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

Update US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 
1 / 2
Mauston, Wisconsin USA - October 31st, 2021: Joe Biden stickers on fuel pumps saying I Did That due to high fuel prices (shutterstock)
Update US acts outside the IEA and releases oil from SPR to curb fuel prices amid analysts warnings 
2 / 2
Image: Shutterstock
Short Url
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+. 

 


Biden says he is surveying options after OPEC+ decision to cut output

Biden says he is surveying options after OPEC+ decision to cut output
Updated 06 October 2022

Biden says he is surveying options after OPEC+ decision to cut output

Biden says he is surveying options after OPEC+ decision to cut output

WASHINGTON/NEW YORK: US President Joe Biden expressed disappointment on Thursday over announced plans by OPEC+ nations to cut oil output and said the US was looking at its alternatives.

OPEC+ agreed to steep oil production cuts on Wednesday, curbing supply in an already tight market and raising the possibility of higher gasoline prices right before the US midterm elections in November, when Biden’s Democrats are defending their control of the House of Representatives and the Senate.

“We’re looking at what alternatives we may have,” Biden told reporters at the White House when asked about the OPEC decision. “There’s a lot of alternatives. We haven’t made up our minds yet,” he said.

“But it is a disappointment,” he added of the OPEC+ decision, and indicates problems.

Prices

Oil prices held at three-week highs on Thursday after OPEC+ decision. Brent crude futures gained 88 cents, or 0.9 percent, to $94.25 per barrel by 11:19 a.m. EDT (1519 GMT) after settling 1.7 percent up in the previous session. US West Texas Intermediate crude futures rose 79 cents, or 0.9 percent, to $88.55 after closing 1.4 percent up on Wednesday.

Separately on Wednesday, Russian Deputy Prime Minister Alexander Novak said Russia could cut oil output in an attempt to offset the effects of price caps imposed by the West over Moscow’s actions in Ukraine. 

A draw in US oil stockpiles last week also supported prices. Crude inventories dropped by 1.4 million barrels to 429.2 million barrels in the week ended Sept. 30, the Energy Information Administration said.


Saudi Arabia’s point-of-sale value rises to $3.4bn as food spending increases: SAMA

Saudi Arabia’s point-of-sale value rises to $3.4bn as food spending increases: SAMA
Updated 06 October 2022

Saudi Arabia’s point-of-sale value rises to $3.4bn as food spending increases: SAMA

Saudi Arabia’s point-of-sale value rises to $3.4bn as food spending increases: SAMA

CAIRO: Food and drink sales helped drive a 23 percent rise in point-of-sale transactions in Saudi Arabia in the week ending Oct. 1, the latest weekly data from the Saudi Central Bank revealed.

Sales grew by SR2.4 billion ($640 billion) last week to reach SR12.8 billion in what was the highest percentage rise since the week ending July 30.

POS is an economic term used to describe what is spent by consumers using their ATMs and credit cards in retail stores, shopping malls, and pharmacies, among others. 

This five-week peak fell just below SR13.5 billion worth of POS transactions recorded in the week ending on Sept. 3, showed the SAMA data. 

This spike was mainly driven by increased spending on food and beverage services, with the sector’s total POS transaction rising by SR681.3 million to reach SR2.1 billion in the week ending on Oct. 1, recording 47.9 percent growth over the previous week.

Of the 17 sectors, 16 saw a rise in the value of POS transactions:

  • Other — Up SR382.3 million; up SR1.2 million previous week
  • Miscellaneous goods and services — Up SR342.9 million; down SR4.9 million last week
  • Health — Up SR219.6 million; down SR7.6 million previous week 
  • Transportation — Up SR164.3 million; down SR30.7 million previous week 
  • Gas stations — Up SR102.3 million; down SR26.1 million last week 

The education sector witnessed the biggest percentage change in the week ending on Oct. 1 in both transaction value and number of transactions. 

The sector’s POS transaction value went up by 115.6 percent to reach SR184 million, while the number of POS transactions went up by 51.9 percent to hit 170,000. 

The only sector that recorded less POS transactions – both in number and value – in that week was the hotels. 

This sector’s POS value dropped by SR23.2 million to reach SR215.9 million, while the number of transactions dropped by 42,000 to reach 562,000 transactions. 

With regards to the number of POS transactions, food and beverages also led the way with an increase of 4.4 million transactions in that week to reach 37.2 million transactions. 

  • Restaurants and cafes — Up 3.7 million; down 0.5 million previous week
  • Miscellaneous goods and services — Up 2.9 million; down 0.9 million previous week
  • Other— Up 2.6 million; down 0.4 million previous week
  • Health — Up 1.6 million; down 0.5 million previous week
  • Gas stations — Up 1 million; down 0.4 million previous week

The city of Riyadh, which records the largest share of POS transactions, saw a 11.4 percent increase in the number of transactions in the week ending Oct. 1, compared to a 3.1 percent fall the week prior. 

The city witnessed a 20.2 percent rise in POS transaction value in the week ending Oct. 1, compared to only 0.3 percent the previous week. 

The Kingdom’s capital recorded a total POS value of SR4 billion, up by SR1 billion from the week before. 

As for the number of POS transactions in Riyadh, it rose by 7.7 million from the previous week, reaching 57.6 million in the week ending on Oct. 1. 

Jeddah followed with SR1.9 billion worth of POS transitions which increased by SR253.8 million in the week ending on Oct. 1.

The number of transactions in the city reached 21.9 million, up 1 million from the week before. 


Saudi GAC approves Al Hilal’s acquisition of Etihadat Abyan assets 

Saudi GAC approves Al Hilal’s acquisition of Etihadat Abyan assets 
Updated 06 October 2022

Saudi GAC approves Al Hilal’s acquisition of Etihadat Abyan assets 

Saudi GAC approves Al Hilal’s acquisition of Etihadat Abyan assets 

RIYADH: Saudi pharmaceutical firm Al Hilal Trading Co. has received the General Authority for Competition’s approval to acquire the assets of Etihadat Abyan Co..

Under the formal approval by the regulator, the acquired assets by Al Hilal Trading Co. include S Team and Mawj Al Hilal brands and the related four stores.

The deal will not significantly affect the sportswear market in the Kingdom, GAC said in a statement according to Argaam on Oct. 6. 

The intended acquisition will be done by transferring the assets to Al Hilal Trading Co., a subsidiary of Al Hilal Club Investment Co.. 

Last August, the Tadawul-listed online food delivery platform Jahez International Co for Information Systems Technology, partnered with Al Hilal Investment to set up an online marketing and sales firm.


MENA total startup funding drops 54% month-on-month: Wamda 

MENA total startup funding drops 54% month-on-month: Wamda 
Updated 06 October 2022

MENA total startup funding drops 54% month-on-month: Wamda 

MENA total startup funding drops 54% month-on-month: Wamda 

RIYADH: Startups in the Middle East and North Africa region raised $173 million across 51 deals in September, marking a 54 percent decrease compared to the month before. 

Saudi Arabia’s logistics startup TruKKer was responsible for the bulk of that funding as it secured a $100 million pre-initial public offering round, according to Wamda.

The Kingdom raised a total of $114 million in startup funding in just six deals, while the UAE had 12 deals with a total of $27 million. 

Aside from Trukker’s fundraise, fintech companies managed to get the highest amount of funding with $28 million followed by food tech startups with $22 million. 

Foreign investment was high in September as US investors participated in 11 deals while UK investors were the second active with seven deals. 


TASI ends the week lower on watch of unstable oil prices: Closing bell

TASI ends the week lower on watch of unstable oil prices: Closing bell
Updated 06 October 2022

TASI ends the week lower on watch of unstable oil prices: Closing bell

TASI ends the week lower on watch of unstable oil prices: Closing bell

RIYADH: Saudi Arabia’s main index ended the last trading session of the week lower as investors kept a keen eye on the unstable oil prices this week.

The Tadawul All Share Index slipped 0.11 percent to end Thursday at 11,757, while the parallel market Nomu finished almost flat at 20,223.

In the energy sector, Brent crude reached $93.22 per barrel, while WTI crude traded at $87.61 per barrel as of 3:14 p.m. Saudi time.

Saudi oil giant Aramco ended the session with a 0.14 percent increase, while Rabigh Refining and Petrochemical Co. edged up 1.21 percent.

The Saudi National Bank, the Kingdom’s largest lender, dropped 0.77 percent, while Saudi British Bank declined by 2.31 percent.

The Kingdom’s most valued bank Al Rajhi fell 0.71 percent, while Alinma Bank shed 0.26 percent.

Despite leading Wednesday’s fallers, Tihama Advertising and Public Relations Co. surged 9.81 percent, topping the market, after receiving the Capital Market Authority’s clearance to hike its capital by 700 percent.

Dar Al Arkan Real Estate Development Co. declined 2.87 percent to lead the fallers, closely followed by Riyad REIT Fund with a decline of 2.76 percent.