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Oil Prices Rebounded. Saudi Arabia'S First Quarter Profit Fell 25%. Saudi Arabia, The "Oil Rich" Saudi Arabia, Was Also In A Hurry: To Take An Extra Big Cut In Production And Expand Its Partners.

2020/5/13 13:17:00 0

Oil PricesReboundAmyProfitsAlliesScale

First, the new crown pneumonia epidemic, followed by the price war, "rich oil" Saudi Arabia also can not stand.

The Saudi government announced two tough decisions in May 11th. The first decision is to raise the value of $26 billion 600 million in austerity measures, including raising the value added tax from 5% to 15%, stopping the payment of living allowance to civil servants, and delaying or reducing large investment projects. Saudi finance minister Mohamed Gadahn said the savings will be spent on health care and corporate aid to ensure that the total expenditure in 2020 is close to the planned level.

The second decision is that Saudi Arabia will reduce output by 1 million barrels per day on the basis of the OPEC+ reduction agreement, which will reduce its crude oil output to 7 million 500 thousand barrels per day, a decrease of nearly 40% compared with April, and the lowest level since 2002. This will be the lowest in June. On the same day, Kuwait and the United Arab Emirates followed the steps of Saudi Arabia, announcing a voluntary reduction of 80 thousand barrels per day and 100 thousand barrels per day in June.

Saudi Arabia's energy minister, Abdel Aziz Ben Salman, said Saudi Arabia and its allies would voluntarily reduce output by nearly 1 million 200 thousand barrels per day to help speed up the recovery of the oil market. "The purpose of this is to speed up the recovery of the market, not because we think the market is deteriorating."

Saudi Arabia suddenly announced the expansion of production scale, which surprised the market. According to the previous OPEC+ reduction agreement, Saudi Arabia has promised that its output in May will be reduced by 3 million 800 thousand barrels per day compared with April. In addition, Saudi Arabia once said it would not bear the burden of reducing production alone, even at the expense of Russia's share of the market through price war.

Abdel Aziz said: "in general, we see that demand and economic indicators have improved, which is much brighter than in March and April."

Cen Guowei Victor Shum, vice president of IHS Markit, told an economic news reporter twenty-first Century: "Saudi Arabia's latest statement highlights the seriousness of market threats. We estimate that oil demand in the second quarter fell by 22 million barrels per day. So far, this is the biggest decline in the history of the oil industry. Concerns about demand continue to outweigh the benefits of reduced production.

Whether the total production scale is enlarged or not?

Last month, OPEC+ reached a record cut production agreement: it will reduce production from 9 million 700 thousand barrels per day to two months in May 1, 2020, 7 million 700 thousand barrels per day from July 1, 2020 to December, and 5 million 800 thousand barrels per day from January 2021 to April 2022. Saudi Arabia, Kuwait and the United Arab Emirates will bear 2 million 510 thousand barrels per day, 640 thousand barrels per day and 720 thousand barrels / day respectively in the above 9 million 700 thousand barrels / day production plan.

Although it is not clear whether the output of 9 million 700 thousand barrels / day is enough to balance the oil market, crude oil prices have been rising in recent weeks, and Brent's oil price has risen by about 10 US dollars / barrel compared with the lowest point in April 21st. International oil prices have been boosted after Saudi Arabia and its allies announced voluntary expansion of production. Beijing time 19:15 on May 12th, WTI crude oil futures rose 4.92% Newspaper Twenty-six point three one US dollar / barrel; ICE Brent crude futures rose. 3.18% Newspaper Thirty point five seven USD / barrel.

However, analysts are cautious about the good news. "We need to understand the performance of countries under the broader OPEC+ agreement, because this will tell us whether the whole OPEC+ is making additional production cuts or whether Saudi Arabia is making up for the performance of some oil producing countries with poor performance." Pavolen Patterson, chief executive of Holland banking commodity strategy, said Warren Patterson.

Paterson pointed out that Iraq has been doing "bad deeds" in terms of performance in recent years. According to the agreement, the country should reduce output by 1 million barrels per day from May 1st, but many market participants believe that this is impossible. Iraq has not yet informed its main customers of the latest crude oil export plan. According to industry practice, oil producing countries should announce their production plans early to the beginning of the month. Saudi Arabia, the United Arab Emirates and Kuwait and other OPEC oil producing countries have already told customers that they will cut crude oil exports this month.

According to the quota of the OPEC+ agreement, Iraq, the second largest oil producing country in the OPEC, needs to reduce its oil production by 1 million barrels per day than in April. However, a spokesman for BOC, a state-owned oil company in Iraq, said that the Iraqi government had not yet reached an agreement on the allocation of production reductions for major oil fields in Basra. Most of these oil fields are operated by international oil giants, including ExxonMobil, British Petroleum, Eni oil and Luke oil.

In addition to Iraq, there are many smaller oil producing countries that may not be able to fully implement the OPEC+ production reduction agreement, such as Nigeria and Angola. Their problems are all the same. The main challenge lies in the differences between the government and the international oil companies on the reduction of production quotas. This could damage OPEC+'s efforts to cut 9 million 700 thousand barrels of oil output per day in May and June, about 10% of the world's energy demand before the outbreak of the new crown pneumonia.

Saudi Arabia's unexpected decision

In the past few years, Saudi Arabia usually has to wait until the OPEC meeting in June to announce the new production decision, but the 11 day statement shows that the low oil price has caused heavy pressure on the country, forcing the country to take unconventional action.

In March, with the Brent crude oil price plunging more than 50%, Saudi Arabia's central bank foreign exchange reserve fell 27 billion US dollars in the month, the fastest rate in 20 years, shrinking to the lowest level since 2011. Saudi Arabia's fiscal deficit in the first quarter was as high as $9 billion due to reduced crude oil export earnings. The International Monetary Fund (IMF) predicts that the Saudi economy will shrink this year. 2.3% 。

However, Saudi Arabia suddenly announced that it would be willing to take on the burden of additional production losses, which may make other parties feel that their stance is no longer tough. After the end of the heavy price war, other oil producing countries have discovered that Saudi Arabia is willing to make more concessions to raise oil prices. For example, in the OPEC+ negotiations, Mexico refused to reduce production by 400 thousand barrels per day in accordance with a unified scale, while only symbolically reduced production by 100 thousand barrels per day. Saudi Arabia finally made a compromise.

But it is clear that Saudi Arabia itself does not feel that taking the lead in expanding production is a sign of weakness. Cen Guowei pointed out that Saudi Arabia clearly wants to play a leading role in requiring other countries to better fulfill their commitments to reduce production agreements.

"Next month's OPEC meeting may be very challenging and will require some negotiation capital. Oil producing countries have been planning to cut production by about 2 million barrels per day from July. However, if the performance is not performing well or the demand for crude oil is further weak, it may be necessary to further extend the current level of production cuts. " Cen Guowei said.

Cen Guowei pointed out that the uncertainty of the future is very high, no matter next month, next year, or even longer. "But when it comes to the oil market, we can be sure that the trend of oil prices will depend on oil demand, especially on its rise from the second quarter low. Of course, the premise is to assume that the second quarter of the new crown pneumonia epidemic caused the lowest demand.

In the basic outlook of IHS Markit, Brent spot price averaged $21 a barrel in the second quarter of 2020. The gradual recovery of demand and the decline in oil production will determine the future price recovery.

Saudi Arabia has won some praise for its initiative in reducing production. Oman, Minister of oil and natural gas, Mohamed Ramsey, said the new production reduction measures "will surely help stabilize the market".

As for whether further reductions are needed, OPEC sources pointed out that it is too early to decide. He said: "I think all options are open, depending on the market trend in the next meeting."

However, in some OPEC countries, high cost production may drive further reductions. Ramsey said: "Oman is constantly assessing the areas that can be optimized and reducing the production costs of high oil fields, such as thermal recovery oil fields." He added: "this is due to budgetary constraints. I am not sure about the final figures, but this work will bring additional cuts, especially in the coming months. "

Saudi Arabia's first quarter profit fell 25%

On the 12 day, Saudi Arabian oil company Saudi Arabian Amy announced that its net income fell by 25% in the first quarter, thanks to the sharp fall in oil prices and the shrinking demand for energy. In the first three months of this year, Saudi Amy's net income is One hundred and sixty-six point six Billion, compared with the same period in 2019. Two hundred and twenty-two point one This is mainly reflected by the decline in crude oil prices, the decline in refining and chemical profit margins, and the impact of inventory revaluation losses.

Amin Nasser, chief executive of Saudi Amy said: "looking forward to the rest of 2020, we anticipate that the impact of the new crown pandemic on global energy demand and oil prices will affect our earnings. In the meantime, we will continue to strengthen our business by reducing capital expenditure and promoting excellent operations. "

Capital expenditure in the first quarter was $7 billion 400 million, compared with $7 billion 200 million in the same period in 2019. In view of market conditions and recent fluctuations in commodity prices, the company continues to expect capital expenditure in 2020 to be between $25 billion and $30 billion. Capital expenditures in 2021 and beyond are still under review.

"The new crown pneumonia epidemic crisis is an unprecedented challenge, and we are adapting to a highly complex and rapidly changing business environment." Nasser said, "Amy has shown resilience in the economic cycle and is unique in terms of its strong balance sheet and low cost structure."

The report showed that the cash flow from Saudi Arabia Amy's first quarter was $22 billion 400 million, compared with $24 billion 500 million in 2019, while free cash flow was $15 billion, compared with $17 billion 400 million a year ago.

Despite declining revenues, Amy will still distribute. One hundred and eighty-seven point five $1 billion in the first quarter dividend. The company has promised to issue $75 billion dividends to investors every year in five years, which is part of its commitment to investors before listing. Although capital spending was cut, the company did not seem to give up this commitment.

Dividend payments are crucial to the Saudi government. The Saudi government owns about 98% of the company's shares and is facing the most serious financial turmoil in decades.

Before Saudi Arabia's first quarter earnings report was announced, global energy demand is facing unprecedented impact as the global economy is hit by the new crown virus pandemic and the subsequent economic blockade. This year, Brent's oil price has fallen by more than 50%, and the current transaction price is about $30 a barrel, less than half the price the Saudi government needs to balance the budget.

"In the long run, we still believe that as the global economy recovers, energy demand will rebound." Nasser said.

Beijing time 12 15:51, Saudi Aramis shares rose 0.49% Until Thirty-one Point Zero Five Rial has fallen by 12% this year. The company's market value dropped from around 2 trillion to a peak. One point six Trillions of dollars.

Saudi Amy said on Tuesday it is promoting the plan to acquire a 70% stake in SABIC, a petrochemical maker, from the Saudi public investment fund (PIF), which is expected to be completed in the second quarter. It said in a statement, "all necessary regulatory approvals have been obtained. A notice will be issued in due course. "

Earlier, there was news that Saudi Amy was demanding a re assessment of the transaction price for the acquisition of Saudi basic industries because of the pressure on its finances due to a sharp drop in oil prices. Saudi Amy agreed last year to buy 70% of Saudi Arabia's basic industrial company at a price of $69 billion 100 million, but according to its current market value, Saudi Aramco's share purchase plan is worth about $40 billion.

 

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