it meets next week. Will the organization now decide to adjust its planned oil production increases?  

Most market analysts suggest OPEC is more concerned about the prospect of renewed COVID-19 restrictions in Europe, but add Biden’s decision does provide an opportunity for the organization to downwardly revise its current production levels.

UBS’s Staunovo said: “They (OPEC+) will closely track the developments on mobility restrictions in Europe. That is probably their biggest concern at the moment and increasing the probability that they might pause at the next meeting.”

OPEC+, which comprises OPEC members essentially led by Saudi Arabia and other producers led by Russia, has so far doggedly stuck to its strategy of increasing production by 400,000 barrels per day each month.

OPEC has been wary about opening up the taps amid fears that a worrying spike in COVID-19 rates in Europe and the US could result in fresh economic restrictions.

Austria returned to a full lockdown this week, while the Netherlands is currently in a partial shutdown. Germany is considering the imposition of regional lockdowns as infection rates spiral and Italy is poised to introduce tough restrictions for non-vaccinated people.

Virus cases are rising across the US at a rate of almost 100,000 a day, a trend that prompted the US government’s chief medical adviser, Anthony Fauci, to warn of “dangerous” new surge of infections as Americans prepare to travel across the country for this week’s Thanksgiving holiday.

Government restrictions to prevent the spread of COVID-19 deliberately suppress economic activity while fear of the virus reduces consumption. But even without further restrictions there are increasing concerns about the slow speed of the post pandemic economic recovery.

It is against this backdrop that OPEC+ believes demand is not yet strong enough to justify increased production and be shifting towards a reduction.

Indeed, figures from the International Energy Agency indicate OPEC+ production is 700,000 bpd less than planned during September and October, a shortfall largely attributable to Angola and Nigeria.

The sharp decline in industry investment, a symptom of environmental pressures on oil majors in the shape of environmental, social and governance concerns, has left many producers, with the exception of Saudi Arabia, the UAE, and Iraq, unable to pump more.

It is worth bearing in mind that the so-called “sweet spot” for global crude prices is currently thought to be between US$75 to $90, a price that is seen to provide sufficient revenues for producers, while not at a level to hurt demand or encourage investment in other forms of energy.

Oil ticked up slightly following the release announcement to almost $80.

The other danger for Biden is that releasing reserves may well be seen by the American public as the very least he could do. Reversing his decision to revoke the Keystone XL Pipeline and his suspension of new oil and gas leases on federal government lands would prove a good deal more effective in sending the market a message.

Speaking earlier this month in Abu Dhabi, the chief executive of US oil firm Occidental Petroleum said Biden should ask domestic shale producers to increase production rather than the OPEC+.  
US Republican Sen. John Barrasso, echoed that view. “President Biden’s policies are hiking inflation and energy prices for the American people. Tapping the Strategic Petroleum Reserve will not fix the problem. We are experiencing higher prices because the administration and Democrats in Congress are waging a war on American energy.”

Prior to the pandemic, the US shale industry was seen as the world’s swing producer, and had even turned the US into a net exporter.

While oil production from the Permian Basin, the largest US shale field, is set to surpass its pre-pandemic record next month, overall shale output is below its boom years of 2018 and 2019 amid inflationary pressures, labor shortages, and some banks charging higher interest rates on loans for fossil fuel than green projects.

Against that backdrop, one could argue some US producers appear to be as unwilling to ramp up production of crude oil to levels that would lower prices at the pump as OPEC+. 

 


Turkish industry copes with abrupt cut of gas flow from Iran

Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran. (REUTERS file photo)
Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran. (REUTERS file photo)
Updated 25 January 2022

Turkish industry copes with abrupt cut of gas flow from Iran

Gas flares from an oil production platform at the Soroush oil fields in the Persian Gulf, south of the capital Tehran. (REUTERS file photo)
  • Authorities should have taken necessary steps beforehand, energy expert tells Arab News
  • Record high losses for manufacturing facilities and disruption in export commitments feared

ANKARA: Following a decision by Iran to cut gas flows to Turkey last week, Ankara began ordering gas-fuelled power plants to decrease their gas use by 40 percent as of Monday.

The sudden move emphasized the need to diversify energy suppliers for the country. Households, schools and hospitals are, for now, exempt from the measures.

Iran’s natural gas consumption recently hit a record high at about 692 million cubic meters per day in households, commercial and smaller industries mainly because of harsh winter conditions, but the country cited a gas leak in a Turkish station for the disruption of exports to Turkey for up to 10 days.

Turkey is no exception to the record highs of daily gas consumption, which reached around 288 million cubic meters on Jan. 19.

Turkey is almost fully dependent on imported gas from Iran, Azerbaijan and Russia, while Iran alone provided about 16 percent of the country’s natural gas needs last year.

The decision worried several industrial representatives, as it did not discriminate between sectors with cold storage rooms or furnaces.

FASTFACT

Turkey is almost fully dependent on imported gas from Iran, Azerbaijan and Russia.

“Such a gas cut means greater financial loss for some key sectors such as glass, medicine and ceramic factories as well as those producing meat and dairy products,” Mehmet Ogutcu, a former diplomat and currently the president of London Energy Club, told Arab News.

The sectors that use the most electricity, namely the iron and steel sector, and the clothing industry, are expected to record high losses and will face disruption in export commitments.    

“The production could be at risk if the interruption continues to grow in the coming days,” Ogutcu said.

“It will damage the economy and industrial production especially at a time when exports and production were accelerating.”

Companies in industrial zones were notified of the three-day restriction on Friday and will be allowed to use gas only on allotted days.

The prospect of electricity cuts to industrial sites is also on the horizon, and might affect households as well, although gas prices have become discouraging for citizens, as they increased by 25 percent for residential use and 50 percent for industrial use in January.

Turkey’s domestic gas consumption rate increased from 48 billion cubic meters to 60 billion in a year, while there are some 18 million natural gas subscribers across the country.

“I have repeatedly warned about a potential outage for the last six months. It also happened in the European countries,” Ogutcu said.

“Turkey should have taken necessary measures beforehand when the first signs appeared.”

According to Ogutcu, Turkey either had to decrease gas demands and simultaneously develop plans to increase energy efficiency, or develop alternative energy resources like liquefied natural gas.

Turkey imports LNG from the US, Morocco, Qatar and Nigeria, but it still remains much more expensive than natural gas imports for Ankara.

About a third of Turkey’s natural gas needs are currently met through LNG deliveries.

“There are ongoing projects in the Black Sea for gas discoveries with some drilling testing. But it will take at least seven or eight years to reap the benefits of that project,” Ogutcu said.

Turkey’s 405 billion cubic meter gas discoveries in the Black Sea were accepted as the largest offshore gas discovery in the world in 2020.

Similar gas supply cuts have happened in the past, but did not result in power outages in the industrial sector on such a great scale.

Experts emphasized the need to learn lessons from this latest crisis and to design alternative energy sources.

Turkish President Recep Tayyip Erdogan recently announced that Turkey is still interested in transporting Israeli gas to Europe — a potential step to diversify much-needed gas sources.

Last week, a blast in the southeastern province of Maras resulted in another disruption in the flow of crude oil through the Kirkuk-Ceyhan pipeline.

“In the past decade, Turkey has succeeded in further diversifying its energy sources with more energy suppliers, the growing use of LNG and renewables,” Gallia Lindenstrauss, a senior research fellow at the Institute for National Security Studies in Israel, told Arab News.

“The first unit in the Rosatom-built nuclear power plant in Akkuyu is expected to be operational in 2023 and Turkey has discovered gas reserves in the Black sea that will be another future source of energy.”

According to Lindenstrauss, the problem today is less related to the issue of diversification and more to the sharp devaluation of the Turkish lira alongside rising energy prices, which translates into difficulties for the purchase of LNG.

“Obviously, Turkey would also benefit if it were able to sign contracts to import gas, or be a transit route for gas, from the Eastern Mediterranean, but this has not been possible until today mainly because of political reasons,” she said.

Even in the unlikely scenario that neighboring states overcome the hurdles between them, Lindenstrauss thinks that it is still only part of the solution to Turkey’s growing energy needs, and short-term energy shortage problems from time to time will be a recurring problem.

This year, Turkey’s natural gas storage capacity has reached 3.8 billion cubic meters.


Kuwait estimates 74.2% decrease in deficit according to a budget draft report

Kuwait estimates 74.2% decrease in deficit according to a budget draft report
Updated 24 January 2022

Kuwait estimates 74.2% decrease in deficit according to a budget draft report

Kuwait estimates 74.2% decrease in deficit according to a budget draft report
  • The Kuwaiti Ministry of Finance expects a budget deficit decrease by 74.2 percent from previous year

Riyadh: The Kuwaiti Ministry of Finance submitted on Monday a budget draft report for 2022-2023 fiscal year, with an expected deficit of 3.1 billion dinars ($10.26 billion), decreasing 74.2 percent from previous year, according to a Reuters report citing a ministry statement. 

The report also stated that the OPEC member country expects oil income of 16.7 billion dinars during the fiscal year ending in March 2023, an increase of 83.4 percent from 2021-2022.

Total revenues are estimated at 18.8 billion dinars and expenditures at 21.9 billion dinars in the 2022-2023 fiscal year.


Tesla countersues JPMorgan over contract affected by Musk tweet

Tesla countersues JPMorgan over contract affected by Musk tweet
Updated 24 January 2022

Tesla countersues JPMorgan over contract affected by Musk tweet

Tesla countersues JPMorgan over contract affected by Musk tweet
  • Tesla Inc. fought back on Monday against JPMorgan Chase & Co over a disputed bond contract

NEW YORK: Tesla Inc. fought back on Monday against JPMorgan Chase & Co over a disputed bond contract, countersuing the bank for seeking a “windfall” following Chief Executive Elon Musk’s notorious 2018 tweet that he might take his electric car company private.

In a court filing, Tesla accused JPMorgan of “bad faith and avarice” for claiming it was owed $162.2 million after unilaterally changing the terms of warrants it received when Tesla sold convertible bonds in 2014.

By changing the terms, “JPMorgan dealt itself a pure windfall,” Tesla said in its countersuit filed in Manhattan federal court.

“JPMorgan pressed its exorbitant demand as an act of retaliation against Tesla both for it having passed over JPMorgan in major business deals and out of senior JPMorgan executives' animus toward Mr. Musk,” it added.

A bank spokesman, Brian Marchiony, said in an email: “There is no merit to their claim. This comes down to fulfilling contractual obligations.”

The countersuit escalates the battle between the largest U.S. bank and world’s most valuable car company, which have done little business with each other since the disputed contract.

Warrants give holders the right to buy company stock at a set “strike” price and date.

In its Nov. 15 lawsuit JPMorgan said Musk’s Aug. 7, 2018 tweet that he might take Tesla private and had “funding secured,” and his abandoning that plan 17 days later, created share price volatility to justify lowering the strike price on its warrants.

JPMorgan accused Tesla of defaulting because it failed to hand over shares or cash when the warrants expired in June and July 2021, by which time Tesla’s share price had risen about 10-fold.

In its countersuit, Tesla accused JPMorgan of having “put its thumb on the scale” to demand even more money, after already receiving a “multibillion-dollar payout” because of the soaring stock price.

Musk’s tweets resulted in a U.S. Securities and Exchange Commission civil lawsuit that ended in $20 million fines against both him and Tesla and forced him to give up Tesla's chairmanship.

Tesla’s lawsuit seeks unspecified damages.


IKTVA contributed $100bn to Saudi Arabia economy: Aramco Chairman

IKTVA contributed $100bn to Saudi Arabia economy: Aramco Chairman
Updated 24 January 2022

IKTVA contributed $100bn to Saudi Arabia economy: Aramco Chairman

IKTVA contributed $100bn to Saudi Arabia economy: Aramco Chairman

RIYADH: IKTVA has contributed around SR375 billion ($100 billion) into Saudi Arabia’s economy since its inception in 2015, Chairman of Aramco, Yasir Al-Rumayyan spoke at IKTVA 2022 Forum and Exhibition on Monday.

Capital expenditure attracted by the program’s investments were estimated at $7 billion which created a competitive industrial base enabling the Kingdom to export to more than 40 countries, according to his statement.

Larger volumes and more varied products labeled ‘Made in Saudi Arabia’ are being created now in the Kingdom, as the localization of goods by IKTVA is creating a supportive ecosystem to the Kingdom’s industrialization efforts, he added.

One of the program’s achievements is establishing a hub to pioneer new technologies and services in the non-metallic industry, which is expected to contribute $10 billion to the Kingdom’s GDP by 2030, Al-Rumayyan said. Whereas Aramco suppliers have quadrupled their R&D spend in the Kingdom, from $21 million to $91 million, providing a catalyst for innovation within the Kingdom.

Fifty percent more Saudis were employed by IKTVA, making one out of every four people working in Aramco’s supply chain a Saudi. The number of female employees working in the supply chain more than doubled, he added.

The program aims at reaching Vision 2030 goals of economic diversification and industrialization by focusing on both conventional sectors including energy, chemicals and mining, as well as emerging business sectors including Fourth Industrial Revolution technologies, logistics and services. 


Dubai stocks sees biggest fall in over a month after Houthi attack intercepted

Dubai stocks sees biggest fall in over a month after Houthi attack intercepted
Updated 24 January 2022

Dubai stocks sees biggest fall in over a month after Houthi attack intercepted

Dubai stocks sees biggest fall in over a month after Houthi attack intercepted
  • Most stock markets in the Gulf ended lower on Monday

Dubai: Most stock markets in the Gulf ended lower on Monday, in line with global shares, while the Dubai index saw its biggest fall in over a month as the United Arab Emirates intercepted another attack by the Houthis.

Dubai’s main share index declined 2 percent, dragged down by a 3.5 percent drop in blue-chip developer Emaar Properties and a 1.9 percent fall in top lender Emirates NBD.

The United Arab Emirates on Monday said it had foiled another Houthi missile attack following last week’s deadly assault on the Gulf state as the Iran-aligned group takes aim at the safe haven status of the region’s tourism and commercial hub.

The Abu Dhabi index eased 0.1 percent, with conglomerate International Holding losing 0.6 percent.

 “Global markets are set to remain sensitive to fresh policy clues out of the Federal Reserve this week. Since the start of the new year, risk assets have been realigning with the more aggressive Fed rate hikes expected for 2022,” said Han Tan, chief market analyst at Exinity Group.

Saudi Arabia’s benchmark index fell 0.6 percent, hit by a 1.3 percent fall in Al Rajhi Bank and a 2.5 percent decline in Saudi National Bank.

The Saudi market continued its correction, after hitting its highest in over 15 years earlier this month, as investors try to secure their gains, said Wael Makarem, senior market strategist at Exness.

Crude prices, a key catalyst for the Gulf’s financial markets, rose on elevated geopolitical risks in Europe and Middle East.

Outside the Gulf, Egypt’s blue-chip index decreased 0.3 percent, with Commercial International Bank losing 0.4 percent.

SAUDI ARABIA     down 0.6% to 12,068
ABU DHABI                down 0.1% to 8,701
DUBAI                  down 2% to 3,147
QATAR                up 0.3% to 12,523
EGYPT                  down 0.3% to 11,616
BAHRAIN              down 0.3%  to 1,810
OMAN                   down 0.5% to 4,202
KUWAIT               down 0.2% to 8,000