Oil price tumbles nearly 4% as OPEC Plus meeting delayed

Crude oil prices fell nearly 4% on Wednesday as OPEC Plus producers delayed a meeting on output planned for Sunday, raising questions about the future course of crude production cuts. Brent crude futures declined 3.7%, to US$79.40 a barrel by 1313 GMT and WTI crude futures were down 3.82%, to US$74.80.

OPEC Plus delayed its ministerial meeting scheduled for November 30, OPEC said in a statement, without giving a reason for the postponement.

Earlier on Wednesday, Bloomberg News reported that the OPEC Plus meeting could be delayed for an unspecified period of time after Saudi Arabia expressed its dissatisfaction with other members about their output numbers.

Analysts had predicted before the delay that OPEC Plus was likely to extend or even deepen oil supply cuts into next year.

Both Brent and WTI oil benchmarks have fallen for four straight weeks.

 

Oil prices drop 5% on economic concerns

Crude oil prices dropped around 5% on Thursday to their lowest in four months, as investors worried about global oil demand following weak data from the United States and Asia.

Brent futures slipped to US$77.42 a barrel and US West Texas Intermediate crude (WTI) to US$72.90. Both Brent and WTI earlier traded at their lowest since July 07 this year.

Both WTI and Brent's front-month contracts also traded below later-dated contracts, a structure known as contango.

"The mood is negative, the charts are negative," said Phil Flynn, an analyst at Price Futures Group. "It's going to take something to change that mood, and until then people will ride it down until they realize it's overdone."

The number of Americans filing new claims for unemployment benefits increased to a three-month high last week, suggesting that labor market conditions continued to ease.

The report came after other data that showed US retail sales fell for the first time in seven months in October as motor vehicle purchases and spending on hobbies dropped. This pointed to slowing demand at the start of the fourth quarter that further strengthened expectations the Federal Reserve is done hiking interest rates.

OPEC and the International Energy Agency (IEA) have both predicted supply tightness in the fourth quarter, but US data on Wednesday showed inventories were abundant.

Meanwhile, an expected slowdown in Chinese oil refinery throughput also gave investors pause. Runs eased in October from the previous month's highs as industrial fuel demand weakened and refining margins narrowed.

Still, Chinese economic activity rallied in October as industrial output increased at a faster pace and retail sales growth beat expectations

"The current price drop is taking place amid a seemingly auspicious backdrop, which suggests that investors simply do not buy into the 'Q4 stock draw' narrative; something that is not backed up by the recent weekly EIA reports either," said Tamas Varga of oil broker PVM.

As the Israel-Hamas conflict appeared to be escalating in Gaza, US officials on Wednesday said they would enforce oil sanctions against Iran, which has long been a backer of Hamas.

 

PetroChina posts record profit

State-owned energy giant PetroChina, reported a record-high net profit for the first half of the year 2023, driven by increased oil and gas output and resurgent refined fuel sales.

Net profit attributable to shareholders was 85.3 billion yuan or US$11.70 billion, up 4.5% for the same period last year, according to a filing with the Hong Kong Stock Exchange on Wednesday.

Total revenue was down 8.3% to 1.48 trillion yuan, due to a sustained fall in global oil prices after an initial spike in the immediate aftermath of Russia's invasion of Ukraine in February 2022.

The company reported realized crude oil prices of US$74.15 per barrel, having slid 21.7% on the average for the same period last year.

However, PetroChina's total crude oil and natural gas equivalent output was 893.8 million barrels, representing a 5.8% increase on last year, supporting a 3.7% increase in operating profit for the group's upstream segment.

Domestic crude output rose 1.2%, whilst the development of key projects in Central Asia and the Middle East saw overseas crude production leap 27.8% over the period.

Total domestic refinery throughput for the first half was 673 million barrels, a 12.6% increase as compared to last year when extensive COVID-19 lockdowns hammered demand for refined fuel products in the country.

The group previously announced to raise crude throughput to 1.29 billion barrels this year, up 6.6% from 2022.

Operating profit from the group's sales segment jumped 28.4% as compared to last year. Total sales volume of gasoline, kerosene and diesel increased 12.9% to 80.7 million metric tons, with domestic sales accounting for around 74% of this.

While domestic demand for transport fuels such as kerosene and gasoline has rebounded with the removal of travel restrictions, the group saw weaker earnings from petrochemical products such as polypropylene, amid a glut of domestic supply.

Capex for the first half was 85.1 billion yuan, down 7.8% as compared to last year. PetroChina had previously set a capex target of 243.5 billion yuan for 2023, which would represent an 11% drop as compared to last year.

Looking forward to the second half of the year, the group stated it will further deepen cooperation in overseas oil and gas markets, actively acquire large-scale and high-quality projects and continuously optimize asset structure.

 

 

Fuel prices likely to fall globally

Global prices of diesel and motor gasoline have corrected significantly by 46% and 50% since the start of the calendar year 2023, due to rising concerns of global recession majorly emanating from Western/European front, to presently stand at US$86/US$90 per barrel, for gasoil and gasoline respectively.

Refiner’s main input, crude oil selloffs (Arab Light/ WTI/ Brent down 9.5%/9.8%/10.7% since start January 2023) have also remained rampant throughout CYTD as an overall direct repercussion of US-Fed’s hawkish stance (debt ceiling conundrum, banking crisis) resulting in significant stockpile build up over the previous week, softer demand in China amid COVID concerns, availability of low cost Russian crude towards China and India and finally easing prices of RLNG globally (US$9.3/mmbtu, down 60%YoY), resulting in power generation demand for diesel to fall drastically.

Moving forward, analysts expect gasoline cracks to gain strength and remain elevated with the onset of summer driving season beginning 1st June in the western front, where-in last time both gasoline/gasoil spreads peaked during July last year.

Overall, heightened geopolitical tensions will continue to provide major support to prices and in case OPEC Plus stands firm on it supply cut decisions, the prices may possibly increase further.

Naturally, domestic refinery margins have fallen sharply from their multi year highs from US$26/ US$45/bbl for MS/ HSD back in June2022, to presently stand at US$-0.2/2.6/bbl (down 100%/94%).

This has subsequently pushed domestic ex-refinery prices down by 10%/ 27% from peaks of PKR224/ PKR276 per liter in last summer, for MS/ HSD, even with the currency depreciating by 42% during this time.

Using the aforementioned space, IFEM margin was pushed into the positive territory as well which had been mostly negative for several months now.

Local refiners are also expected to reap benefits of the aforementioned fuel inflation expected during the summer season, which pushed the domestic cracking spreads as high as US$25/ US$45 barrel last year, for MS/ HSD respectively. Assuming Arabian Gulf gasoline/ gasoil prices increase by +10% from current levels, this is expected to raise domestic MS/ HSD prices by PKR18/ PKR21 per liter, respectively.

Outlook: Moving forward, sector profitability may remain firm in the near term as refined product margins are expected to remain strong during 2Q/3QFY23 alongside healthy inventory gains amidst increasing ex-refinery prices, but may eventually cool off post summers and the commencement of Middle Eastern capacities (one million bpd capacity inclusion beginning October 2323).

Although, worsening furnace oil yields in the wake of falling FO demand may be a risk to look out for as FO crack spreads presently stand at negative US$28/bbl.

 

Gold prices inching towards record highs

Gold prices are expected to rise towards record highs, above US$2,000 an ounce in year 2023, albeit with a little turbulence, as the United States slows the pace of rate hikes and eventually stops increasing them, according to industry analysts, reports Reuters.

Spot prices of the precious metal have shot above US$1,900 an ounce, surging by about 18% since early November 2022 as inflationary pressures recede and markets anticipate less aggressive monetary policy from the US Federal Reserve.

Fast-rising interest rates hammered gold prices last year, plunging as low as US$1,613.60 in September 2022 from a high of US$2,069.89 in March 2022 - just shy of a record peak in 2020.

Higher rates lifted returns on bonds, making non-yielding gold less desirable for financial investors, and pushed the greenback to its strongest in 20 years, making US$-priced gold costlier for many buyers.

The weakening greenback and bond yields will become macro tailwinds for the yellow metal, pushing gold above US$2,000/oz in the coming months, said analysts at Bank of America.

With less pressure from the US$ and bonds, investors are likely to buy bullion as a hedge against inflation and economic turbulence, said WisdomTree analyst Nitesh Shah, adding that prices could easily move above US$2,100 an ounce by year-end.

Gold is traditionally seen as a safe place to store wealth. "The risk of central banks overdoing it and pushing their economies into recession is high," said Shah.

Speculators who in November 2022 were betting gold prices would fall have amassed a net long position in COMEX futures of 8.3 million ounces of gold, worth US$16 billion, helping push up prices.

Analysts expect central banks to continue stockpiling gold after buying more metal in the first nine months of 2022 than in any year in half a century, according to the World Gold Council.

Retail demand for gold bars and coins should also remain strong, boosted by a revival of economic growth in China, the biggest consumer market, said analysts at ANZ.

But gold may have gone too far too fast in the short term and needs to correct lower, analysts said.

"Should prices fall from current levels to the US$1,870 to US$1,900 an ounce range, we expect the (upward) trend to reverse," the bank said, adding that if gold falls below US$1,800, it could slip to US$1,730.

 

PSO earning to plunge due to inventory losses

Pakistan’s largest oil marketing company, operating in the public sector, Pakistan State Oil (PSO) is expected to announce its 2QFY23 financial result. The Company is expected to post profit after tax of PKR2.4 billion (EPS: PKR5.1). The said increase can be attributed to increase in HSD offtakes (up 53%QoQ), owed to the sowing demand in the rabi season during October and November 2022.

Recovery in offtakes was imminent as compared to the severely dampened fuel demand (floods/price hikes) during 1QFY23, resulting in total offtakes rising by 26%QoQ during 2QFY23.

The company’s revenue is expected to rise to PKR880.6 billion, changing by 2.1%QoQ/69%YoY, mainly on the back of the rise in fuel prices as compared to the last year (2QFY22: PKR140/124 per liter for MS/HSD).

The company is anticipated to record inventory losses of PKR12.2 billion (PKR26/share) for 2QFY23, as ex-refinery prices for MS/HSD fell by 18%/11% during the period as compared to the previous quarter.

Subsequently resulting in gross margins for the quarter to end at 0.7% as compared to 0.2% 1QFY23.

The effective tax is expected to rise to 56% for the period (vs 1QFY23: 70% ET), as minimum turnover tax (0.5% on gross POL sales) hampers the already beat-down bottom-line.

At a normalized tax rate of 33%, the earnings per share would have clocked in at PKR7.76/share.

Finally, analysts expect the topline from LNG segment to clock in at PKR232 billion, majorly on the back of rising LNG prices globally (energy crunch in Europe/ Asia) coupled with increased volumes (new LNG deal with Qatar @ 10.2% slope, signed last year).

To note, PSO’s average DES price for the quarter stood at US$11.39/mmbtu as against US$13.43/mmbtu in the previous quarter.

The liking for PSO is due to: 1) gas & power tariff adjustments may prove to be cash-positive, 2) modernization plans in refinery subsidiary (PRL) to enhance productivity, and 3) phasing out of RFO coupled with increasing share of retail fuels, resulting in stable margins to drive unhampered future cash flow.

For this reason, our December 2023 price of PKR215/share provides a total return of 53%, with forward dividend yields of 7% for FY23 and /10%for FY24.

What is more important for Biden? Saudi oil or Khashoggi

The Washington Post’s publisher blasted President Biden for greeting Saudi Crown Prince Mohammed bin Salman with a fist bump Friday, saying it not only “projected intimacy and comfort” but also gave the Middle East leader “redemption.”

Fred Ryan, the publisher and CEO of The Washington Post, called the exchange between the two leaders at the royal palace in Jeddah, Saudi Arabia, “shameful.”

“The first bump between President Biden and Mohammed bin Salman was worse than a handshake — it was shameful. It projected a level of intimacy and comfort that delivers to MBS the unwarranted redemption he was been desperately seeking,” Ryan said in a statement, using a common media abbreviation for the crown prince’s name.

Biden’s visit to Saudi Arabia has been heavily criticized, including his meeting with Crown Prince Mohammed, who the US intelligence community said approved the 2018 murder of US-based journalist and Washington Post contributor Jamal Khashoggi.  

The Post also reported that Saudi officials had initially excluded two reporters from the newspaper from a planned media briefing that the government was holding on Friday.

They were later allowed to attend the roundtable after bringing up the issue with the White House officials, the Post added.

This is Biden’s first visit to Saudi Arabia after he was elected in 2020 and comes after he promised during his presidential campaign to make the Middle East country a “pariah” state over Khashoggi’s murder in the Saudi Consulate in Istanbul.

Biden highlighted progress in moving relations between Saudi Arabia and Israel toward normalization and said the US and Saudi Arabia agreed to partner on a far-reaching green energy initiative.

Biden also expressed optimism that Saudi Arabia would take steps to boost the global oil supply in the coming weeks, which had been viewed as a major goal of the trip given high domestic gas prices and the disruption of the global energy market caused by Russia’s war in Ukraine.

The trip to the Middle East, Biden said, was about reasserting US leadership in the region at a time when China and Russia are trying to expand their influence and challenge global order.

 

Biden said Friday he raised Khashoggi’s murder during his meeting with the crown prince after the White House wouldn’t comment on whether the president would raise the journalist’s death in the meeting. 

“I raised it at the top of the meeting, making it clear what I thought of it at the time and what I think of it now,” Biden said in a speech.

 “We are not going to leave a vacuum in the Middle East for Russia or China to fill, and we’re getting results,” Biden said.  

Pakistan Petroleum FY16 profit declines by 55 percent

Pakistan Petroleum Limited (PPL) has posted below expectation profit for financial year 2015-16 (FY16) but has not disappointed the shareholders. The Board of Directors has approved payment of final dividend of Rs3.50/share in addition to an interim dividend of Rs2.25/share. This takes the full year dividend to Rs5.75/share.

PPL’s FY16 earnings declined by 55%YoY to Rs17.24 billion (EPS: Rs8.74/share) for FY16 as compared to Rs38.40 billion (EPS: Rs19.47) for FY15. This decline can be attributed to: 1) topline declined by 24%YoY to Rs80.15 billion for FY16 from Rs104.84 billion due to 44%YoY plunge in average oil price to US$41/bbl in FY16 as against US$73/bbl in FY15,  (2) field expenditures grew to Rs44.95 billion in FY16, up by 6%YoY due to aggressive exploration activity, and (3) Other Income declined to Rs5.42 billion in FY16 YoY from to Rs7.61 billion in FY15, a decline of 29%YoY.

The company did not book further impairment loss associated with MND Exploration & Production Limited in FY16 which was expected to amount up to Rs4.00 billion. Nonetheless, lower than expected earnings have been attributable to higher than anticipated field expenditures and effective tax rate of 35%.