Can Saudi Arabia survive the US oil assault?

Many had wondered why Saudi Arabia was supporting United States in keeping oil prices high. Now it has become evident that the US wanted to keep crude oil prices high as it was working on shale oil extraction. In this exercise first Iraq was encouraged to attack on Iran and war continued for almost a decade. Then sanctions were imposed on Iran to curb its oil export.

Turmoil was created in Iraq in the name of regime change to disrupt its oil export. Libya was also a victim of oil vultures. And the latest drama is being staged with the connivance of ISIS. Many of the countries are facing US bombardment in the name of demolishing ISIS hideouts. Have the Muslims ever bothered to find out the rise of ISIS, its funding and colossal military might. The reply is simple ISIS has not emerged overnight but part of the Zionist agenda to destroy Muslim countries, particularly those producing oil and Saudi Arabia is the prime target

Ironically Saudi Arabia still suffers from a dilemma that United States is its best friend. Saudis have been completely brain washed as they say ‘Iran is a bigger enemy as compared to Israel’.  This perception has also enabled the US to sell billions of dollars arms to Saudi Arabia. Oil prices were kept high to facilitate Saudi Arabia to earn more of petrodollars that were taken back as price of arms. Saudis were annoyed when the US refused to attack Syria, mainly due to the opposition of Russia. The breach between Saudi Arabia and the US further widened after the super powers arrived at an agreement to ease sanctions on Iran.

While Arabs remained engrossed in their petty matters, the work on shale oil continued at full swing and the result is that today United States has emerged as world’s largest oil producers. This means that not only the biggest oil market will be lost but United States will also emerge as the biggest competitor of Saudi Arabia in the global oil market. The signs of oil glut have already started appearing,  oil prices have plunged substantially and the fall is likely to continue because the US does not seem in a mood to curtail shale oil production.

The US cronies have already started putting pressure on OPEC to curtail production to resist further fall in oil prices. As opposed to this Saudi Arabia, the biggest oil supplier among OPEC members seems adamant to retain its share in the global market by selling oil to Asian buyers at a discount. This is killing two birds with one stone, retain its petro dollar income and snatch share of Iranian market, Iran supplies oil to Asian buyers that include China, India, Korea and Japan.

In the prevailing scenario it seems that Saudi Arabia has no solution, except drift with the tide. If it considers that it has got the muscles and can also afford to flow against the tides, it has to let oil prices slip to a level where production of shale oil becomes uneconomical.

It is true that in the short-term Saudi Arabia may emerge as the biggest looser and other OPEC members may not subscribe to the strategy. However, it is the question of collective survival of OPEC members who control 40 percent of global oil production.

Muslim countries, particularly Arab monarchs have to come out of ‘Iran phobia’ and identity their real enemies. They have wasted trillions of dollars in fighting US proxy war and the time has come to protect the interest of Muslim collectively irrespective of which language they speak or sect they belong to. The enemies have prevailed over by deepening the sectarian divide and spreading animosity in the name of Islam. The enemies are trying to portray killing as prime mission of Islam, which is totally incorrect. Islam is religion of love and peace for all irrespective of faith, cast and creed.  

PSO the biggest beneficiary of margin hike

The Government of Pakistan has increased margins of oil marketing companies for motor gasoline and high speed diesel. Pakistan State Oil Company (PSO) is expected to be the prime beneficiary considering its market leader position both in motor gasoline (27% share) and high speed diesel (53% share) of the segments. PSO earnings will be bolstered by Rs6.18/share on an annualized basis. In the near term, This will help the Company in diluting the negativity on account of inventory losses expected to be brought on by declining domestic petroleum product prices. For details visit shkazmipk.com

PSO profit nose dive

Pakistan State Oil Company (PSO) has released its July-September (1QFY15) results on Tuesday posting profit after tax of Rs5.2 billion (EPS: Rs19.30) as compared to net profit of Rs7.8 billion (EPS: Rs28.70) for 1QFY14, a decrease of 33%YoY. The Company’s 1QFY15 result came as a surprise. Despite declining sales, the company improved its gross margins to 4.0% in 1QFY15 as compared to 3.87% for the same period last year. Key highlights of the result included: 1) revenue and cost of sales both going down by 5%YoY , 2) marginal decline of 2%YoY in gross profits which highlights lower than initially estimated inventory losses, 3) a massive decline 67%YoY in ‘other income’ owing to very little to no penal income received from the IPPs,  4) operating expenses going down by 40%YoY highlighting lower than expected exchange loss incurred by the company during 1QFY15 and 5) reduced financial charges by 15%YoY to Rs2.7 billion in 1QFY15 as compared to Rs3.2 billion during the same period last year.

KAPCO first quarter earnings up 40 percent

Kot Addu Power Company (KAPCO) has released its first quarter (1QFY15) financial results posting profit after tax of Rs2,409 million (EPS: Rs2.74) as compared to Rs1,725 million (EPS: Rs1.96) posted for the corresponding period last year,  up 40%YoY. The plant operated at a 77% load factor during July and August as against an average load factor of 54% achieved during 1QFY14. As a result KAPCO’s gross profit was augmented by 51%YoY. Other income supplemented earnings to keep the bottom-line afloat, with a stark 151%YoY increase to Rs1,630 million. The key result highlight included: 1) Increase in load factor led to overall increase in gross margins, 2) due to buildup of circular debt the company during 1QFY15 relied heavily on borrowed funds to run its operations, which is evident from increase in financial cost to Rs1,874 million during the quarter under review as compared to Rs806 million during the corresponding quarter last year and 3) earnings showcased a stellar growth despite the Company paying tax at 32% in 1QFY15 in comparison to 26% in 1QFY14.

Ijara Sukuk: Pakistan’s central bank performs first ever OMO

Lately, State Bank of Pakistan (SBP) has announced to conduct open market operation (OMO) of Ijara Sukuk and the first ever outright purchase (Bai Muajjal) of Government of Pakistan Ijara Sukuk-9 (GIS) was performed on October 23 2014.

In the first ever outright purchase of Sukuk the central bank accepted bids amounting to Rs6.175 billion. Islamic banking institutions (IBI) aggressively participated in the OMO. Overall, the central bank received 16 offers amounting to Rs45.575 billion, which included three offers for 6-month and some 13 for 12-month period.

Offers for 6-month amounted to Rs3 billion with price ranging from Rs108.3753 to Rs108.3856, while for 12-month Rs42.575 billion worth bids were submitted with price ranging from Rs113.3689 to Rs113.8220.

As per transaction modalities for OMOs for GoP Ijara Sukuk announced by the SBP, all Islamic banks and conventional banks having Islamic branches were eligible to participate in the OMO.

Out of the received bids, the SBP accepted offers amounting to Rs6.175 billion. This includes all 6-month bids at a deferred price of Rs108.3856 and some four bids for 12-month period amounting to Rs3.175 billion at a deferred price of Rs113.5572.

A week earlier, the central bank announced that it will initiate outright trade of GIS through OMOs to facilitate Islamic Banking Industry (IBI) for liquidity management as for the last few years, the banks are facing a severe challenge of liquidity management with an excess liquidity and limited investment opportunities.

Industry sources said the issuance of new GIS is on a slow track and previous Sukuks are being matured gradually. Presently, the Islamic Banking Industry has some Rs80 billion to Rs90 billion surplus liquidity in the system and in order to facilitate IBI in its liquidity management and more effective transmission of monetary policy, the SBP decided outright purchase or sale of GIS through OMOs based on multiple price competitive bidding auction process.

The offered three-year GIS-9 was launched in 2011 and is expiring on 26^th December 2014. The purchase of GIS on deferred payment by SBP has provided an opportunity to the IBI to invest Rs6 billion till expiry.

Although, the IBI aggressively participated in the first OMO, these were disappointed over the accepted bids. They say as the market has surplus liquidity, the accepted amount should have been higher.

Bankers said the sold off GIS will be transferred to the SGLA of the buyer on the deal date, while payment will be made on deferred payment date and banks cannot include the GIS in their SLR calculations from the deal date.

Pakistan Petroleum quarterly profit up by 10 percent

Pakistan Petroleum Limited (PPL) has announced its 1QFY15 financial results posting profit after tax of Rs13.69 billion (EPS: Rs6.94) as compared to net profit of Rs12.48 billion (EPS: Rs6.33) for 1QFY14, registering a growth of 10%YoY. Major factor responsible for 1QFY15 earnings growth remained 11%YoY increase in revenue.

This growth in revenue was underpinned by expected 35%YoY increase in production coming in from Tal block, which is likely to have boosted company’s crude oil production up by 22% to 14,200 barrels per day (bpd) as compared to 11,600 bpd for 1QFY14.

Key result highlights include: 1) lower effective tax rate at 30.4% in 1QFY15 as compared to 33.7% during the same period FY14 and 2) operating margins shrinking to 59.9% for 1QFY15 due to 29%YoY increase in field expenditures.