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 Arabia’s non-oil sector maintains strong growth, latest PMI report shows

Updated 58 min 10 sec ago
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Saudi Arabia’s non-oil sector maintains strong growth, latest PMI report shows

RIYADH: Saudi Arabia’s non-oil private sector continued its strong growth in February, driven by strong customer demand, increased hiring, and a positive economic outlook.

According to the latest Riyad Bank Purchasing Managers’ Index report, the score stood at 58.4, reflecting sustained increases in business activity despite a slight dip from January’s decade-high reading of 60.5.

The Kingdom’s PMI drop comes as Kuwait’s index slowed to 51.6 with job cuts, while Egypt’s fragile recovery saw a slight decline to 50.1, marking its second month above the neutral level of 50.

“Despite a slight dip in the PMI, Saudi Arabia’s non-oil economy remains on a strong trajectory. Rising domestic and international demand, along with continued improvements in supply chains, suggest that business activity will maintain its positive momentum in 2025,” said Naif Al-Ghaith, chief economist at Riyad Bank.

The PMI measures non-oil sector health using key factors. A score above 50 signals growth, and below 50 indicates decline. Although there was a slight decline in February, business conditions stayed robust, supported by consistent new orders and growing exports.

Companies across various industries reported flexible demand conditions, with 35 percent of surveyed firms experiencing an increase in new business orders, compared to just 5 percent reporting a decrease. 

Additionally, new export orders rose sharply, reflecting strong international demand for Saudi non-oil goods and services. Some firms also underlined that promotional pricing strategies helped attract new customers.

Employment surges to 16-month high

A key highlight of the February PMI report was the significant rise in employment. The hiring rate reached its highest level in 16 months as businesses expanded their workforce to meet rising workloads. This increase in staffing was particularly strong in the manufacturing and services sectors, where firms sought to enhance their operational capacity.

Al-Ghaith emphasized the positive momentum in the labor market, saying: “The surge in employment levels reflects business confidence in future demand. Companies are expanding their teams to meet growing workloads, indicating optimism about continued economic growth.”

Strong demand supports business growth

The non-oil sector’s growth was fueled by solid domestic demand and increased tourism activity, contributing to stronger sales and production levels. 

Companies also attributed their expansion to intensified marketing efforts and a larger customer base. While the pace of growth in new business slowed slightly compared to January’s peak, it remained one of the strongest since mid-2023.

Government initiatives and economic diversification efforts under Saudi Vision 2030 have played a critical role in driving non-oil sector performance. Businesses reported that policy support and infrastructure investments have created new opportunities for growth.

Cost pressures and pricing strategies

Despite the strong business conditions, firms faced persistent cost pressures in February. The report indicated that input prices remained high due to rising wages and increased raw material costs. However, the rate of inflation eased to its lowest level in four months, providing some relief to businesses.

To offset cost increases, many companies implemented modest price hikes for their products and services. Competitive market conditions, however, kept these price increases in check, as firms aimed to balance profitability with maintaining strong customer demand.

Outlook for 2025

Looking ahead, Saudi businesses remain highly optimistic about future growth prospects. The level of confidence among firms reached its highest point since November 2023, with many expecting further expansion in the coming months. 

This optimism is largely driven by anticipated economic growth, increased investment opportunities, and improving supply chain efficiencies.


Kuwait, Egypt sustain non-oil business growth in February: PMI survey 

Updated 04 March 2025
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Kuwait, Egypt sustain non-oil business growth in February: PMI survey 

RIYADH: Kuwait and Egypt’s non-oil private sectors maintained growth in February as business activity increased in both countries, according to S&P Global. 

In its latest report, the financial services firm revealed that Kuwait’s Purchasing Managers’ Index stood at 51.6 in February, down from 53.4 in the previous month.

A PMI reading above 50 indicates expansion in private business conditions, while a reading below 50 signifies contraction. 

The steady momentum of non-oil business activity across Middle Eastern economies highlights progress in economic diversification efforts. In February, Saudi Arabia recorded a PMI of 58.4, slightly down from a decade-high 60.5 in January. 

“Although we continued to see a generally positive performance of the non-oil private sector in Kuwait during February, there were some elements of the latest PMI survey which sound a note of caution,” said Andrew Harker, economics director at S&P Global Market Intelligence. 

He added: “Primary among these was the fact that firms lowered their staffing levels, perhaps a sign of worries that the slowdown in new order growth has further to run.” 

Despite this, overall business conditions in Kuwait’s non-oil private sector continued to improve, driven by rising output and new orders. Respondents in the survey attributed this growth to marketing campaigns across multiple channels as well as price cuts.

“Alongside successful advertising, growth was again predicated on the offer of discounts to customers, and it remains to be seen how sustainable this will be for firms in the face of sharply rising input costs,” added Harker. 

Apart from job cuts in February, which could lead to backlogs of work, companies also reduced purchasing activity. 

Looking ahead, non-oil private sector firms in Kuwait said price discounting, marketing, new product development, and strong customer service could support output growth over the coming year. 

Egypt’s PMI stays above neutral 

In a separate report, S&P Global revealed that Egypt’s PMI stood at 50.1 in February, down from 50.7 in January. 

This marked the first time since late 2020 that the country’s rating remained above the 50 neutral threshold for two consecutive months, signaling a sustained improvement in business conditions. 

Companies participating in the survey indicated that an ongoing recovery in client demand led to the first back-to-back improvement in business conditions in over four years. 

The increase in order book volumes resulted in a solid rise in purchasing activity, though output remained stable and employment declined. 

David Owen, senior economist at S&P Global Market Intelligence, said the Egypt figure showed the country’s non-oil economy started 2025 in “better health.”

He added: “Coupled with January’s upturn, the data reflects the best opening two months of the year in the survey’s history.”  

In January, the International Monetary Fund reached an agreement with Egyptian authorities allowing the country to access about $1.2 billion to strengthen its finances. 

According to S&P Global, Egypt’s non-oil private sector growth in February was further supported by another month of subdued price pressures, with inflation of average cost burdens rising from January but remaining historically mild. 

New work volumes increased for the second consecutive month after having risen only once in the previous 40 months of data collection. 

In February, stronger demand prompted firms to boost purchases for the third straight month, marking the sharpest increase in three and a half years. 

“Stronger customer spending seems to have revitalized markets, driving higher sales volumes and supporting improved operating conditions. This positive momentum has led to increased spending among firms,” said Owen. 

He added: “Additionally, price pressures are relatively low compared to those experienced in 2024, indicating that inflation is likely to continue its downward trend, in the near-term at least.” 

Despite the positive developments, businesses that participated in the survey reported challenges in retaining staff and hiring new workers, leading to a third employment decline in four months. 

Selling prices also increased modestly in February, as companies sought to limit the impact of higher costs on customers. 

Regarding future expectations, firms remained cautious about the economic outlook. Business confidence for the next 12 months fell to its lowest level since November, with only 5 percent of firms expressing optimism about future output growth. 

“The employment market remains mixed at best, and the manufacturing sector is struggling to secure new orders. Economic and geopolitical risks continue to loom large, contributing to another month of subdued expectations for the year ahead,” concluded Owen.


Saudi Aramco posts $106.2bn profit for 2024

Updated 04 March 2025
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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 04 March 2025
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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 9 min 23 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 confirmed 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’s macroeconomic indicators have gradually improved since it secured 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. Pakistan’s current account recorded a surplus of $729 million in November 2024, marking the fourth consecutive month since the country reported a current account surplus. The Pakistan Stock Exchange (PSX) also reported record gains last year, with frequent bullish trends dominating the market. 

“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. 

Speaking to international news agency Reuters, Aurangzeb said Pakistan is “well-positioned” for the first review. 

“They are here. We will have two rounds of talks, first technical and then policy level,” Aurangzeb said. “I think we are well positioned,” he added. 

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.