Saudi Arabia goes on tanker shopping spree amid oil output surge


Saudi Arabia is snapping up more and more oil tankers as the kingdom prepares to flood the world with crude causing a surge in the cost of transporting crude.

The world’s largest exporter, which began hiring extra ships almost as soon as a pact with Russia to limit oil supplies fell apart, has now provisionally hired 25-30 giant carriers to load late this month or early next, according to six shipbrokers and executives involved in the market.

It’s rare for Saudi Arabia’s state tanker company to book other companies’ ships as it’s doing now. The cargoes in question would be enough to supply France for about a month.

The Saudis’ forays into the tanker market come at a time when the country has told customers it will massively ramp up deliveries to regions including Europe at heavily discounted prices.

The bookings have caused a ship shortage as well as a surge in tanker earnings and the shares of owners like Frontline and Euronav. Crude is trading deep in a so-called contango price structure, where spot barrels are so cheap that traders try to store them at sea for sale at higher prices later.

“It’s a great time to be a tanker owner,” said Burak Cetinok, head of research at Arrow Shipping Group, a ship broker in London. “The near term prospects for the tanker market are exceptionally positive.”

The tankers booked by Bahri, Saudi Arabia’s tanker company, have so far mostly been for loading in late March or early April, one of the people said. It’s commonplace for at least some charters to fall through for a mix of commercial and operational reasons. Of the 25-30, the vast majority are Very Large Crude Carriers, or VLCCs, each designed to transport 2 million barrel cargoes, the people said.

A deal that Saudi Arabia had been proposing to restrict oil supply fell apart on March 6 when Russia declined to back the plan. A day later, Saudi Arabia announced huge crude-price discounts for refiners, and by Wednesday it was clear the kingdom would ship far more than normal.

Earnings from benchmark tanker rates jumped 700 percent the past week to $243,000 a day, according to data from the Baltic Exchange in London.

Over the past week, Saudi Arabia, Russia, Iraq, Nigeria and the United Arab Emirates have all indicated plans to lift supply in the coming months. That’s pushed charter rates to their highest level in 5 months, with tanker owners hoping to profit as long as the price war goes on.

“Fundamentally, the current spike in rates is driven by a surge in Saudi oil production and hence can be seen as an oil supply push,” Clarksons Platou analysts including Frode Moerkedal said in a note.

Traders are inquiring about crude tankers to store oil, following the return of a so-called super-contango structure. In such markets, companies can buy oil cheaply, store it on ships for a period of time, and then sell it at a higher price later, potentially making millions.

Frontline said earlier in the week that both oil traders and majors had been inquiring about such floating storage options. Vitol and Shell were among the companies looking to book ships with options for storage this week, according to fixture reports seen by Bloomberg. Product tanker company Torm A/S said it has recently received several floating storage requests across various fuel markets. The surge in freight rates has diminished the appeal of storing.

Like floating storage, some vessels may also sail slower in order to reach their destination later, when a cargo is likely to be more valuable, Robert Hvide Macleod, the chief executive officer of Frontline’s management company said. Though oil tankers are generally contracted to sail at 13 knots, one newbuild supertanker was seen sailing from Asia to Europe at about 2 knots slower than that speed with a cargo on board.

The freight rates soared because first older vessels were hired as floating storage, which removed a factor that limits a surge in shipping rates, and secondly charterers rushed to secure tonnage to haul additional Saudi oil, according to Brian Gallagher, investor relations manager at Euronav.

“It looks like it will persist into April loading programs meaning tanker markets will benefit well into the second quarter,” he said.

Despite resurgent optimism among shipowners, there are still reasons to be cautious. Last time rates reached these levels, requests to book ships were subsequently canceled, with the market then dropping. On Friday, China’s top oil trader was said to be trying to get out of loading some cargoes from the Middle East after the most recent spike in freight.

Still, with Saudi Arabia continuing to underpin the market, some owners are starting to believe that this time may be different.

“Not only is Bahri going on a chartering spree, but also the traders and other majors are also joining the party,” said Randy Giveans, a shipping analyst at Jefferies. “We expect rates to remain near these record high levels for at least the next few weeks.”


Saudi Aramco plans to cut spending in 2020, as oil plunges and profit slips


Saudi Aramco is cutting planned spending this year, in the first sign that the oil-price war the kingdom unleashed is hitting home.

Capital expenditure will be between $25 billion and $30 billion in 2020 and the spending plans for next year and beyond are being reviewed, Aramco said. The oil giant is lowering that range from the planned $35 billion to $40 billion announced in its IPO prospectus, and compared with $32.8 billion in 2019.

“We have already taken steps to rationalize our planned 2020 capital spending,” chief executive officer Amin Nasser said. Given the impact of the coronavirus pandemic on economic growth and demand, Aramco is adopting “a flexible approach to capital allocation,” he said.

The oil-price war led by Saudi Arabia and Russia threatens more pain for the company as producing nations prepare to boost supply. Discounted pricing to markets already reeling from weak demand and crude that lost roughly half its value since the beginning of the year threaten a further hit to revenue.

The shares fell as much as 0.5% on Sunday, extending the decline this year to 18%. Aramco’s market value has declined from a peak of over $2 trillion in December to about $1.5 trillion.

Knock-out blow
The coronavirus’ knock-out blow to oil use has overwhelmed OPEC’s initial optimism on demand this year, with analysts now expecting a drop in consumption. The OPEC+ group’s failure on March 6 to agree on further cuts is only exacerbating a glut as buyers search for storage tanks and vessels.

Saudi Arabia, Russia and others intend to boost production once the current accord to lower output expires in March. The kingdom pledged to supply 25% more oil in April than it produced last month, and Wednesday ordered Aramco to boost output capacity by 1 million barrels a day.

Key 2019 numbers:

Net income including minority interests: 330.7 billion riyals ($88 billion) vs 416.5 billion riyals a year ago
Revenue: 1.11 trillion riyals vs 1.19 trillion riyals
Operating profit: 674.9 billion riyals vs 798.4 billion riyals
Oil prices fell last year even as Saudi Arabia trimmed output as part of efforts between OPEC and other producers to rein in production. Drone and missile attacks on two of its biggest facilities in September temporarily slashed production by more than half, but didn’t cause a big surge in prices.

Brent crude averaged $64.12 a barrel in 2019 compared with $71.67 the previous year. Saudi production slipped to an average of 9.83 million barrels a day from 10.65 million in 2018, according to data compiled by Bloomberg. Aramco restored output to pre-attack levels by early October.

Aramco reiterated its plan to pay $75 billion in dividends this year. The company needs to balance its pledge to pay investors with spending on its upstream projects – maintaining oil production and expanding fields – and boosting its global refining and chemical operations, the downstream segment of the business.

“Aramco can restructure the strategy to concentrate more on the upstream expansion rather than downstream,” said Mazen Al-Sudairi, head of research at Al Rajhi Capital. “They can do it easily from their cash flow. But it might affect the money transfer to the government for one or two quarters.”

Aramco’s 2018 net of $111 billion made it by far the world’s most profitable company, exceeding the combined incomes of some of the world’s biggest companies including Apple Inc., Samsung Electronics Co. and Alphabet Inc.


Liquidity in Saudi banks ‘very good’, says SAMA governor

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Saudi Arabian Monetary Authority (SAMA) governor Ahmed al-Kholifey has stressed there is no need at the moment to intervene in order to ensure liquidity in the kingdom’s economy.

On Saturday, Saudi Arabia’s central bank unveiled a 50-billion riyal ($13.3 billion) package to support private businesses.

In an interview with state-owned Al Arabiya TV, al-Kholifey said SAMA will take further measures to support Saudi’s economy if liquidity is tight or credit is affected, although he added that this was not the case currently.

He said: “The challenges are the coronavirus and the lower oil price globally, but we are monitoring liquidity indicators and monitoring indicators of capital availability at banks.”

He reiterated a stance from the weekend that the indicators were “very good”.

Al-Kholifey also backed the riyal’s peg to the dollar, despite weakening last week as a result of the plunge in oil prices.


Saudi Aramco likely to maintain high production through May – CEO

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Saudi Aramco is likely to sustain April’s higher oil output through May, with the oil giant saying it is “very comfortable” with a $30 per barrel price level.

Last week, Aramco announced it would raise April’s output to a record 12.3 million barrels per day as part of a struggle with Russia for market share.

“In a nutshell, Saudi Aramco can sustain the very low price and can sustain it for a long time,” CEO Amin Nasser said in an earnings call on Monday. “For the production in May…I doubt it would be any different from next month.

Nasser added that the boost in output and exports would be positive for the company despite low oil prices.

Aramco’s chief financial officer, Khalid al-Dabbagh, said that Aramco was “very comfortable” with a price per barrel of $30, adding that the company will be able to meet its dividend commitments and the expectation of its shareholders.

During the call, Nasser also said that Aramco would draw 300,000 barrels per crude a day from existing stocks to help boost output.

“Our maximum sustained output capacity is 12 million bpd,” he said, adding that it will rise to 12.3 million barrels per day in April.

“The 300,000 will be coming from our inventories,” he added.

The new level of output, Nasser said, could be sustained for a significant time period.

“Our maximum (output) capacity is sustainable for one year without the need for any additional building,” he added. “It does not require any additional capital.”

On Monday, Brent North Sea oil fell over 10 percent to a four-year low of $30.15 per barrel.

A day earlier, Saudi Aramco reported a 20.6 percent fall in net profit for 2019 because of lower crude prices and production cuts. Its net income was reported as $88.2 billion last year, compared to $111.1 billion the previous year.


Saudi Aramco to keep $75bn dividend promise despite oil slump

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Even with oil prices having slumped, Saudi Aramco said it still intends to give at least $75 billion to shareholders this year.

The world’s biggest company by market value, which listed in the Saudi Arabian capital of Riyadh in December, will pay the dividends on a quarterly basis, it said in its 2019 financial results released on Sunday.

Capital expenditure will drop to between $25 billion and $30 billion this year, from $32.8 billion in 2019. Even so, the firm would still need at least $100 billion to meet its dividend and capex commitments alone, almost matching its 2019 payments.

The spread of the coronavirus and the oil-price war instigated by Saudi Arabia after Russia rejected coordinated production cuts has sent Brent crude prices spiraling. They have dropped more than 50% since the end of December to around $33 a barrel, and some analysts predict they’ll fall further to below $10 a barrel.

Low oil prices would crimp Aramco’s earnings and hurt Saudi Arabia’s finances. The kingdom needs an oil price of $84 to balance this year’s budget.

Aramco will be able to achieve a free cash flow of $63 billion in 2020, according to Riyadh-based Al Rajhi Capital. That calculation assumes the company pumps 10.7 million barrels per day and Brent crude prices average $30 a barrel.

Raising debt is an option as borrowing costs are low and the company is still within its debt-to-equity ratio of 5-15%. The yield on Aramco’s $3 billion bond due in 2029 has climbed this month amid a global selloff of emerging-market assets, but at 3.65% is barely higher than when the debt was issued in April.

The government could also cut its own dividend allocations while paying private shareholders, which own around 1.5% of the company, their portion of the $75 billion.

“They don’t need to liquidate assets, restructure or borrow capital,” said Mazen Al-Sudairi, head of research at Al Rajhi. “They can do it easily from their cash flow, but it might affect the money transfer to the government for one or two quarters.”

Aramco’s profit slumped 21% in 2019 to 331 billion riyals ($88 billion) because of lower oil prices and production. Drone and missile attacks on two of its biggest facilities in September temporarily slashed production by more than half.

Despite the fall, the energy producer is still the world’s biggest company by market value and the most profitable. Aramco’s 2019 income was equal to that of Apple Inc., Samsung Electronics Co. and Exxon Mobil Corp. combined.


Saudi Arabia detains 298 gov’t employees in corruption probe

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Saudi authorities have detained 298 government employees, including military officers, and will indict them on crimes, including abuse of power, bribery, money laundering and corruption, according to an anti-corruption body called Nazaha.

The total sum of misused funds amounted to 379 million riyals ($101 million), Nazaha said in a series of tweets on Sunday. Those detained include retired defence ministry officers, Interior Ministry officials and two judges, it added.

Hundreds of royals and senior businessmen were arrested in November 2017 and locked up in Riyadh’s Ritz-Carlton hotel in a so-called corruption campaign that hurt business confidence in the kingdom.


Saudi travel giant expects Covid-19 to hit 2020 performance

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Seera Group, the Saudi-based travel and tourism company, said on Thursday it expects its 2020 financial performance to be impacted by the spread of the new coronavirus.

Abdullah Aldawood, CEO of Seera Group, said the company, which recorded a record gross booking value of SR10.8 billion last year, will “be taking prudent precautions to manage through this situation”.

“Looking ahead it is clear that Covid-19 will have an impact on the travel industry, the extent of which none of us can predict at this time.

“We will continue to monitor the macro situation closely and manage the company in a responsible manner, taking sensible steps to adapt where required,” he added.

Saudi Arabia has so far reported only two cases of the new coronavirus.

His comments came as Seera Group announced that revenue declined by 4.8 percent in 2019 compared to 2018 driven by change in revenue sources and more competitive pricing for some services in order to protect and increase market share.

Group net profit after was SR189 million compared to a loss of SR142 million a year earlier.

2019 witnessed the consolidation of operations under a new corporate identity and an ambitious expansion of existing businesses as well as the launch of new services, including the launch of a dedicated destination management company, Seera said in a statement.

Aldawood said: “2019 saw our three-year transformation journey continue with a busy year full of challenges, ambitious targets and new launches

“The year closed with a healthy balance sheet and a more diversified revenue stream in travel, hospitality and car rental services.”

UAE’s Ministry of Health calls on citizens, residents to avoid travel amid coronavirus outbreak

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The UAE Ministry of Health has advised citizens and residents to avoid travelling abroad unless it is absolutely necessary, in light of ongoing coronavirus outbreak.

According to a report by the WAM state news agency, those who do travel will be subject to follow-up checks on their return and may be kept in quarantine at home, the ministry said.

The report added that rapid laboratory testing and control procedures have also been activated at UAE border crossings, where more than 30,000 tests have been conducted since the virus appeared.

On Wednesday, the UAE’s Education Ministry announced that the spring holiday will start earlier, and all public and private schools and higher education institutions across the country will close for four weeks, starting Sunday, with a process of distance learning employed for pupils.

Students and staff who have travelled will be placed in home quarantine for 14 days and will not be allowed to enter educational facilities before that period expires.

During the next four weeks, some 600 schools will undergo a rigorous deep clean and over 3,000 buses will be sterilised.

Dubai is home to Emirates airline, the world’s biggest airline by international traffic, and Abu Dhabi owns Etihad Airways. Both airlines have encouraged staff to take leave.

The UAE has confirmed 28 cases of coronavirus, with 23 still active and five totally recovered. Two cases continue to be described as “serious”.


Emirates NBD announces reduction in bank charges

Emirates NBD has reduced its bank charges in a bid to support business in the UAE.

In line with recent government and UAE Central Bank initiative, the bank’s ‘Transaction Banking’ unit has announced reduced tariff offers over the next three months.

In particular, it applies to customers using its revamped ‘Smarttrade’ platform, which replaces the need for physical branch visits.

The bank will also offer clients new smartTrade activation at no cost for the next three months to allow them to route more digital transactions to the bank.

Ahmed Al Qassim, senior executive vice president and group head, Corporate & Institutional Banking, at Emirates NBD, said: “We are pleased to offer our clients reduced bank charges for transactions initiated via smartTrade platform with immediate effect which will help alleviate pressure by reducing operational costs.

“In addition, our continued investments and focus on digitisation equips our customers to conduct a majority of their trade finance transactions online, eliminating the need for physical requests, enabling them to operate seamlessly from the safety of their offices or homes.”


Gulf investors said to have big appetite for overseas office deals

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Gulf-based real estate investors have the biggest appetite for targeting overseas commercial property, according to a new report.

Knight Frank’s Wealth Report 2020 revealed that private capital was responsible for $333 billion of commercial real estate purchases in 2019, up 5 percent on the previous year.

It also showed that nearly a third (32 percent) of wealthy investors from the Middle East are keen to spend overseas, the highest percentage of any region, with the UK being high on the target list.

Whilst 24 percent of global UHNWIs plan to invest in commercial property domestically, significant amounts of capital is set to be allocated to cross border purchases in the year ahead.

Ultra high net worth individuals confirmed that property remains the most attractive asset class when compared to traditional equities and bonds, due to its relative stability and higher returns.

Of those surveyed, 78 percent are set to increase or maintain their current allocations to property, ahead of bonds and equities, which saw 68 percent and 62 percent of respondents seeking to increase or maintain investment, respectively.

The office sector remains the primary target for private capital investors, with healthcare and hotels and leisure following closely in second and third, as the market is seeing investors looking to alternative property types in the hunt for yield, return and diversification. Structural change and uncertainty in other core sectors is prompting investors to reallocate funds.

William Mathews, head of capital markets research, Knight Frank, said: “In 2019, we saw an increase in the amount of private capital investing in global real estate… At a time of low and falling yields on competing assets, investors are turning to commercial real estate as a way to drive returns and enhance portfolio diversification.

“Investors from the Middle East, Europe and Latin America have the most appetite for investing overseas and the UK looks set to receive the lion’s share.

“Whilst offices remain a primary target for private capital, the once regarded ‘alternative’ sectors are coming to the fore, with hotels, healthcare, and retirement housing attracting $37 billion in the past year alone. This is a trend we expect to see continue as these sectors mature.”