Oil hits 13-mth low on weak Chinese demand, traders eye OPEC+ cuts

The logo of the Organisation of the Petroleum Exporting Countries (OPEC) sits outside its headquarters ahead of the OPEC and NON-OPEC meeting, Austria December 6, 2019. (Reuters)
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Updated 10 February 2020

Oil hits 13-mth low on weak Chinese demand, traders eye OPEC+ cuts

  • Brent plumbs lowest levels in 13 months
  • OPEC+ considers cutting output by another 600,000 bpd

NEW YORK: Oil prices fell to their lowest since January 2019 on Monday on weaker Chinese demand in the wake of the coronavirus outbreak and as traders waited to see if Russia would join other producers in seeking further output cuts.
Oil has dropped over 25% from a peak in January after the spreading virus hit demand in China, the world’s largest oil importer, and fueled concerns of excess global supplies.
Brent futures fell 99 cents, or 1.8%, to $53.48 a barrel by 12:05 p.m. EST (1705 GMT), while US West Texas Intermediate crude fell 56 cents, or 1.1%, to $49.76.
That keeps both Brent and WTI in oversold territory for 13 days and 14 days, respectively, their longest bearish streaks since Nov. 2018. If Brent closes at its current level, it would be its lowest settle since December 2018.
The premium of the Brent front-month over the same WTI contract , meanwhile, fell to its lowest since August 2019 in intraday trade.
“The concern remains that the wider markets have yet to reflect the full impact of the disruption,” said Saxo Bank commodity strategist Ole Hansen.
“With China being the world’s most dominant consumer of raw materials, the impact continues to be felt strongly across key commodities and the world is facing the biggest demand shock since the 2009 global financial crisis.”
Beijing has orchestrated support for its companies and financial markets in the past week and investors are hoping for more stimulus to lift the world’s second-biggest economy.
Worries over supply were not alleviated on Friday when Russia said it needed more time to decide on a recommendation from a technical committee that has advised the Organization of the Petroleum Exporting Countries (OPEC) and its allies to cut production by a further 600,000 barrels per day (bpd).
The group, known as OPEC+, has been implementing cuts of 1.2 million bpd since January 2019.
Algeria’s Oil Minister Mohamed Arkab said on Sunday the committee had advised further output cuts until the end of the second quarter.
Russia’s Energy Minister Alexander Novak said Moscow needed more time to assess the situation, adding that US crude production growth would slow and global demand was still solid.
“The lack of enthusiasm from the Russians to deliver an additional 600,000 barrels per day in deeper production cuts could prove cost in stabilizing prices in the short-term,” Edward Moya, senior market analyst at OANDA in New York, said in a report.
Oil traders also said they were concerned the proposed reduction would not be sufficient to tighten global markets as China’s state refiners have said they would cut refining throughput by about 940,000 bpd this month.


Saudi Arabia raises more than SR15bn in bond sale

Updated 28 March 2020

Saudi Arabia raises more than SR15bn in bond sale

  • Gulf oil exporters are increasingly turning to debt sales to help fund spending in a low oil price environment

JEDDAH: Saudi Arabia has sold more than SR15 billion in Islamic bonds, as the Kingdom seeks to develop its local debt market.

The Kingdom’s Finance Ministry said on Friday that it had closed the book to investors on its March 2020 riyal-denominated sukuk program.

The total amount raised by the sukuk sale was SR15.568 billion, divided into three tranches that mature in five, 10 and 30 years.

Gulf oil exporters are increasingly turning to debt sales to help fund spending in a low oil price environment while at the same time developing their own capital markets as part of ongoing diversification reforms.

“The closure of the issuance of government bonds exceeding 15 billion riyals shows many positive elements,” said Abdullah Ahmad Al-Maghlouth, a member of the Saudi Economic Society. 

“Such as confirming the robustness of the Kingdom’s credit rating and the strength of the Saudi economy; that the Kingdom’s debt-to-GDP ratio is still far lower than many other G20 countries; the Finance Ministry’s ability to deal with the requirements of asset and liability management; as well as the Kingdom’s strong foreign-exchange reserves in dollars, among others.”

The Kingdom’s strong credit rating means it can borrow more cheaply than many other Mideast economies despite a weaker oil price.

Economic analyst Fahd Al-Thunayan said: “The Ministry of Finance, represented by the National Debt Management Center, continued its efforts in developing local debt markets and providing the required balance in financing public-budget expenditures, through the optimal mixture of the use of reserves and borrowing within the upper limits, like a percentage of the GDP, where the local issuances reached 65 percent of the total debt in the year 2019.”