LONDON: Europe’s smaller oil producers are more optimistic about the market than they have been for the past couple of years as a significant reduction in hedging shows they are betting on higher prices.
Oil producers typically sell ahead a sizeable part of future production to protect themselves against a sudden drop in prices. Lower hedging means they are more exposed to the downside, so if prices fall they risk a heavy blow to revenue.
But volatile crude oil trading in the second quarter with prices averaging below $50 a barrel meant they have been reluctant to lock in future sales at these weak levels, betting on a rebound in prices instead.
“We’re a bit underhedged for 2018 because we obviously hoped for a better oil price recovery that would have meant putting in place more hedging,” Tony Durrant, chief executive of North-Sea focused Premier Oil, told Reuters.
He said Premier Oil, which is currently producing more than 80,000 barrels of oil per day, has hedged less than 10 percent of its combined oil and gas output for 2018.
This is a significant drop from its year-ahead position at the same time in 2016 when it had hedged 30 percent of its combined oil and gas output.
Premier Oil’s reluctance to fix future prices is reflective of an attitude also taken by its peers in the sector.
Rival Tullow Oil, which also produces more than 80,000 barrels per day but mainly in west Africa, has gone as far as scrapping its policy to hedge two years ahead. Tullow has also reduced its year-ahead hedging percentage to 30 percent from 40 percent.
“We’ve tweaked the policy partially due to the change in the shape of the forward curve in oil pricing but also due to our flexibility in our capital commitments,” Tullow CEO Paul McDade told Reuters.
The company has slimmed down its capital expenditure (capex) to $400 million this year compared with $900 million last year and $1.7 billion in 2015 as it has brought on stream its large new oil fields offshore Ghana.
The fact that Tullow has less of a need to forward sell production from new fields starting up has made its move to lower hedging much easier.
North Sea producer EnQuest is in a similar position.
Its Kraken oilfield, which is expected to deliver a peak rate of 50,000 barrels per day, started producing in late June, meaning the company was hedged more heavily in the first half of the year in anticipation of the new oil.
“We are less hedged in the second half compared to the first half,” CEO Amjad Bseisu told Reuters, adding the company had hedged 6 million barrels for this year at an average price of around $51 a barrel.
Producers’ reluctance to lock in prices at current levels also shows they are expecting prices to rebound. If they were expecting prices to take another leg down, they would be happy to forward sell at current rates.
Their bets may be paying off already as oil prices have risen above $50 a barrel over the past week on optimism the world’s crude producers can rein in output to an extent that will cut stubborn oversupply.
“Oil market rebalancing hasn’t really kicked in yet,” Durrant said, referring to the need for an oversupply in crude to clear in order for supply to fall in line with demand levels.
The Brent crude forward curve, prices indicating the future price of oil, is currently trading above $52 a barrel.
Oil rose on Monday, putting July on track to become the strongest month this year, as news of a producers’ technical meeting next week added to bullish sentiment driven by the threat of US sanctions against OPEC member Venezuela.
Small oil producers upbeat as hedges decline and price rebounds
Small oil producers upbeat as hedges decline and price rebounds
RLC Global Forum highlights role of Saudi youth in retail digital shift
RIYADH: Saudi Arabia’s young and highly digital population is reshaping how the Kingdom’s retail sector adopts new technologies and artificial intelligence, advancing faster than many global competitors, industry leaders told Arab News.
Speaking on the sidelines of the RLC Global Forum in Riyadh, executives told Arab News that the intersection of a youthful population and strong investment in AI is driving a shift in the industry’s priorities.
From understanding consumer behavior to leveraging the Kingdom’s growing status as a global AI leader, Saudi Arabia is becoming as a unique destination for the retail sector to thrive, learn, and evolve in the digital sphere.
Abdullah Al-Tamimi, CEO of commercial real estate company Hamat Holding, told Arab News that the firm is keen to analyze and understand consumer behavior, with a particular focus on the younger generation as a key part of that insight.
“Actually, it’s a big part of our day-to-day operation,” he said, adding that the company invests heavily in understanding customer needs and behavior and works to correct any missteps.
Al-Tamimi emphasized paying close attention to small details, noting that younger consumers are especially sensitive to the overall experience and “deserve that we work around the clock in order to improve it.”
He added that this focus “can be a competitive advantage for Saudi Arabia as well.”
Al-Tamimi said that as the younger generation grows accustomed to new technology shaping retail customer experiences, Hamat Holding is leveraging AI to enhance them further.
“We started a couple of initiatives improving digitalization,” he said, adding that the company sees digital tools as a way to enhance its work by automating day-to-day operations and allowing teams to focus on bigger-picture and more complex tasks.
While the firm has expanded its use of technology, he stressed it has not replaced human workers, emphasizing the continued importance of human capital for creativity and interaction. “AI is a big part of our strategy,” Al-Tamimi added.
Amit Keswani Manghnani, chief omnichannel and AI officer at luxury goods retailer and distributor Chalhoub Group, told Arab News that bridging a younger customer base with continuous digital development is key to advancing the Kingdom’s retail strategies.
On Saudi Arabia’s demographics, he said: “We look at 2030 as really building products which serve especially the younger population, which is growing and very digitally savvy.”
Manghnani underscored the unique characteristics of the Kingdom’s retail market as a tool for developing effective products and customer experiences.
“So it’s very digitally savvy, much more than in other markets,” he said, noting that e-commerce penetration is rising not only through online purchases but also via digital catalogs that drive in-store visits.
Manghnani said investment is focused on making products more digitally accessible and easier to use, while strengthening customer service to meet the expectations of what he described as a demanding but welcome consumer base. “Service excellence, digital — all these things together are how we are tapping into the younger population, which again is extremely savvy.”
Manghnani reinforced Al-Tamimi’s point that the Kingdom holds a competitive advantage, citing the speed at which its retail and technology industries are aligning.
“As a market, we’re tending to see the adoption of digital,” he said, referring to AI, data and other forms of digital interaction, adding that these tools are increasingly being combined.
He noted that this market is moving “much quicker than the other markets.”
The two-day RLC Global Forum brought together more than 2,000 global leaders, policymakers, and innovators from over 40 countries over the two-day event to define the next chapter of growth across retail, consumer, and lifestyle industries.
