Brent crude sags, while lower Canadian supply boosts U.S. futures

Global Stock Markets

Brent crude oil prices fell on Tuesday, pulled down by a stronger dollar and a bout of profit-taking, while U.S. futures gained, bringing the discount between the two key futures contracts to a six-month low.

Brent crude futures fell 73 cents from Monday’s close to $64.94 a barrel by 1017 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 20 cents from their last close on Friday at $61.88 a barrel. 

Reduced supply from Canada to the United States caused by pipeline reductions were supporting WTI, traders said. 

Brent is trading at a premium of less than $3 a barrel to WTI , down from over $$7 at the start of the year. 

A narrower premium of Brent to WTI means it is also less attractive for consumers in north-west Europe to import U.S. crude, especially with refiners conducting maintenance. Premiums for local North Sea grades are at multi-month lows. 

Logistical constraints in the United States have even caused prices for regional grades to diverge. [CRU/C] 

Louisiana light sweet crude is trading at a premium of around $2 a barrel to WTI, down from nearly $5 a month ago. 

Overall, oil markets remain supported by supply restraint on the part of the Organization of the Petroleum Exporting Countries (OPEC), which started last year to draw down excess global inventories. 

Saudi Arabia - not least in an attempt to give the planned listing of its state-owned oil giant Saudi Aramco a boost - wants Russia and other producers to keep withholding supplies to prop up prices. But soaring U.S. production is threatening to erode those OPEC’s efforts. 

Last week, the number of U.S. oil rigs drilling for new production rose for a fourth straight week to 798, an indication that U.S. crude output, already at a record 10.27 million bpd, may rise further.

Oil markets mixed on lower Canadian flows, firmer dollar

Oil Stock Markets

Oil markets were split on Tuesday, with U.S. crude was pushed up by reduced flows from Canada while international Brent prices eased.

U.S. West Texas Intermediate (WTI) crude futures were at $62.16 a barrel at 0153 GMT, up 48 cents, or 0.8 percent, from their last settlement. 

Traders said the higher WTI prices were a result of reduced flows from Canada’s Keystone pipeline, which has been operating below capacity since late last year due to a leak, cutting Canadian supplies into the United States. 

Outside North America, Brent crude eased on the back of a dip in Asian stocks and a stronger dollar, which potentially curbs demand as it makes fuel more expensive for countries using other currencies domestically. 

Brent crude futures were at $65.23 per barrel, down 44 cents, or 0.7 percent, from their last close.

Despite this, oil markets remain well supported due to supply restraint by the Petroleum Exporting Countries (OPEC), which started last year in order to draw down excess global inventories. 

OPEC Secretary-General Mohammad Barkindo said on Monday the organization registered 133 percent compliance with agreed output reduction targets in January. 

While most of OPEC, especially its de-facto leader Saudi Arabia, is showing strong support for the production restraint, non-OPEC producer Russia has shown signs it may at some stage gradually start to increase output again. 

Saudi Arabia - not least in an attempt to give the planned listing of its state-owned oil giant Saudi Aramco - a boost, is keen for Russia and other producers to keep withholding supplies to prop up prices. 

But soaring U.S. production is threatening to erode OPEC’s efforts. 

Last week, the amount of U.S. oil rigs drilling for new production rose for a fourth straight week to 798, in an indication that U.S. crude output, already at a record 10.27 million bpd, may rise further.

The United States late last year became the world’s second biggest oil producers, only slightly behind Russia and ahead of top exporter Saudi Arabia.

Russia's RDIF says to finalize Eurasia Drilling deal with Aramco

Asian Stock Markets

The Russian Direct Investment Fund (RDIF) on Wednesday said it expected to finalize a deal with Saudi Arabia’s Aramco to invest in oilfield services firm Eurasia Drilling. 

Sibur, Russia’s largest producer of petrochemicals, is building a petrochemicals facility in the Kingdom. Russia’s Energy Minister Alexander Novak had said in October the deal would be worth $1.1 billion.

An announcement is also expected later on Wednesday on a partnership between Aramco and an LNG project in Russia, Dmitriev said.

Dmitriev said a deal between OPEC and non-OPEC members to cut crude oil supply was stabilizing the oil market.

Russia and Saudi Arabia, the world’s top oil producers, are leading a global oil cut deal between OPEC and some non-OPEC members. The current deal runs through to March 2018.

Saudi Aramco will list in Hong Kong eventually

Asian Stock Markets

Access to Chinese investors will eventually bring Saudi Aramco to list in Hong Kong, said Charles Li, CEO of Hong Kong Exchanges and Clearing. Hong Kong is competing against New York and London for what is expected to be the world's largest IPO ever. A win for Hong Kong would be a welcomed boost for the city that recently lost its crown as the global IPO leader.

The potential to reach the vast Chinese investing public will eventually bring Saudi Aramco to list in Hong Kong, even if the oil giant skips over the special administrative region for its first public offering, said Charles Li, chief executive of Hong Kong Exchanges and Clearing.

Hong Kong is competing against exchanges in New York and London — and potentially elsewhere — for what is expected to be the world's largest IPO. Saudi Aramco, valued at $1 trillion to $2 trillion, is widely expected to float around 5 percent of its shares.

The energy company earlier said that it is fully prepared to launch its IPO in the second half of 2018, but the exact timing and the decision on where to list will depend on its sole shareholder: the government of Saudi Arabia.

A win for Hong Kong would be a welcomed boost for the city that recently lost its crown as the global IPO leader.

The financial center raised $15.6 billion through new listings in 2017, coming in third after New York and Shanghai, according to a report by EY. In 2016, Hong Kong had topped the league with $25.2 billion in proceeds, EY said.

The stock exchange in Hong Kong has since announced an overhaul of its listing rules to lure a greater number of IPOs.

The changes that will take place this year include the introduction of dual-class shares and easier entry for bio-tech companies and firms seeking a secondary-listing in Hong Kong, Li said.

A dual-class structure is one that gives shares held by company founders and executives larger voting rights compared to those owned by minority holders. Major tech companies such as Facebook and Alibaba use such a format, but the structure has escalated concerns about corporate governance and protection for minority investors.

Li acknowledged there may be some risks in allowing dual-class shares, but added that he did not expect protection for minority investors to diminish.

Saudi Arabia’s Big Oil Gamble

Oil Stock Markets

With Mohammad bin Salman (MBS) now firmly in power in Saudi Arabia, Aramco’s IPO and fundraising to diversify the kingdom’s economy away from oil will surely become a cornerstone of Saudi policy. This carries a unique set of risks, and it’s not unreasonable to assume that the kingdom’s future heavily depends on the IPO’s success.

The relationship between Saudi Arabia, its oil company and regional geopolitics brings up some interesting questions regarding the exchange where Saudi Aramco will be listed.

This waning influence in oil markets brings up several interesting questions, especially when you consider the possibility of Aramco floating on the NYSE. What will happen to the country’s sovereignty if it is listed on the New York Stock Exchange?

Recently, oil imports to the U.S. fell to their lowest level since the 1990’s, dropping to just 1.77 million barrels. The imports peaked in November, 2005 to almost 14 million barrels. In their World Energy Outlook 2017, the IEA mentioned that the U.S. will overtake Saudi Arabia as the largest oil producer in the world by 2020. U.S. shale production recently hit a high of 9.68 million barrels per day. All of these are signs of a stronger U.S. and an increasingly vulnerable KSA. Russia is also likely to gain influence in the space, after proving resilient in the face of falling oil prices and economic sanctions.

The Saudi government has already slashed its tax rate from 85 percent to 50 percent in order to lure investors. The corruption crackdown seems to be another way of ensuring investors of a more transparent and open country. After the listing, Aramco will be exposed to all the rules and regulations that any other multinational encounters. One of the laws that may threaten Saudi Arabia after a U.S. listing is JASTA (Justice Against Sponsors of Terrorism Act). The act allows U.S. citizens to file lawsuits against nations that may have harmed them, opening Saudi Arabia up to lawsuits for its role in 9/11.

Another issue is how much oil Aramco can actually claim control over. In other privatizations, such as Norway’s Statoil, the state allowed foreign competitors to operate fields in the country. “International oil companies even had ownership in the Norwegian continental shelf,” a Financial Times article quotes Hans Aasmund Frisak, Statoil’s head of government relations.

Saudi officials claim that “production decisions are a sovereign matter that will remain with the government”. Observers are of the view that after the IPO Aramco, like any other oil company, will have to persuade investors before cutting production.

In November, Khalid Al-Falih said that “the government will make sovereign decisions on production and capacity even after a public offering of Saudi Aramco”, reported Anjli Ravli in a Financial Times article. Whether this will become a reality remains to be seen. KSA cannot retire from oil abruptly, as the kingdom’s plan to build a $20 billion plant for converting oil into chemicals shows. Saudi 2.0 will still be attached to oil, but the transition away from being a full oil state is full of dangers.

Saudi Arabia’s future depends on a smooth transition. It’s an ambitious bet from bin Salman—and one that Saudi Arabia can’t afford to lose. There’s no way of knowing if success awaits the Saudis. For now, we wait and watch.

Aramco plans to spend $300 billion over 10 years in upstream oil and gas

Oil Stock Markets

Saudi Aramco plans to spend close to $300 billion over 10 years in upstream oil and gas projects, Chief Executive Amin Nasser said on Monday.

 Speaking at the ADIPEC energy conference in Abu Dhabi, Nasser said: “This is mainly upstream, onshore, offshore and joint ventures in the kingdom and out of the kingdom.”

He also said a decision would hopefully be made soon on the location for the listing of shares in the oil giant.

Crown Prince Mohammad bin Salman said last month that Aramco’s initial public offering, part of an ambitious plan to diversify the Saudi economy beyond oil, was on track to go ahead in 2018.

Exclusive: Saudi Aramco IPO on track for 2018 - Saudi crown prince

Saudi Aramco’s initial public offering is on track for next year and the national oil giant could be valued at more than $2 trillion, Saudi Arabia’s Crown Prince Mohammad bin Salman told Reuters in an interview.

The sale of around 5 percent of Aramco next year is a centerpiece of Vision 2030, an ambitious reform plan to diversify the Saudi economy beyond oil which is championed by Prince Mohammad.

Saudi officials have said domestic and international exchanges such as New York, London, Tokyo and Hong Kong have been looked at for a partial listing of the state-run firm. 

A decision on which exchange would secure the offering has still not been made, fuelling market speculation that the IPO could be delayed beyond 2018 or even shelved, amid growing concerns about the feasibility of an international listing.

The crown prince declined to discuss specific details of the IPO, which could be the biggest in history and is expected to raise as much as $100 billion.

Prince Mohammad, 32, has sweeping powers over defense, energy and the economy and is expected to take the final decision about Aramco’s listing venue and the other reforms. 

Investors have long debated whether Aramco could be valued anywhere close to $2 trillion, the figure announced by the crown prince, who wants to raise cash through the IPO to finance investments aimed at helping wean the world’s biggest oil exporting nation off its dependency on crude. 

But Prince Mohammad reiterated that Aramco’s estimated valuation would be about $2 trillion.
Saudi Arabia and three other Arab states have cut ties with Qatar, accusing it of supporting terrorism. Doha denies the accusations.