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OPEC March oil output sinks to 11-month low – Reuters survey

Comments (0) Actualites, Middle East, Oil

LONDON (Reuters) – OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output, a Reuters survey found, sending compliance with a supply-cutting deal to another record.

The Organization of the Petroleum Exporting Countries pumped 32.19 million barrels per day last month, the survey found, down 90,000 bpd from February. The March total is the lowest since April 2017, according to Reuters surveys.

OPEC is reducing output by about 1.2 million bpd as part of a deal with Russia and other non-OPEC producers to get rid of excess supply. The pact started in January 2017 and runs until the end of 2018.

Adherence by producers in the deal rose to 159 percent of agreed cuts from 154 percent in February, the survey found. There was no sign that other producers had boosted output to cash in on higher prices or to compensate for the Venezuelan decline.

Oil has topped $71 a barrel this year for the first time since 2014, and was trading above $67 on Wednesday. Still, OPEC says supply restraints should be maintained to ensure the end of a glut that had built up since 2014.

In March, the biggest decrease in supply came from Angola, which exported 48 cargoes, two fewer than in the same month of 2017. Natural declines at some fields are weighing on output.

Production in Libya, which remains unstable due to unrest, slipped because of stoppages at two fields, El Feel and El Sharara, setting back 2018’s partial recovery in output.

And production fell further in Venezuela, where the oil industry is starved of funds because of an economic crisis. Output dropped to 1.56 million bpd in March, the survey found, a new long-term low.

Output in OPEC’s largest producer, Saudi Arabia, dropped by 40,000 bpd from February’s revised level, even further below the kingdom’s target.

OPEC’s No. 2 producer, Iraq, pumped more. Exports from the south, the outlet for most of the country’s crude, rose despite maintenance at a loading terminal. Exports declined from the north but domestic crude use increased.

Among others with higher output, the biggest rise came from the United Arab Emirates, where production had dropped in February due to maintenance. Even so, the UAE is still pumping below its OPEC target and showing higher compliance than in 2017.

Output climbed in Qatar, after a dip in February that sources attributed to maintenance. Nigeria also pumped at a higher level, extending a run of more stable supply from Africa’s top exporter.

Nigeria and Libya were originally exempt from cutting supply because their output had been curbed by conflict and unrest. For 2018, both told OPEC that output would not exceed 2017 levels.

OPEC has an implied production target for 2018 of 32.73 million bpd, based on cutbacks detailed in late 2016 and taking into account changes of membership since, plus Nigeria and Libya’s expectations of 2018 output.

According to the survey, OPEC pumped about 540,000 bpd below this implied target in March, not least because of the involuntary decline in Venezuela.

The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data and information provided by sources at oil companies, OPEC and consulting firms.

 

(By Alex Lawler; Additional reporting by Rania El Gamal in Dubai; Editing by Dale Hudson)

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Djibouti accuses Eritrea of occupying disputed territory after Qatar withdrew peacekeepers

Comments (0) Latest Updates from Reuters

By Aaron Maasho

ADDIS ABABA (Reuters) – Djibouti accused neighbouring Eritrea on Friday of occupying disputed territory along their border after Qatar withdrew its peacekeepers.

Foreign Minister Mahamoud Ali Youssouf said Djibouti’s military were “on alert” and that it has lodged complaints to the U.N. and the African Union.

Qatar announced that it was pulling its contingent out on June 14, days after the two East African countries sided with Saudi Arabia and its allies in their standoff with Qatar.

Doha’s foreign ministry did not give a reason for the move but it comes as Doha faces a diplomatic crisis with some of its Arab neighbours. They cut ties a week ago, accusing Qatar of backing Islamist militants and Iran, something Doha strongly denies.

“Qatari peacekeepers withdrew on June 12 and 13. On the same day, there were Eritrean military movements on the mountain,” Ali Youssouf told Reuters.

“They are now in full control of Dumeira Mountain and Dumeira Island. This is in breach of the UN Security Council resolution,” he added, referring to areas that the neighbours dispute.

Authorities in Asmara were not immediately available for comment.

Djibouti, a close Western ally, hosts French and U.S. military bases and is the main route to the sea for Eritrea’s arch foe and Washington’s top regional ally, Ethiopia.

Eritrea has fractious ties with the West, which had previously accused it of backing Somali and other regional insurgents. Asmara denies the charges.

Clashes broke out between the Horn of Africa countries in June, 2008, after Djibouti accused Asmara of moving troops across the border, raising fears the spat could engulf the entire region.

The dispute triggered several days of fighting that killed a dozen Djiboutian troops and wounded dozens. Eritrea had initially denied making any incursions, accusing Djibouti of launching unprovoked attacks.

The U.N. Security Council then requested both sides withdraw from the area, before the neighbours accepted a Qatari request to mediate and deploy peacekeepers.

 

 

 

 

(Writing by Aaron Maasho; Editing by)

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The end of OPEC?

Comments (0) Africa, Business, Featured

opec meeting

OPEC’s refusal to impose production limits and an evolving global marketplace signal diminished clout for the oil cartel.

When OPEC ministers once again failed to agree on production limits to bolster oil prices in early June, it was yet another signal that the days of the oil cartel’s dominance in the global marketplace are over.

Members of the Organization of Petroleum Exporting Countries may continue to be important players in world oil markets, but “the cartel has lost its privileged ability to control global oil prices,” according to Global Risk Insights, which assesses political and business risk around the world.

OPEC nations, led by Saudi Arabia, traditionally have been the world’s swing oil producers, with enough reserves and daily production to control the price of oil. But that has changed in recent years as the United States, Russia and other smaller non-OPEC countries increased production.

Non-OPEC production rises

Total OPEC production is nearly 37 million barrels a day compared to non-OPEC production of nearly 57 million barrels daily, according to Global Risk Insights.

Despite waning influence, OPEC’s refusal to set production limits has played a major role in creating an oil glut, precipitating a two-year crisis that has seen the price of oil drop to as low as $26 per barrel earlier this year before climbing to $52 this month. That compares to prices of about $110 per barrel in 2014, when the crisis began.

Some OPEC nations, led by Saudi Arabia, have been willing to absorb the financial shocks of plummeting oil prices in order to preserve market share, reasoning that the low prices would drive competitors, notably U.S. shale oil producers, out of business.

OPEC has rebuffed calls to limit production by members Algeria and Venezuela, which have been hard hit by the slump.

Saudis take a financial hit

Saudi Arabia itself has not been immune to the financial impact of low oil prices.

The Gulf nation has spent more than $150 billion of its reserves in less than two years and posted a deficit of $98 billion last year.

Earlier this year, the Saudis borrowed $10 billion from a consortium of international banks, its first foreign debt in 25 years. The government also was considering asking creditors to take IOUs because it cannot pay its bills.

Oil rig at Bakken Formation

Oil rig at Bakken Formation

The OPEC strategy to let oil prices fall in order to wound its competitors has had mixed results, especially in the United States.

While 59 shale oil companies in the U.S. have filed for bankruptcy, production has dropped only slightly because of more efficient production. While financially troubled, the U.S. shale production should be able to rebound quickly once oil prices start rising, perhaps as early as next year.

Deal with Russia falls through

OPEC also came under fire from a top Russian oil executive in the spring, after a proposed deal between OPEC and Russia to freeze output fell through.

Igor Sechin, an ally of President Vladimir Putin, said tensions between Saudi Arabia and fellow OPEC member Iran have undermined the oil cartel. Saudi Arabia and Iran are vying for political dominance in the Middle East, and Iran, freed from Western economic sanctions, has vowed to significantly increase its oil exports.

“At the moment a number of objective factors exclude the possibility for any cartels to dictate their will to the market,’’ Sechin said. “As for OPEC, it has practically stopped existing as a united organization.”

Saudis pledge economic reform

Meanwhile, the Saudis have pledged sweeping economic reforms that signal their intention to go their own way on oil prices.

The reforms aim to diversify the country’s oil-dependent economy by increasing non-oil revenue to $141 billion by 2020. However, Saudi Arabia said it would maintain its output of 12.5 million barrels per day until 2020.

Deputy Crown Prince Mohammed bin Salman said his hope was that in 20 years the country would no longer be oil-dependent. The Saudi kingdom relies on oil for 80% of its revenue.

Saudi Arabia has vast oil reserves and has modernized production at a time when other oil producers including Venezuela and Iran have let their industries deteriorate.

At the OPEC meeting in early June, the Saudi oil minister also alluded to the waning clout of the cartel, saying that the market would determine prices.

“I think managing in the traditional way that we tried in the past may never come again,” Khalid al-Falih. Oil producers should “let the market forces continue to seek and find that equilibrium price between supply and demand.”

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OPEC fails to agree policy but Saudis pledge no shocks

Comments (0) Business, Latest Updates from Reuters, Middle East

VIENNA (Reuters) – Saudi Arabia promised on Thursday not to flood the oil market with extra barrels even as OPEC failed to agree on output policy, with Iran insisting on the right to raise production steeply.

Tensions between the Sunni-led kingdom and the Shi’ite Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years.

Tensions were less acute on Thursday as Saudi Arabia’s new energy minister, Khalid al-Falih, showed Riyadh wanted to be more conciliatory and OPEC decided unanimously to appoint Nigeria’s Mohammed Barkindo as the group’s new secretary-general.

Several OPEC sources said Saudi Arabia and its Gulf allies had tried to propose a new collective ceiling in an attempt to repair OPEC’s waning importance and end a market-share battle that has sapped prices and cut investment.

But OPEC sources said the organisation had failed to agree on output policy and set a new ceiling.

Despite the setback, Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer, already pumping near record highs, to raise production further to punish rivals and gain additional market share.

“We will be very gentle in our approach and make sure we don’t shock the market in any way,” Falih told reporters.

“There is no reason to expect that Saudi Arabia is going to go on a flooding campaign,” Falih said when asked whether Saudi Arabia could add more barrels to the market.

The market has grown increasingly used to OPEC clashes over the past two years as political foes Riyadh and Tehran fight proxy wars in Syria and Yemen.

Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilising oil markets – in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

Tehran has been the main stumbling block for the Organization of the Petroleum Exporting Countries to agree on output policy over the past year as the country boosted supplies despite calls from other members for a production freeze.

Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear programme.

Iranian Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual country production quotas.

“Without country quotas, OPEC cannot control anything,” Zanganeh told reporters. He insisted Tehran deserved a quota – based on historic output levels – of 14.5 percent of OPEC’s overall production.

OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd – well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.

 

POLITICAL TENSIONS

That “OPEC could not agree on a relatively benign deal which would have been constructive for price is a sign that political differences are undermining the organisation”, said Gary Ross, founder of U.S.-based PIRA consultancy.

“It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market and want higher prices,” he added.

Falih was the first OPEC minister to arrive in Vienna this week, signalling he takes the organisation seriously despite fears among fellow members that Riyadh is no longer keen to have OPEC set output.

“There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” Falih told Argus Media ahead of the meeting.

At its previous meeting in December 2015, OPEC effectively allowed its 13 members to pump at will.

As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages.

Until December 2015, OPEC had a ceiling of 30 million bpd – in place since December 2011, although it effectively abandoned individual production quotas years ago.

For a Take-a-Look on Reuters stories on OPEC, click on

 

(By Reem Shamseddine, Rania El Gamal and Alex Lawler. Additional reporting by ⁠⁠⁠⁠Shadia Nasralla⁠⁠⁠⁠⁠; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)

 

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South Africa turns on Saudi-built solar to cut coal reliance

Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa and Saudi Arabian ACWA Power launched a $328 million solar power plant in the Northern Cape province on Monday, as Africa’s most industrialised country rushes to expand its power supply and cut its coal reliance.

The Bokpoort Concentrated Solar Power (CSP) Project, developed by a consortium led by ACWA Power, is set to provide 1,300 megawatts per hour, powering more than 200,000 homes, a statement from media firm OLB said.

Construction of the plant began in 2013, following a successful bid by ACWA Power, as part of South Africa’s plan to expand the use of renewable energy.

“It is aimed at providing energy security and diversified energy. It instils confidence that major green projects are going to be built in South Africa,” said the Department of Trade and Industry’s (DTI) deputy director general Yunus Hoosen.

Chronic energy shortages are pushing the government to seek alternative sources of electricity from state-owned power utility Eskom’s coal-powered stations that take much longer to build.

Eskom, which provides virtually all of South Africa’s power, is facing a funding crunch as it races to bring new power plants online.

With year-round sunshine and thousands of miles of windswept coast in South Africa, investors are warming to the renewable energy potential, with 66 projects completed or underway since the government launched a first bid round four years ago. [L5N0W61SY]

Bokpoort CSP plant is the first in a series of investments that ACWA Power is making in the power sector in South Africa, said the DTI.

The company expects to commence construction on the 100 MW Redstone concentrated solar power project, also in Northern Cape, later this year and is awaiting the outcome of tender submissions for a 300 MW coal-fired plant in Mpumalanga province in eastern South Africa.

 

(Reporting by Nqobile Dludla; Editing by James Macharia and Alexander Smith)

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A commuter rail network for Jeddah

Comments (1) Business, Featured, Middle East

jeddah metro

Saudi officials hope the network, to begin operation in 2020, will ease congestion in the nation’s second largest city.

An extensive rail network, a critical piece of a plan to reduce severe traffic congestion in Saudi Arabia’s commercial capital, is expected to begin operation in 2020.

The $12 billion Jeddah network will have four lines – a Blue Line with 19 stations, including the airport, a Green Line with 12 stations, a Red Line with 24 stations, and an Orange Line with 30 stations.

In all, the network will comprise about 150 kilometers of track and will include construction of a road-rail suspension bridge over Obhur Creek. The network will connect to the Haramain high-speed rail station for travel outside the city.

Jeddah, a port city on the Red Sea, is Saudi Arabia’s second largest city after the capital, Riyadh. Jeddah also is a gateway to the holy sites of Mecca and Medina.

Traffic congestion plagues city

The train network is the central element of a larger plan by Saudi officials to ease major automobile traffic congestion in the city of 3.4 million people by 2030.

Traffic in the city has been described as “nightmarish,” and commuters are plagued with poor road design, lack of traffic officers, and drivers who do not follow traffic rules.

One goal for the Jeddah transportation plan is to increase from 12 percent to 50 percent the city population living within a 10-minute walk of public transportation.

Osama Abdouh, executive director of the government-backed Jeddah Metro Company, which is managing the project, said the project will “provide the best and most suitable types and choices for public transportation” for Jeddah residents and visitors.

At the same time, it will reduce traffic congestion and pollution in the city, Abdouh said.

Traffic in Jeddah

Traffic in Jeddah

Bus network, tram and ferries also planned

The Jeddah Public Transit Program also envisions a bus network, cycle networks and marine ferries along with a tramway on the Corniche coastal resort area.

The Saudi Council of Ministers approved the $12 billion transportation plan for Jeddah in 2013. Abdouh said the exact cost is to be determined as plans firm up.

Several contractors are already at work developing plans and designs.

The British architecture firm Foster + Partners was awarded a contract to develop the architecture for the master plan. Aeocom Tecnology Corp., based in the United States, is providing support for the planning and design phase, while a French company, Systra, is providing the engineering designs.

Bids to be sought

Later this year, the Jeddah Metro Company will seek bids a variety of contractors to supply trains and equipment, communications, passenger information, fare collection and train control systems, automatic train supervision, an operations center and depot buildings as well as mechanical, electrical, ventilation, cooling and plumbing systems.

Abdouh said the project expects to ask for bids for many aspects of the project in the second quarter of 2016, once the designs are completed.

The project is also in the process of acquiring approximately 150 pieces of property needed to develop the network in Jeddah.

The Saudi capital, Riyadh, is also getting a rail system. A six-line network with 178 kilometers of track and 85 stations is expected to be completed in 2018.

The projects are going ahead despite economic struggles in Saudi Arabia. Tumbling global oil prices have forced the Saudi government to dip into reserves.

The 2016 budget cuts government spending by nearly 14 percent from 2015 levels, but the country is still expected to have a budget shortfall of 13 percent of gross domestic product this year.

Meanwhile, development of railways is surging in the Middle East and Northern Africa. One 2014 estimate said rail and metro that were under way or planned in the Middle East totaled more than $200 billion and would cover more than 36,000 kilometers.

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Why Would Saudi Aramco Consider an IPO?

Comments (0) Business, Featured, Middle East

Saudi Aramco

Saudi Arabia, the world’s biggest producer of crude oil, is considering a public offering of shares in its state-owned oil company Aramco

Saudi Arabia, the world’s biggest producer of crude oil, is considering a public offering of shares in its state-owned Saudi Arabian Oil Company (Saudi Aramco) and / or some of its downstream assets. The news was announced by the influential Saudi deputy crown prince and the country’s defense minister, 30-year-old Mohammed bin Salman, in an interview with The Economist. He framed it as a step toward transparent governance of state-owned oil and the Saudi market: “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around Aramco.”

His announcement was reaffirmed in an official statement released by Aramco: “Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the Company’s shares and / or the listing of a bundle of its downstream subsidiaries.”

Saudi Arabia facing significant political and economic challenges

Many are asking why the royal family would consider selling shares in its largest asset, especially when it’s at its lowest point since 2004. The complete control of Saudi Arabia’s oil is in large part the source of the government’s power and success. Some have suggested that Aramco has predicted the end of the age of oil, and that the Saudi’s are looking to cash out while they can. But, on the other hand, it could be more linked to the Kingdom’s politically and economically challenging time.

Oil income makes up about 90% of government revenue, but with crude oil prices at their lowest levels in over a decade, the Kingdom is losing billions of dollars in revenue. And while it is sitting on around $630 billion in reserves, Saudi Arabia’s 2015 budget deficit was 15% of GDP, and a record budget deficit of $98 billion is expected in 2016. Also, instead of slowing production to increase oil scarcity, as has so often been Saudi Arabia’s tactic, last year, Aramco pumped a record 10 million plus barrels a day to compete with the US and Russia. The strategy cost Saudi Arabia around $120 billion of its foreign currency reserves. And the Kingdom is starting to struggle to maintain its expensive military campaigns in Yemen and Syria, and to manage the resulting clashes with Iran.

The country is also facing high unemployment, currently at 12%, and a demographic bulge, which counts more than two thirds of the population under the age of 30. The bulge will require almost three times as many jobs in the coming decade than were created between 2003 and 2013 during the oil boom if the country is to avoid soaring unemployment and increasing the volatility of the political environment.

So as its most valuable asset shrinks, the Kingdom needs to find a way to diversify its economy in order to improve its long term economic capabilities. Working with McKinsey, Saudi Arabia has developed long term path that involves pushing $4 trillion into eight new sectors (finance, construction, healthcare, tourism and hospitality, retail and wholesale trade, petrochemicals, manufacturing, and mining and metals) to contribute 60% of growth. However, it seems likely that adding value across all of its oil related actions and managing its hydrocarbon resources, both conventional and unconventional, would also be part of the plan to prepare Saudi Arabia for financial and economic stability. It would also signal to Iran, the US, and Russia that Saudi Arabia is in the oil-game for the long-haul.

Saudi Aramco gas facility

Saudi Aramco gas facility

Saudi Aramco IPO

The details of the potential IPO are not yet clear. Aramco’s statement confirmed that: “Once the study of these various options is complete, the findings will be presented to the Company’s Board of Directors which will make its recommendations to the Saudi Aramco Supreme Council.” Aramco Chairman Khalid Al-Falih adds: “There is no plan that is concrete at this stage to do the listing. There are studies ongoing. Serious consideration. It will take time.” Falih also clarified that an IPO could be “shares in Aramco and/or some downstream assets. We are considering a listing at the top. So a listing of the main company, and obviously the main company will include upstream.”

But, it does seem more likely that Aramco will offer a small portion of downstream assets – a bundle of refineries or other assets such as petrochemical units – in order to allow the state to retain full control of its oil fields which produce more than 10 million barrels a day. Although significantly less valuable than a full IPO, downstream assets would still offer buyers a piece of a huge global business which processes more than 3.1 million barrels a day, with plants across the world in Saudi Arabia, the US, South Korea, Japan, and China.

$10 trillion valuation

Looking at a full IPO, the valuations are simply enormous. Based on claims that the company’s reserves are 265 billion barrels of crude oil and 50 billion barrels of natural gas, its market capitalization is estimated to be $10 trillion. This would make it significantly bigger than the world’s current most valuable company, Apple, worth $741.8 billion. It would also make Aramco significantly more valuable than ExxonMobil, the world’s current most valuable publicly traded energy company at $357.1 billion.

Even a listing that included just 5% of Saudi Aramco shares could raise around $500 billion, a figure far larger than Alibaba’s history topping $170 billion IPO of 2014. It would also make it too big to be included in Saudi Arabia’s stock market, the Tadawul.

The listing fees for the bank taking a company of this size public would also be huge, and there are already reports of strong competition for the role. HSBC, Citi, Barclays, Bank of America Merrill Lynch, and Deutsche Bank hold the biggest market share in the Middle East and Africa, making them likely contenders. Citi and Deutsche Bank have also already worked on deals with Saudi Aramco. But we’ll have to be patient until we can find out which bank is set to make a figure of around $17.5 billion working on the deal.

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