Qatar’s exit from OPEC will have ‘no major impact’ on oil prices

A liquid natural gas tanker being loaded in northern Qatar. The Arab nation, which has been under a trade embargo by a group of Arab states, announced on Monday that it would switch its focus to gas production. (AP Photo)
Updated 04 December 2018
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Qatar’s exit from OPEC will have ‘no major impact’ on oil prices

  • Qatar produces around 600,000 barrels of crude oil per day compared with the near 10 million barrels a day produced by Saudi Arabia
  • Qatar is the 11th-largest producer out of 15 members in OPEC and accounts for less than 2 percent of the oil group’s output

LONDON: Qatar’s decision to exit OPEC next month is unlikely to have a significant impact on the oil group’s structure or on short-term oil prices, according to analysts.
The Gulf country announced on Monday it would leave OPEC from Jan. 1 2019. It plans to attend the next meeting of the group due to take place in Vienna on Dec. 6.
The move is viewed as “symbolic” and reflects deepening regional divisions, market commentators said. Qatar has been under a trade embargo imposed by a Saudi Arabia-led group of Arab states since last June, following accusations that the country was fueling regional instability and funding terrorism.
“Qatar’s decision to exit OPEC will have no major impact on the cartel’s decision-making process, oil output or oil prices in the short term,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London.
“Qatar is one of OPEC’s smallest oil producers, and its upstream strategy has revolved around natural gas production,” he said.

 

Qatar produces around 600,000 barrels of crude oil per day compared with the near 10 million barrels a day produced by Saudi Arabia, according to data from 2017. Qatar is the 11th-largest producer out of 15 members in OPEC and accounts for less than 2 percent of the oil group’s output.
“The move is highly symbolic — Qatar has been a member of OPEC since 1961. But we doubt that it will have a major bearing on global energy markets,” read a note from Jason Tuvey, senior emerging markets economist at Capital Economics on Monday.
Rejecting suggestions the decision was politically motivated, Qatar’s energy ministry said on Monday that it wanted to focus more on gas production.
“In the next few months we will be announcing several major projects. Our goal in this strategy was to remain focused on our core business and activities to enhance Qatar’s international standing as the world’s leading natural gas producer,” the ministry said.
Analysts said that the departure could have implications for regional politics. “Although Qatar has dismissed suggestions that its exit from OPEC was driven by geopolitics, the move could deepen tensions in the Middle East,” said Kumar.
“Qatar leaving OPEC can be seen as Saudis consolidating their influence within the cartel. Meanwhile, Iran’s economy is set to face further headwinds because of sanctions imposed by the US, which has the potential to ratchet up tensions in the Middle East,” he said.
Ehsan Khoman, head of MENA research and strategy at MUFG, based in Dubai, questioned the timing of the exit and suggested Qatar might look to increase oil production just as the oil cartel is due to cut production.
“More importantly is the timing of Qatar’s withdrawal — just three days before OPEC meets in Vienna to finalize the production cuts. This suggests that Qatar may have an agenda to raise production while others in OPEC are curbing production, although Qatar’s oil output has been steady in recent years with limited prospects of increases — given maturing fields,” he said in a research note.
OPEC is due to announce cuts to oil production this week in Vienna in an effort to stabilize the market and counter a potential glut in supply. This could push up Brent oil prices to the mid-$60 per barrel level, Khoman said.
Qatar’s economy has been fairly resilient in the face of the embargo, said analysts. “The economy has defied the expectations of some analysts that the blockade would lead to recession,” said Tuvey.

FASTFACTS

Qatar has been a member of OPEC since 1961.


Oil Updates — crude set for 3rd straight weekly gain on winter fuel demand

Updated 10 January 2025
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Oil Updates — crude set for 3rd straight weekly gain on winter fuel demand

LONDON: Oil prices rose in early Asian trade and were on track for a third straight week of gains with icy conditions in parts of the US and Europe driving up fuel demand for heating.

Brent crude futures climbed 40 cents, or 0.5 percent, to $77.32 a barrel at 9:02 a.m. Saudi time. US West Texas Intermediate crude futures gained 38 cents, also 0.5 percent, to $74.30.

Over the three weeks ending Jan. 10, Brent has advanced 6 percent while WTI has jumped 7 percent.

Analysts at JPMorgan attributed the gains to growing concern over supply disruptions due to tightening sanctions, amid low oil stockpiles, freezing temperatures in many parts of the US and Europe and improving sentiment regarding China’s stimulus measures.

The US weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and will likely continue to experience a colder-than-usual start to the year, which JPMorgan analysts expect to boost demand.

“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by ... demand for heating oil, kerosene, and LPG,” JPMorgan said in a note on Friday.

Meanwhile, the premium of the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.

Oil prices have rallied despite the US dollar strengthening for six straight weeks. A stronger dollar typically weighs on prices, as it makes purchases of crude expensive outside the US.

Supplies could be further hit as US President Joe Biden is expected to announce new sanctions targeting Russia’s economy this week in a bid to bolster Ukraine’s war effort against Moscow before President-elect Donald Trump takes office on Jan. 20. A key target of sanctions so far has been Russia’s oil industry.

“Uncertainty over how hawkish Trump will be with Iran will be providing some support. Asian buyers have already been looking for alternative grades from the Middle East, with broader sanctions against Russia and Iran making this oil flow more difficult,” ING analysts said in a note on Friday.


SABIC, Almarai, SEC able to absorb fuel price hike: S&P Global

Updated 09 January 2025
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SABIC, Almarai, SEC able to absorb fuel price hike: S&P Global

RIYADH: Major Saudi companies, including chemical company SABIC, dairy firm Almarai, and Saudi Electric Co., are well-positioned to handle the impact of higher fuel and feedstock prices introduced on Jan. 1, according to a new report.

Released by capital market economy firm S&P Global, the analysis reveals that those corporates will be able to absorb the marginal increase in production costs by further improving operational efficiencies as well as potentially via pass-through mechanisms.

This came after Saudi Aramco increased diesel prices in the Kingdom to SR1.66 ($0.44) per liter, effective Jan. 1, marking a 44.3 percent rise compared to the start of 2024. The company has kept gasoline prices unchanged, with Gasoline 91 priced at SR2.18 per liter and Gasoline 93 at SR2.33 per liter.

Despite the hike, diesel prices in Saudi Arabia remain lower than those in many neighboring Arab countries. In the UAE and Qatar, a liter of diesel is priced at $0.73 and $0.56, respectively, while in Bahrain and Kuwait, it costs $0.42 and $0.39 per liter.

“For SABIC and Almarai, the increase in feedstock prices will not affect profitability significantly. In the case of utility company, SEC, additional support will likely come from the government if needed,” the report said.

The capital market economy firm projects that SABIC will continue to outperform global peers on profitability.

“We don’t expect the rise in feedstock and fuel prices to materially affect profitability, since the company estimates it will increase its cost of sales by only 0.2 percent,” the report said.

It further highlighted that SABIC is considered a government-related entity with a high possibility of receiving support when needed.

The report also underlines that Almarai anticipates an additional SR200 million in costs for 2025, driven by higher fuel prices and the indirect effects of increased expenses across other areas of its supply chain.

“We believe Almarai will continue focusing on business efficiency, cost optimization, and other initiatives to mitigate these impacts,” the release stressed.

With regards to SEC, S&P said that an unrestricted and uncapped balancing account provides a mechanism for government support, including related to the higher fuel costs.

“We believe any increased fuel cost will be covered by this balancing account,” the report said.

The study further highlights that the marginal increase “could significantly affect wider Saudi corporations’ profit margins and competitiveness.”

The S&P data also suggests that additional costs will be reflected in companies’ financials from the first quarter of 2025.

“Saudi Arabia is continuing its significant and rapid transformation under the country’s Vision 2030 program. We expect an acceleration of investments to diversify the Saudi economy away from its reliance on the upstream hydrocarbon sector,” the report said.

“The sheer scale of projects — estimated at more than $1 trillion in total — suggests large funding requirements. Higher feedstock and fuel prices would help reduce subsidy costs for the government, with those savings potentially redeployed to Vision 2030 projects,” it added.


Lenovo to produce ‘Saudi Made’ PCs by 2026 following $2bn Alat deal closure

Updated 09 January 2025
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Lenovo to produce ‘Saudi Made’ PCs by 2026 following $2bn Alat deal closure

RIYADH: Chinese tech giant Lenovo is set to manufacture millions of computer devices in Saudi Arabia by 2026, following the completion of a $2 billion investment deal with Alat, a subsidiary of the Public Investment Fund. 

First announced in May, the partnership has now received shareholder and regulatory approvals, paving the way for Lenovo to establish a regional headquarters and a manufacturing facility in the Kingdom. 

The deal marks a significant step in aligning Lenovo’s growth ambitions with Saudi Arabia’s Vision 2030 goals of economic diversification, innovation, and job creation, the company said in a press release. 

The factory will manufacture millions of PCs and servers every year using local research and development teams for fully end-to-end “Saudi Made” products and is expected to begin production by 2026, it added. 

“Through this powerful strategic collaboration and investment, Lenovo will have significant resources and financial flexibility to further accelerate our transformation and grow our business by capitalizing on the incredible growth momentum in KSA and the wider MEA region,” Yang said. 

He added: “We are excited to have Alat as our long-term strategic partner and are confident that our world-class supply chain, technology, and manufacturing capabilities will benefit KSA as it drives its Vision 2030 goals of economic diversification, industrial development, innovation, and job creation.” 

Amit Midha, CEO of Alat, underscored the significance of the partnership for both Lenovo and the Kingdom. 

“We are incredibly proud to become a strategic investor in Lenovo and partner with them on their continued journey as a leading global technology company,” said Midha. 

“With the establishment of a regional headquarters in Riyadh and a world-class manufacturing hub, powered by clean energy, in the Kingdom of Saudi Arabia, we expect the Lenovo team to further their potential across the MEA region,” he added. 

The partnership is expected to generate thousands of jobs, strengthen the region’s technological infrastructure, and attract further investment into the Middle East and Africa, according to the press release. 

In May, Lenovo raised $1.15 billion through the issuance of warrants to support its future growth plans. The initiative, which was fully subscribed by investors, signals confidence in Lenovo’s strategic approach and its plans for global expansion. 

The investment deal was advised by Citi and Cleary Gottlieb Steen & Hamilton for Lenovo, while Morgan Stanley and Latham & Watkins represented Alat. 


Lebanon’s bonds climb as parliament elects first president since 2022

Updated 09 January 2025
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Lebanon’s bonds climb as parliament elects first president since 2022

LONDON: Lebanon’s government bonds extended a three-month long rally on Thursday as its parliament voted in a new head of state for the crisis-ravaged country for the first time since 2022.

Lebanese lawmakers elected army chief Joseph Aoun as president. It came after the failure of 12 previous attempts to pick a president and the move boosts hopes that Lebanon might finally be able to start addressing its dire economic woes.

Lebanon’s battered bonds have almost trebled in value since September when the regional conflict with Israel weakened Lebanese armed group Hezbollah, long viewed as an obstacle to overcoming the country’s political paralysis.

Most of Lebanon’s international bonds, which have been in default since 2020, rallied after Aoun’s victory was announced to stand between 0.8 and 0.9 cents higher on the day and at nearly 16 cents on the dollar.

They have also risen almost every day since late December, although they remain some of the lowest priced government bonds in the world, reflecting the scale of Lebanon’s difficulties.

With its economy still reeling from a devastating financial collapse in 2019, Lebanon is in dire need of international support to rebuild from the war, which the World Bank estimates to have cost the country $8.5 billion.

 


Closing Bell: Saudi main index closes in green at 12,097

Updated 09 January 2025
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Closing Bell: Saudi main index closes in green at 12,097

RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Thursday, gaining 9.01 points, or 0.07 percent, to close at 12,097.75. 

The total trading turnover of the benchmark index was SR7.48 billion ($1.99 billion), as 96 stocks advanced, while 133 retreated.    

The MSCI Tadawul Index decreased by 3.28 points, or 0.22 percent, to close at 1,510.14. 

The Kingdom’s parallel market, Nomu, surged, gaining 251.24 points, or 0.82 percent, to close at 31,027.39. This comes as 56 of the listed stocks advanced, while 32 declined. 

The best-performing stock was Nice One Beauty Digital Marketing Co. for the second day in a row, with its share price increasing by 7.69 percent to SR49. 

Other top performers included Fawaz Abdulaziz Alhokair Co., which saw its share price rise by 6.5 percent to SR14.74, and Abdullah Saad Mohammed Abo Moati for Bookstores Co., which saw a 4.42 percent increase to SR35.45. 

Arabian Pipes Co. and Dr. Sulaiman Al Habib Medical Services Group also saw positive change with their share prices moving up by 4.10 percent and 3.89 percent to SR12.70 and SR298.80, respectively. 

The worst performer of the day was Salama Cooperative Insurance Co., whose share price fell by 5.88 percent to SR19.52. 

Almoosa Health Co. and Al Hassan Ghazi Ibrahim Shaker Co. also saw declines, with their shares dropping by 5.13 percent and 3.91 percent to SR133.20 and SR28.25, respectively.   

On the announcements front, Riyad Bank declared its intention to fully redeem its $1.5 billion fixed-rate reset tier 2 sukuk, issued in February 2020, on Feb. 25, 2025.  

According to a Tadawul statement, the sukuk originally maturing in 2030, will be redeemed at face value in accordance with the terms and conditions. The redemption, approved by the regulators, will include any accrued but unpaid periodic distributions.  

On the redemption date, Riyad Sukuk Limited will deposit the full amount into the accounts of sukuk holders, marking the completion of the issuance. This redemption will conclude the sukuk’s life, with no remaining value post-redemption. 

Riyad Bank ended today’s trading session edging up by 0.91 percent to SR27.85.