WEEKLY ENERGY RECAP: Oil price fights infection

China will be able to soften the crude oil demand hit from coronavirus after the government reported the lowest number of new cases. (AP/File)
Short Url
Updated 23 February 2020

WEEKLY ENERGY RECAP: Oil price fights infection

  • Of greater concern is the big drop in demand for oil in China — especially from Russia

Crude oil prices recorded their second weekly gain despite the pall of coronavirus hanging over commodity markets. 

Brent crude advanced to $58.50 per barrel and WTI rose to $53.46 per barrel on optimism that China will be able to soften the crude oil demand hit from coronavirus after the government reported the lowest number of new cases.

Nevertheless, oil has lost about 15 percent since the beginning of the year on fears that the outbreak will squeeze global energy demand.  Now the market is wondering if it is possible for the Brent price to break the $60 barrier before OPEC’s much anticipated meeting in early March.

While supply disruptions in Libya continue to affect the market, analysts have grown somewhat weary with their impact.

Of greater concern is the big drop in demand for oil in China — especially from Russia, where the spot price for Russian East Siberia Pacific Ocean crude (ESPO) has weakened further.

Lower Chinese refinery demand has caused floating storage to accumulate offshore in China where most of these idling (anchoring) very large crude carriers have been loaded with March barrels and not yet with April deliveries. 

The market has also started to see the impact on lower refining margins in Asia and Europe.

This is largely as a result of lower demand for petroleum refined products — especially for the Jet fuel which has been affected by global flight restrictions related to coronavirus.

Jet fuel prices are now expected to fall to near-record lows. 

Lower demand for petroleum-refined products in China has led Beijing to cut gasoline and diesel retail prices for the second time in 2020. 

This reflects China crude oil demand, which has fallen by about a third.

The US Energy Information Administration (EIA) lowered its outlook for crude oil demand growth.

That took into account not only coronavirus but also lower-than-expected heating fuel consumption caused by the Northern Hemisphere’s warmer winter.


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.”