WEEKLY ENERGY RECAP: China deal should improve oil outlook

Chinese Vice Premier Liu He is handed a pen by U.S. President Donald Trump after signing "phase one" of the U.S.-China trade agreement during a ceremony in the East Room of the White House in Washington, U.S., January 15, 2020. (Reuters)
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Updated 19 January 2020

WEEKLY ENERGY RECAP: China deal should improve oil outlook

Crude oil prices traded flat over the week with Brent crude edging slightly lower to $64.85 per barrel and WTI weakening to $58.54. 

China was a major focus for traders. On one level, the US-China phase one trade deal injected some optimism into the market, but that was countered by troubling economic data. China’s 2019 gross domestic product rate grew by 6 percent, the slowest in 29 years.

Chinese refineries still processed a record high 13.04 million bpd of crude oil last year, which was an increase of 7.6 percent on 2018. 

Its 2019 crude oil imports grew 9.5 percent to 10.2 million bpd.

As the US-China trade dispute was the main reason for downward price movements throughout the year, a deal should produce optimism for a revival in global manufacturing, and thus stronger oil demand.

A short-term energy outlook report from the US Energy Information Administration (EIA) was relatively bullish. It also highlighted risk factors including supply disruptions and the pace of global economic growth that could push Brent prices out of the expected $60-$70 per barrel range in 2021.

The EIA expects US oil production growth to slow to 1.06 million bpd in 2020, dropping to 410,000 bpd in 2021 as rig counts stay low.

It estimates US oil production averaging 13.3 million bpd in 2020 and 13.71 million bpd in 2021. 

It expects Brent crude to average $64.83 per barrel and WTI at $59.25 per barrel in 2020. 

US oil output growth has dropped from the 1.64 million bpd year-on-year increase in 2018.

The IEA does not see any supply risks amid tension in the Arabian Gulf, but points to a sizable buffer against supply disruption because of the strong output and inventories of non-OPEC producers. 

This view may be questionable, though, especially given that oil inventories in OECD countries are currently only 9 million barrels above their five-year average — not the biggest of cushions.


Volkswagen lifts margin outlook again after record profit

Updated 7 min 49 sec ago

Volkswagen lifts margin outlook again after record profit

  • H1 operating profit reached 11.4 billion euros
  • Lowers outlook for deliveries on chip shortage

FRANKFURT: Europe’s largest carmaker Volkswagen on Thursday raised its profit margin target for the second time in less than three months, pointing to record earnings in the first half of 2021 that even blew past pre-pandemic levels.
The company said it now expected an operating return on sales of 6.0-7.5 percent, having previously guided for 5.5-7 percent and nudged up its forecast for net cash flow at its automotive division, now expected to be much stronger in 2021.
First-half operating profit before special items reached 11.4 billion euros ($13.5 billion), above the previous record of 10 billion euros achieved in 2019, before the coronavirus pandemic wreaked havoc in the global economy.
The strong increase was in part driven by high demand for high-margin luxury Porsches and Audis.
“We’re keeping up our high pace, both operationally and strategically,” Chief Executive Herbert Diess said in a statement, published only hours after the carmaker, along with partners, launched a bid for French-listed Europcar.
“Our electric offensive is picking up momentum and we will keep on increasing its pace in the months to come,” said Diess, who aims for Volkswagen to overtake Tesla as the world’s largest electric vehicle player by 2025.
Porsche SE, Volkswagen’s largest shareholder, also raised it outlook following the carmaker’s result, now forecasting profit after tax of 3.4 billion to 4.9 billion euros in 2021.
Shares in Volkswagen were indicated to open 0.7 percent higher in pre-market trade.
The global car sector has been hit by a shortage of crucial semiconductors, with numerous rivals, including Daimler , BMW and GM, adjusting or halting production, and Volkswagen accounted for that in its deliveries forecast.
“The risk of bottlenecks and disruption in the supply of semiconductor components has intensified throughout the industry,” the company said, lowering the outlook for deliveries to customers.
It now expects deliveries to be up noticeably in 2021 from the 9.3 million last year, having previously expected them to rise “significantly.”

Shell profit soars to two-year high as oil and gas prices rebound

Updated 29 min 26 sec ago

Shell profit soars to two-year high as oil and gas prices rebound

  • Profits surge to $5.5 billion, highest since late 2018
  • Shell boosts dividend by 38 percent

LONDON: Royal Dutch Shell boosted its dividend and launched a $2 billion share buyback program on Thursday after a sharp rise in oil and gas prices drove second quarter profits to their highest in more than two years.
As profits across the industry recovered from last year’s pandemic-led collapse in energy demand, peers TotalEnergies and Norway’s Equinor also announced share buybacks.
The Anglo-Dutch company saw a surge in cash generation, boosted by higher commodity prices and a recovery in global energy demand, which also helped it to cut debt.
“We are stepping up our shareholder distributions today, increasing dividends and starting share buybacks, while we continue to invest for the future of energy,” Shell Chief Executive Ben van Beurden said in a statement.
Adjusted earnings rose to $5.53 billion, the highest since the fourth quarter of 2018, exceeding an average analyst forecast provided by the company for a $5.07 billion profit.
That compares with earnings of $638 million a year earlier.
Apart from higher fuel prices, stronger profits from Shell’s marketing division, the world’s biggest network of petrol stations, also boosted the results.
Still, fuel sales in the quarter were well below pre-pandemic levels at 4.5 million barrels per day (bpd) in the second quarter, up 9 percent from 4.16 million bpd in the first quarter.

Ever Given, the ship that blocked the Suez Canal, arrives in Rotterdam

Updated 29 July 2021

Ever Given, the ship that blocked the Suez Canal, arrives in Rotterdam

  • Ship to unload until Aug. 3 before departing for Felixstowe, England
  • Ship carrying about 18,300 containers left Egypt on July 7

ROTTERDAM: The container ship Ever Given, which got stuck in the Suez Canal for six days in March, arrived in the Dutch port of Rotterdam on Thursday after being released by authorities in Egypt.
It was scheduled to dock at Rotterdam’s ECT Delta terminal for unloading until Aug. 3 before departing for Felixstowe, England, the port said.
The vessel, one of the world’s largest container ships, became jammed across the canal in high winds on March 23, halting traffic in both directions and disrupting global trade.
Roughly 15 percent of world shipping traffic transits the Suez Canal, the shortest shipping route between Europe and Asia.
The 400-meter (1,312-foot) vessel, which is carrying about 18,300 containers, left Egypt on July 7, 106 days after becoming wedged across a southern section of the waterway.

EXPLAINER: Risks underlie tumbling Chinese company shares

Updated 29 July 2021

EXPLAINER: Risks underlie tumbling Chinese company shares

  • Tumble follows Beijing’s launch anti-monopoly and data security enforcement actions
  • Communist Party leaders worry industry leaders can abuse their dominance to keep out competitors

BEIJING: Foreign shareholders in China’s tech companies are learning what its entrepreneurs have long known: The ruling Communist Party’s decisions about what is good for the economy can hurt your business.
The stock prices of Internet giants Tencent and Alibaba and ride-hailing service Didi tumbled after President Xi Jinping’s government launched anti-monopoly and data security enforcement actions against them.
Also this week, share prices of Chinese education companies fell after news reports that for-profit activity might be banned in core school subjects.
The crackdown on some of China’s biggest private sector success stories prompted warnings about a “war on capitalism.” But regulators say the opposite is true. They say they are protecting the public, smaller companies, the financial system and competition.
“The crackdowns are positive because they are good for Chinese SMEs,” or the small and medium-size private enterprises that are the bulk of the private sector, Michael Every of Rabobank said in a report.

Why is the Communist party doing this?
The ruling party declared anti-monopoly enforcement a priority this year, especially for tech companies that dominate e-commerce, social media and entertainment and are expanding into finance, medical services and other areas.
Party leaders worry Tencent Holding Ltd., Alibaba Group and other industry leaders can abuse their dominance to keep out competitors, raise prices or force suppliers to grant them favorable terms, hurting rivals.
The ruling party worries about the mountains of information about customers gathered by e-commerce, ride-hailing, social media and other companies.
Party leaders also have social goals including shielding children from harmful material online and promoting access to education.

Why are share prices tumbling?
The stock market turbulence reflects the gulf between the certainty craved by financial markets and the secrecy used by the ruling party as a tool to control China’s tumultuous private sector.
Chinese leaders warned in December a crackdown was coming but said nothing about what activity might be targeted. That shook confidence in Chinese stocks traded in New York, Hong Kong or London.
More competition usually leads to lower prices, better service and more economic growth. But for individual companies, shareholders worry competition squeezes profit margins and requires more spending on product development, marketing and other activity.
Investors also worry the crackdown is a signal Xi’s government wants to control the companies more tightly, possibly limiting their growth potential.

Which companies have been targeted?
Targets include the biggest companies in their global industries.
Alibaba Group, the biggest e-commerce platform by sales volume, was fined a record 18.3 billion yuan ($2.8 billion) in April for tactics that included prohibiting vendors that wanted to sell on Alibaba from dealing with its competitors.
Last week, Alibaba was among companies fined for allowing sexually suggestive stickers and other improper content to be circulated to children. Others that were punished include video site Kuaishou, microblog platform Sina Weibo and e-commerce service company Xiaohongshu.
Tencent Holding Ltd., a games and social media provider best known abroad as operator of the messaging app WeChat, is one of the world’s 10 most valuable companies, with a stock market capitalization of $680 billion.
On Saturday, Tencent was ordered to stop requiring music suppliers to give exclusive access to copyrights. The market regulator said that with 80 percent of “exclusive music library resources,” Tencent had the power to improperly suppress competition.
Tencent promised in a statement to “conscientiously abide by the decision.” That reflects the meekness of even the biggest companies before regulators with the power to shut them down.

What is the party’s relationship with business?
Chinese leaders promise to support entrepreneurs who generate new jobs and wealth but are determined to keep them under control.
The ruling party sometimes lets e-commerce or other promising industries grow for years with little regulation before stepping in to impose rules and stamp out features that don’t suit it.
In the most famous example, Alibaba founder Jack Ma in 2004 launched online payments system Alipay despite the lack of any regulations authorizing electronic payments. Ma, one of China’s most successful risk-takers, built a financial giant with hundreds of millions of users and expanded into online banking and other services.
That evolved into Ant Group, which was on the verge of a multibillion-dollar stock market debut in November when regulators ordered that suspended and told Ant to improve its protections against financial risk.

What about customer information?
Dozens of companies have been fined and ordered to tighten security for customer information or to collect less.
Ride-hailing service Didi Global Inc., whose shares debuted in New York on June 30, was ordered days later to stop signing up new customers while it overhauled data safety. The country’s Internet regulator said officials would review its company-wide “network security.”
Beijing sees customer data as an economic asset but also a strategic and political weakness if companies or foreign governments can gain insights about the public that the ruling party doesn’t know.
Regulators also worry companies might collect too much financial and other personal information about customers that might be stolen.
Then-President Donald Trump expressed similar concern last year when he ordered Chinese-owned short video service TikTok to sell its US arm. Trump’s successor, President Joe Biden, hasn’t said what he will do about TikTok.

How are share prices affected?
Didi’s share price has fallen 25 percent since its New York stock market debut June 30, wiping about $20 billion off its total value.
Tencent shares in Hong Kong are down 25 percent from a month earlier. Alibaba’s New York-traded stock is off 19 percent while online retailer JD.com Inc. is down 17 percent. Internet search giant Baidu Inc. has declined 22 percent in US trading.



UAE is an innovator in the management of food waste, experts say

Updated 29 July 2021

UAE is an innovator in the management of food waste, experts say

  • Average person in the UAE wastes 197kg of food a year, at a total annual cost to the country of $3.5 billion, said CEO of Sharjah Entrepreneurship Center
  • In 2015, 16,900 tons of food imported by Dubai was rejected and sent to landfill; in 2020 the total was just half a ton, according to food-trade expert said

LONDON: The UAE is embracing innovative new approaches to the challenges of sustainable food production and the management of food waste, according to experts.

Food security and waste have been important global issues for some time. But the concerns have taken on a renewed urgency in the past year because of the COVID-19 pandemic, as a result of which global food-supply chains have been disrupted and crop yields have suffered, said Lord Udny-Lister, co-chairman of the UAE-UK Business Council.

He was speaking during a webinar hosted by the council to discuss ways to manage food and food waste across the supply chain and prevent the global food industry from damaging the environment.

“Technology and innovation will undoubtedly be the solution to addressing the food-waste challenge, as well as boosting food security so that nearly 1 billion people who currently go very hungry have a more reliable supply of food in the future,” he said.

Najla Al-Midfa, CEO of the Sharjah Entrepreneurship Center, said: “In the MENA (Middle East and North Africa) region, reports show that we waste up to 250 kilograms of food a year per capita. And when it comes to the UAE, food waste sets us back an average of $3.5 billion every year, with an average person wasting about 197 kilograms of food per year,” she said

The UAE Food Bank, which was launched in 2017 to provide food to those in need and eliminate food waste, works with local authorities and local and international charities to create a comprehensive ecosystem to efficiently store, package and distribute excess fresh food discarded by hotels, restaurants and supermarkets.

“The UAE’s hospitality sector, which contributes more than 30 percent of all food waste, is stepping up its efforts, with the key players in the industry taking up the UAE Food Waste Pledge to fight food waste in their kitchens,” Al-Midfa said.

The Sharjah Entrepreneurship Center is also partnering with Etihad Airways on a pilot program to introduce in-flight meal trays that use smart technology to collect data on how much food passengers waste when they fly.

“Recording food preferences helps the airline industry reduce food waste, an issue that costs the industry about $3.9 billion every year,” Al-Midfa added.

Lord Benyon, parliamentary under-secretary of state at the UK’s Department for Environment, Food and Rural Affairs, said there is the potential for a great amount of synergy between UAE and the UK in the global food industry, and that authorities in Britain aim to reduce food waste by 20 percent by 2025.

Trade between the countries was worth more than £15 billion ($20.9 billion) last year, £3 billion less than 2019 as a result of disruption caused by the pandemic.

Essam Sharaf Al-Hashimi, the head of Dubai Municipality’s Food Trade Control Section, said the city is completely dependent on imported food, with almost 8 million tons shipped in each year.

In 2015, almost 16,900 tons of imported food was rejected and ended up in landfill. By 2016, this had been reduced to 13,586 tons, and by 2020 to a little over half a ton.

Claire Hughes, director of products and innovation at British supermarket chain Sainsbury’s, said UK authorities have set a target to reduce carbon emissions to net zero by 2040, while also reducing water use, increasing recycling, and reducing food waste by 50 percent by 2030.

She said Sainsbury’s is working on developing electronic price labels on shelves and a digital system that will automatically reduce prices on food items close to their expiration dates, something that currently has to be done manually.

Martin Wickham, a food and drink investment specialist at the UK Department of International Trade, said 1.3 billion tons of food is wasted worldwide each year, which costs the global economy about $1 trillion.

However, food waste contains numerous chemicals that have a wide range of potential commercial applications, he added, and there are many small startup businesses making real inroads in this area.

He predicted that we will see the development of a very different environment for the consumption, production and transport of food and the ways in which we deal with its waste.

Khalid Al-Huraimal, the CEO of Emirati environmental-management company Bee’ah, said up to 38 percent of food is wasted in the UAE, and this figure rises to 60 percent during Ramadan.

“Today we have achieved a diversion rate away from landfill of 76 percent, which is the highest in the Middle East, and once our waste-to-energy plant is commissioned later this year, we will be close to hitting zero waste going to landfill,” he said.

He added that one of the UN’s sustainability goals is to reduce food waste by 50 percent by 2030, and the UAE is committed to achieving that target. Bee’ah has also launched programs to educate communities on the importance of segregating waste. The company is also planning to implement its strategies in Saudi Arabia and Egypt.

Al-Huraimal said the pandemic has made people more aware of the challenges relating to sustainability and climate change.

Ignacio Ramirez, the managing director of Winnow, a company that helps businesses reduce food waste, said wasted food is three times worse for the environment than single-use plastics in terms of carbon emissions but the issue is considered taboo.

He said Winnow helps its clients save $42 million a year in food waste, equivalent to 36 million meals, and about 10 percent of that is in the UAE.

Sean Dennis, the CEO of UAE-based online marketplace Seafood Souq, said almost half of all caught seafood is wasted in developing countries and about 25 percent in developed countries.

“It’s probably the most highly valuable highly perishable item that’s traded globally that we consume,” and one of the most important sources of income and health he said.