Black Monday: Oil price slump, virus spark market meltdown

The closing numbers are displayed on the floor of the New York Stock Exchange. (Reuters)
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Updated 10 March 2020
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Black Monday: Oil price slump, virus spark market meltdown

  • Global stocks in turmoil amid wave of sell-offs
  • $400 billion wiped off regional markets in two days

DUBAI: Financial markets around the world tumbled on Monday as investors took fright at the growing economic risks from the global coronavirus outbreak and the prospect of a prolonged decline in oil prices.

On Wall Street, the world’s biggest financial market, leading shares fell by 7 percent on opening, wiping billions of dollars off investments, after the big markets in Asia and Europe had all experienced sharp declines. New York recovered slightly in later trading, and after a rollercoaster day the Dow Jones Industrial Average closed nearly 8 percent down.

The Middle East was no exception to the wave of selling, with the Tadawul in Riyadh closing 7.75 percent down on the day. UAE markets fell by similar amounts. Regional markets have lost about $400 billion in value over the past two days.

“We are now in a period of true turmoil. Fear is now all-pervasive,” oil historian Daniel Yergin said on US TV.

Global investors, already spooked by the economic fallout from the coronavirus outbreak, were panicked by the prospect of a price war in energy markets after Saudi Aramco, the world’s biggest oil company, offered customers big discounts on crude supplies from next month.

Oil prices fell sharply in global trading. Brent crude, the benchmark for Middle East oil, plunged by nearly 30 percent — its biggest fall on opening in nearly three decades. It recovered significantly in later trading, to stand at $37.27 per barrel, down 17.5 percent.

Independent oil company shares were savaged. BP fell 19 percent, Shell 15 percent and ExxonMobil 8 percent. Tadawul-quoted shares in Saudi Aramco, the world’s largest oil company, were 5.5 percent down at close.

The damage was even worse for oil companies with significant exposure to US shale, potentially the biggest losers from a price war. Occidental Petroleum, a big investor in Texas shale, fell 35 percent at halftime trading in New York.

Nevertheless, investment experts said the carnage in the oil sector would not necessarily lead to a financial crisis. 

“The prospect of heightened instability in energy markets adds to the pessimism created by coronavirus, but the fall in oil prices will not on its own lead to a financial crisis like 2009,” Tarek Fadlallah, chief executive of Nomura Asset Management in Dubai, told Arab News.

Mazen Al-Sudairi, head of research at Al-Rajhi Capital in Riyadh, said the oil sector was “one of the major casualties” of the market volatility prompted by the coronavirus outbreak, and that a “cascading effect” could be expected on the local economy.

However, he also saw potential for optimism. “Upside surprise could be a seasonal fade-out of virus implications, renewed Opec+ agreement, an increase in oil prices as supply reduces, and sharp de-escalation of Chinese situation.”

 


Saudi Aramco posts $106.2bn profit for 2024 

Updated 22 sec ago
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Saudi Aramco posts $106.2bn profit for 2024 

RIYADH: Saudi energy giant Aramco reported a net profit of SR398.42 billion ($106.2 billion) in 2024, despite challenging market conditions, including lower prices for crude oil, refined products, and chemicals. 

In a press statement, the company revealed that its net profit declined by 12.39 percent from $121.3 billion in the previous year. 

Despite the earnings decline, the company raised its quarterly base dividend by 4.2 percent to $21.1 billion, underscoring its commitment to shareholder returns. 

This comes as Saudi Arabia, in line with OPEC+ decisions, reduced its oil output by 500,000 barrels per day in April 2023. The cut, which remained in effect throughout 2024, was also a key factor in Aramco’s profit decline. 

“Our strong net income and increased base dividend illustrate Aramco’s exceptional resilience and ability to leverage its unique scale, low cost, and high levels of reliability to deliver industry-leading performance for our shareholders and customers,” said Amin H Nasser, CEO of Aramco. 

According to the statement, Aramco’s total revenue stood at SR1.63 trillion in 2024, representing a marginal decline of 0.97 percent compared to 2023. 

The energy giant’s operational profit stood at SR774.63 billion in 2024, down 10.79 percent from the previous year. 

Aramco’s fourth-quarter profit aligned with analyst expectations despite $1.7 billion in non-cash charges. Total shareholders’ equity, after minority interest, stood at SR1.45 trillion as of Dec. 31, 2024, compared to SR1.53 trillion a year earlier. 

The company expects total dividends of $85.4 billion to be declared in 2025. 

Additionally, Aramco’s board has approved a $200 million performance-linked dividend, which will be distributed in the first quarter of this year. 

The company invested $53.3 billion in capital projects in 2024, with $50.4 billion directed toward organic capital expenditures. It provided a 2025 capital investment guidance of $52 billion to $58 billion, excluding approximately $4 billion in project financing. 

As Aramco continues to advance its long-term growth strategy, it expects its upstream gas business to generate an additional $9 billion to $10 billion in operating cash flow by 2030, while its downstream segment could contribute an extra $8 billion to $10 billion. 

Looking ahead, Nasser said global oil demand is expected to maintain momentum in 2025. 

“Global oil demand reached new highs in 2024, and we expect further growth in 2025,” said Nasser. 

He emphasized that “dependable and more sustainable energy” is key to global economic growth, adding that Aramco is making progress on projects to maintain its maximum sustainable crude oil capacity, expand gas capabilities, and further integrate its upstream and downstream businesses “to capture additional value.” He also noted the company’s efforts to help mitigate greenhouse gas emissions. 

Nasser added: “We are also adopting and deploying AI technologies and solutions at scale across our operations, unlocking greater efficiencies and value creation throughout our business. Capital discipline is at the core of Aramco’s strategy, enabling us to deliver growth and capture value across conventional and new energy solutions.” 


Oil Updates — slides on OPEC+ output increase, tariff uncertainty and Ukraine aid pause

Updated 16 min 14 sec ago
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Oil Updates — slides on OPEC+ output increase, tariff uncertainty and Ukraine aid pause

  • OPEC+ to proceed with planned April oil output increase
  • US tariffs on Mexico, Canada took effect on Tuesday
  • China announces 10-15% hikes to import levies on US products

BEIJING/SINGAPORE: Oil prices extended losses on Tuesday following reports that OPEC+ will proceed with a planned output increase in April, while markets braced for the impact of US tariffs on Canada, Mexico and China, as well as Beijing’s retaliatory tariffs on the US.

Brent futures fell 57 cents, or 0.8 percent, to $71.05 a barrel at 9:50 a.m. Saudi time, as US West Texas Intermediate crude eased 39 cents, or 0.6 percent, to $67.98.

“The current downward trend in oil prices is primarily driven by OPEC+’s decision to increase output and the introduction of US tariffs,” said Darren Lim, commodities strategist at Phillip Nova.

A further complicating factor was geopolitical developments related to the Russia-Ukraine conflict, he added.

President Donald Trump paused all US military aid to Ukraine following his Oval Office clash with President Volodymyr Zelensky last week.

The Organization of the Petroleum Exporting Countries and allies like Russia, known as OPEC+, decided to proceed with a planned April oil output increase of 138,000 barrels per day, the group’s first since 2022.

“While this decision aims to gradually unwind previous output cuts, it has raised concerns about a potential oversupply in the market,” Lim said.

Trump’s 25 percent tariffs on imports from Canada and Mexico took effect at 8:01 a.m. Saudi time on Tuesday, with 10 percent tariffs for Canadian energy, while imports on Chinese goods will increase to 20 percent from 10 percent.

Analysts expect the tariffs to weigh on economic activity and fuel demand, putting downward pressure on oil prices.

“Market participants are struggling to gauge the impact of the flood of energy-related policy announcements made by the Trump administration this month,” BMI analysts wrote in a note.

“However, those weighing to the downside, notably US tariff measures, are currently winning out.”

As the US tariffs kicked in on Tuesday, China swiftly retaliated, announcing 10 percent to 15 percent hikes to import levies covering a range of American agricultural and food products, and placing 25 US firms under export and investment restrictions.

Further weighing on oil was Trump’s halt of military aid to Ukraine, as the market has viewed the growing distance between the White House and Ukraine as a sign of a potential easing of the conflict.

That in turn could lead to sanctions relief for Russia, with more oil supply returning to the market.

The pause followed a Reuters report that the White House has asked the State and Treasury departments to draft a list of sanctions that could be eased for US officials to discuss during talks with Moscow, sources have said.

“The perfect storm for crude oil has intensified. Reports that the US has paused military aid to Ukraine is viewed as a precursor to lifting sanctions on Russian oil,” said IG market analyst Tony Sycamore.

“It also comes at the same time as US tariffs on Canada, Mexico and China come into effect, sparking fears of a trade war. Crude oil just cannot take a break at the moment.”

However, Goldman Sachs analysts said in a note on Monday that Russia’s oil flows are constrained more by its OPEC+ production target than sanctions, warning that an easing might not boost them significantly.

The bank also said higher-than-expected crude supply and a demand hit due to softer US activity and tariff escalation posed downside risks to oil price forecasts. 


Pakistan, IMF kick off talks on $7 billion bailout program review

Updated 13 min 20 sec ago
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Pakistan, IMF kick off talks on $7 billion bailout program review

  • IMF delegation led by Nathan Porter arrived in Pakistan on Monday to assess country’s economic performance
  • Pakistan secured the $7 billion Extended Fund Facility (EFF) last summer as part of an economic recovery plan

KARACHI: Pakistan and the International Monetary Fund (IMF) on Tuesday formally kicked off talks for the first review of a $7 billion bailout program that Islamabad secured last year, the finance ministry said in a statement. 

A Pakistani economic adviser told Arab News on Monday, requesting anonymity, that a nine-member mission led by Nathan Porter had landed in Pakistan to assess the country’s economic performance to determine the release of a $1.1 billion tranche over the following three weeks.

Pakistan has made little economic gains since securing the IMF bailout last summer. The country’s consumer price index (CPI) inflation rate, maintaining a downward trend on Monday, hit a more than 9-year low at 1.51 percent year-on-year in February.

“Pictures of kick-off meeting held today, ” the finance ministry wrote as caption of two photos shared with media on WhatsApp. The pictures showed Pakistani officials, led by Finance Minister Muhammad Aurangzeb, involved in discussions with an IMF delegation led by its Pakistan mission chief Nathan Porter. 

Pakistan’s finance ministry has so far not shared any details of the talks between the government and the IMF. However, local media has widely covered the delegation’s visit. 

Top Pakistani news channel, ARY News, reported that the IMF was demanding action against tax evasion in Pakistan’s real estate sector. 

“During the talks, the IMF pushed for action against those misdeclaring property values,” ARY reported on Monday, saying the government had assured the international lender it would activate the Real Estate Regulatory Authority.

“Strict penalties, including imprisonment and fines, will be imposed on individuals and agents who falsely declare property values … As per sources, failing to register could result in a fine of up to Rs500,000,” ARY added. 

Pakistan’s Dawn newspaper said the government “remains optimistic about a successful conclusion to the talks.”

“The performance review, in principle, is based on the first half of the current fiscal year — July 1 to Dec 31, 2024 — and while some shortcomings could be observed at that time, all those missing links have now been covered,” Dawn reported, quoting a Pakistani official.

The IMF team usually spends around two weeks reviewing fiscal reforms and policy.

Last week, a separate IMF team visited Pakistan to discuss around $1 billion in climate financing on top of the EFF. That disbursement will take place under the IMF’s Resilience and Sustainability Trust, created in 2022 to provide long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy.


Saudi Public Investment Fund partners with Goldman Sachs Asset Management

Updated 04 March 2025
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Saudi Public Investment Fund partners with Goldman Sachs Asset Management

  • The PIF will serve as an anchor investor for new funds in Saudi Arabia and other Gulf nations
  • A goal s to attract capital from global investors, a significant portion of which will be earmarked for investments in the Kingdom

RIYADH: The Public Investment Fund and Goldman Sachs Asset Management signed a non-binding memorandum of understanding in Riyadh on Monday. The agreement designates the PIF as an anchor investor for new private and public funds in Saudi Arabia and other GCC countries.

An anchor investor is an institutional investor that backs a business or asset before it goes public on the stock market, to add value and help establish its name and reputation.

The aim of the new partnership is to help position the Kingdom as an investment hub and grow the Saudi asset management sector by leveraging the institutional strength of the PIF and the expertise of Goldman Sachs, the organizations said. A goal is to attract equity capital from international investors, a significant portion of which will be earmarked for investments within the Kingdom.

Yazeed Al-Humied, deputy governor and head of Middle East and North Africa investments at PIF, said asset management forms part of the fund’s broader efforts to diversify the Saudi economy and strengthen local capital markets.

He described the agreement with Goldman Sachs as “another element in PIF’s strategy of attracting global capital and expertise from a wide range of investors to the region, while facilitating knowledge-transfer and capacity-building within Saudi Arabia.”

Their private-credit strategy will focus on senior and junior loans (representing higher or lower priority debts) for companies in the GCC region, officials said. Their public equity strategies will target investments in publicly listed companies associated with the Kingdom.

Goldman Sachs recently expanded its presence in Saudi Arabia, opening a new office in Riyadh in October. Marc Nachmann, global head of asset and wealth management, said the company is proud to collaborate with the PIF to develop investment strategies.

“Drawing on our decades of experience investing in public and private markets, our aim is to help clients access the dynamic opportunities created by Saudi Arabia and the wider GCC’s rapid economic transformation,” he added.

“We are excited to see this partnership expand and to continue building our presence in Saudi Arabia.”

The PIF said it aims to support Saudi Arabia’s Vision 2030 plan for national development and diversification through a wide range of investments and partnerships. Since 2017, it has established 103 companies to create investment opportunities in the Saudi economy.


OPEC+ to proceed with planned April oil output hike

A view shows the logo of Organization of the Petroleum Exporting Countries (OPEC). (File/Reuters)
Updated 03 March 2025
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OPEC+ to proceed with planned April oil output hike

  • The increase is the first since 2022 from OPEC+, which includes the Organization of the Petroleum Exporting Countries, plus Russia and other allies

LONDON: OPEC+ has decided to proceed with a planned April oil output increase, the group said on Monday.
The increase is the first since 2022 from OPEC+, which includes the Organization of the Petroleum Exporting Countries, plus Russia and other allies. Oil was trading 2 percent lower toward $71 a barrel at 1900 GMT.
Eight OPEC+ members that are making the group’s most recent layer of output cuts held a virtual meeting on Monday and agreed to proceed with the April increase, OPEC said. The increase is 138,000 barrels per day according to Reuters calculations.
“This gradual increase may be paused or reversed subject to market conditions,” OPEC said in a statement. “This flexibility will allow the group to continue to support oil market stability.”
Oil has been trading in a range of $70-$82 a barrel in recent weeks in anticipation of major changes to US sanctions on large oil producers Iran, Russia and Venezuela as well as US tariffs on China that could reduce demand.
Trump has renewed pressure on OPEC to bring down prices, which rallied to multi-month highs above $82 a barrel in January after Trump’s predecessor Joe Biden slapped new sanctions on Russia.
Since then prices have fallen on hopes Trump would help clinch a peace deal in the war between Russia and Ukraine and boost Russian oil flows. However, his plans to cut Iran’s oil exports to zero and the cancelation last week of a Chevron license to operate in Venezuela prevented prices from falling further.
The combination of those bullish and bearish factors made decision-making for April extremely complex, OPEC+ sources have said. They added that Trump’s plans for global tariffs could complicate the outlook even further.
OPEC+ has been cutting output by 5.85 million barrels per day, equal to about 5.7 percent of global supply, agreed in a series of steps since 2022 to support the market.
In December, OPEC+ extended its latest layer of cuts through the first quarter of 2025, pushing back the plan to begin raising output to April. The extension was the latest of several delays last year.
Based on the plan, the gradual unwinding of 2.2 million bpd of cuts — the most recent layer — begins in April with a monthly rise of 138,000 bpd.