Oil-Related Developments - November 2017

1. Oil prices cross $ 60: Oil prices rose strongly on 26th October before breaking two-year-highs on the next day. Brent crossed $ 60/ barrel to reach $ 60.13, though WTI remained subdued at $ 53.90. The price gains came after robust US demand data from the EIA, reports of declining inventories and rising confidence in an extension of production cuts by OPEC. Some analysts feel this might not be a long-term trend: in recent times, when prices have reached $ 60, they have begun to fall due to increased US shale oil production.

However, there is greater certainty that Saudi Arabia and Russia are leaning towards agreeing to extend their production limits through the end of 2018, a move that could be finalized at the upcoming OPEC ministerial meeting in Vienna on November 30. With those two countries on board, it would be likely that the rest would fall in line. Russian energy minister Alexander Novak has warned that Russia would boost output by 100,000 bpd next year if the agreement lapsed.

Saudi Arabia has said it will continue to maintain production cuts: Saudi Aramco plans to pump about 9.77 million barrels a day in November, in what would be its smallest output since January 2015. That’s about one million barrels a day less than the 10.72 million it pumped in November last year.

Discussing the long-term scenario, the Saudi oil minister, Khalid Al Falih has said population growth and rising living standards across most of the developing world would see energy demand continue to soar by about 45 percent by the year 2050. He added that, while new energy will continue to gain ground, the same sources that dominated global energy mix in the past will continue to account for the lion's share of supplies for the foreseeable future. According to him, by 2050, renewables will only account for about 10 percent of primary energy demand, and that petroleum, natural gas and coal would continue to account for about 75 percent of the supply of energy by 2050.

2. ARAMCO IPO: Saudi Aramco has denied a report in the Financial Times that the company will shelve its plans to list part of the company on international indices in favour of private placements. The Financial Times had earlier reported that talks about “a private sale to foreign governments including China and other investors have gathered pace in recent weeks”. Observers have noted that the key goal of the proposed IPO is to obtain $ 100 billion for the Public Investment Fund (PIF); private placement could be easiest way to reach that goal. The FT report also speculated that the IPO could be delayed “to 2019 or later.”

On 17 October, Reuters reported that Chinese state-owned oil companies, PetroChina and Sinopec, have written to Saudi Aramco to express an interest in a direct deal to purchase up to 5% of Saudi Aramco, in a move that would shelve the Company’s plans to list on international markets in favour of a direct sale. If ARAMCO is valued at about $2 trillion, as projected by Saudi Arabia, that would raise $100 billion from Chinese investors directly.


In an attempt to stem speculation on the subject, Saudi oil minister Khalid Al-Falih said on 17 October, that Saudi Arabia is still aiming to complete both international and domestic portions of the initial public offering of its state oil company in 2018. He however refused to comment on the offer from the Chinese companies.

 

November 1, 2017

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About the Author

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.