Physical oil market tightens as refiners scramble for crude

In this June 8, 2017 photo, oil derricks are busy pumping as the moon rises near the La Paloma Generating Station in McKittrick, Calif. (AP)
Updated 28 July 2017

Physical oil market tightens as refiners scramble for crude

LONDON: Physical crude markets are at last showing signs of tightening as record refinery consumption in the US coincides with a slowdown in oil exports from the Gulf.
US refineries processed an average of almost 17.3 million barrels of crude per day last week, an increase of 620,000 barrels per day (bpd) compared with the same week in 2016.
Fuel consumption by US motorists remains largely flat but US refineries are seeing higher demand for gasoline and diesel from Latin America where supplies have been hit by local refinery problems.
Refinery crude consumption remains high in most other geographical markets in an indication fuel demand is growing strongly, especially in emerging economies.
OPEC exports have been rising as a result of increasing output from Libya and Nigeria, which are not capped under the organization’s production deal, and poor compliance from some members.
But Saudi Arabia has been restricting exports in recent weeks and has stated exports will be below 6.6 million bpd in August, compared with 7.3 million bpd in August 2016, and the lowest for the month since 2010.
Saudi Arabia and Iraq both tend to export less during the summer because they use more crude domestically to burn in power plants to meet air-conditioning demand.
So some of the slowdown in Saudi exports may be seasonal, but officials are keen to frame it as a deliberate policy to accelerate the reduction of global oil stocks. Saudi sources have said export allocations to the US, Europe and Asia will all be cut sharply in August.
The prospective reductions have left refiners scrambling to find replacement crude which is tightening the physical market for all grades.
Demand for medium and heavy crudes, with a high yield of middle distillates, has been strong since the start of the year, helping narrow the light-heavy differential.
But intensive refinery runs during the second and third quarters have seen strong demand for light crudes as well, tightening the market for light oils, even as supplies from North America and Africa have increased.
One consequence is that commercial crude stocks in the US have fallen more rapidly than normal at this time of year and are now below year-ago levels.
The tightening supply-demand balance has been reflected in a sharp improvement in the calendar spreads for Brent crude for the remainder of 2017 and through 2018.
The Brent spread between September and October 2017 has tightened to just 3 cents per barrel contango on Thursday, from 32 cents per barrel in the middle of June.
Other inter-month spreads have also tightened significantly with a tighter contango indicating traders now expect a lower level of inventories throughout the period.
The physical crude market now looks significantly tighter than it did in the first half of June, which has coincided with a renewed rise in bullish hedge fund positions and a modest rise in spot prices.
The critical question is how much of this improvement is seasonal and how much will be sustained once summer is over.
n John Kemp is a Reuters
market analyst. The views
expressed are his own.


Minister: ‘Mind-blowing’ prospects for Saudi mining

Updated 25 January 2020

Minister: ‘Mind-blowing’ prospects for Saudi mining

  • Bandar Alkhorayef, the Kingdom’s minister for industry, says multibillion riyal program underway

DAVOS: The opportunities presented by Saudi Arabia’s mining industry are “mind-blowing,” the country’s minister for industry and mineral resources told Arab News.

Speaking on the sidelines of the World Economic Forum in Davos, Bandar Alkhorayef — who was appointed to the newly created post last summer — said many of the Kingdom’s mineral resources were “untapped,” and that a multibillion-riyal investment program was now underway to find and exploit new sources of natural wealth.

Saudi Arabia has launched a five-year geological survey of its natural resources, hoping to identify and quantify new wealth in the form of gold, phosphates and other valuable minerals.

Some experts believe that the Kingdom could be a source of precious earth metals valued in hi-tech production processes.

If these are found in significant quantities, it could help stimulate domestic high-tech manufacturing processes in Saudi Arabia.

“The government has linked mining with industry. We’ll export raw materials of course, but we’re more interested in the wider value chain,” Alkhorayef said.

A new mining law will soon be enacted, allowing for a revamped regulatory regime in the mining industry, and new investment in mining infrastructure that could reach tens of billions of riyals, he said, adding: “It shows you how serious we are about the mining industry.”

He joined the government after 26 years at the top of private sector business, with the Alkhorayef Group industrial conglomerate.

“The core of the Vision 2030 strategy is to diversify the economy, and industry and mining are key parts of that. My view as a minister is to be an enabler for the transformation of those sectors,” he said.

A key agency is the Saudi Industrial Development Fund, which aims to distribute funds to the private sector to encourage expansion.

Its available capital has been increased from SR65 billion ($17.3 billion) to $100 billion, and its mandate has changed to cover new industrial and technological sectors, Alkhorayef said.

“Both industry and mining are capital intensive and need long-term stability and visibility. Our aim is to be profitable in order to compensate investors for the risk they take,” he added.

 

“Investors always look at risk and return, and they make decisions based on that. Our vision is to open up opportunities for local and foreign investors.”

His ministry is also closely involved in the rollout of the National Industrial Development and Logistics Program, the big strategy to transform the Saudi economy launched a year ago by encouraging investment in economic growth via the creation of special economic zones across the Kingdom.

“It’s going great,” Alkhorayef said. Two zones have already been opened in Riyadh and Jeddah, and there are further projects under review.

He met with investors in the logistics sector while in Davos, and further investment is expected.

He said in Saudi Arabia’s case, the advantages presented to investors by the Kingdom’s natural resources, demographics and geographical location outweigh any geopolitical risk.

Alkhorayef added that it is relatively risk-free in terms of currency fluctuations because of the dollar peg and freedom of capital. “I worked in a global company, so I understand those kinds of risks,” he said.

Decoder

Saudi Arabia’s National Industrial Development and Logistics Program

The National Industrial Development and Logistics Program aims to transform the Saudi economy by encouraging investment in economic growth via the creation of special economic zones across the Kingdom.