Saudi-Russia Oil Deal Under Threat as Mexico Walks Out of OPEC+ Talks
(April 9, 2020, 11:14 PM GMT+8 Updated on April 10, 2020, 7:43 AM GMT+8)
An agreement between Saudi Arabia and Russia for record oil-production cuts was endangered late on Thursday as Mexico refused to participate in the curbs and left the meeting without approving the deal.
Ministers will continue to discuss ways to secure the Latin American country’s approval on Friday, delegates said. The situation, which came after more than 9 hours of talks via video link, cast doubt over a global effort to revive the oil market from a debilitating coronavirus-induced slump.
Earlier on Thursday, OPEC+ had tentatively agreed to cut production by about 10 million barrels a day in May and June, delegates said. Saudi Arabia and Russia, the biggest producers in the group, would each take output down to about 8.5 million a day, with all members agreeing to cut supply by 23%, one delegate said.
Attention should have turned on Friday to the Group of 20 energy ministers meeting. A contribution from major producers including the U.S. and Canada -- possibly as much as 5 million barrels a day of further supply reductions -- could boost efforts to revive prices after the initial OPEC+ agreement failed to push crude higher on Thursday.
The dogged refusal of Mexico’s Energy Secretary Rocio Nahle Garcia to accept the production level proposed for her country as part of the deal upended that schedule.
Political Pressure
The unexpected setback doesn’t change the urgent need for the Organization of Petroleum Exporting Countries and its allies to reduce production. Oil’s spectacular price crash this year has threatened the stability of oil-dependent nations, forced major companies such as Exxon Mobil Corp. to rein in spending and risked the very existence of small independents.
The cartel has been put under intense pressure by President Donald Trump -- who spoke with the leaders of Russia and Saudi Arabia by phone on Thursday -- and American lawmakers, who fear thousands of job losses in the U.S. shale patch.
“Both Saudi and Russia were going to have to cut anyway, and these cuts allow them to win political points too,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
While the headline cut equates to a reduction of about 10% of global supply, it makes up just a fraction of the demand loss, which some traders estimate at as much as 35 million barrels a day.
Brent dropped 4.1% to $31.48 a barrel in London. Prices have tumbled by half this year as the spread of the coronavirus coincided with a bitter price war that saw producers flood the market.
“Covid-19 is an unseen beast that seems to be impacting everything in its path,” Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said in a speech at the online gathering. “The supply and demand fundamentals are horrifying” and the expected oversupply, particularly in the second quarter, is “beyond anything we have seen before.”
Barkindo urged action to tackle the growing surplus, which he estimated at 14.7 million barrels a day in the second quarter. And he wants action not only from OPEC+ producers but from nations beyond the alliance.
Russia has insisted that the U.S. in particular do more than just let market forces reduce its record production. Trump, meanwhile, has said America’s cut will happen “automatically” as low prices put shale in dire straits, a sentiment reiterated by his energy secretary on Thursday.
America welcomed the OPEC+ cuts, saying it would send a signal that all major oil-producing countries will respond in an orderly manner to market realities caused by the virus, a senior administration official said.
Tapering Off
OPEC+’s tentative plan would see the output curbs tapering off after two months, depending on the evolution of the coronavirus. The 10 million-barrel-a-day cut may shrink to 8 million a day from July and then 6 million a day from January 2021, according to one delegate.
Saudi Arabia will apply its reduction to a production level of about 11 million barrels a day, a delegate said. That’s lower than recent output levels, which rose above 12 million a day in early April. Russia would curb its supply by a similar level.
The consolidated account of Muhibbah, consolidated with its 59.2%subsidiary, Favco, has a cash of rm606 million and total borrowings of rm515 million. If taking away the account of Favco which has a net cash of approx rm200 million, Muhibah construction will has a net debt of approx RM100 million. However, its associate, SCA (Cambodia Airport) is cash rich.
There are challenges on economic downturn. The construction business, mainly in marine engineering and upstream oil and gas, its outstanding order book will only last one year. It has 580 staffs mainly engineers.
The provisions for a total of rm120m are for cost overrun for the Dubai Project and the Bintulu port project which was cancelled by the PH govt. How sure these could be written back?
"In the meeting, indications are that Muhibbah's French partner Vinci SA are being invited to participate in the building of the new airports in Cambodia."
Can you please quote your source?
I read from news report that they have signed an MOU for further discussion. Nothing is disclosed and firmed.
Muhibah is under valued at current price. What puzzled me is why this FIL Ltd kept coming in to sell? One of its FM JP Morgan also sold on the 6th and 7th @80+,90+cent.
Has FIL Ltd finished selling? They still hold some 7.179 % or more than 34 million shares..
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
pinetree88
332 posts
Posted by pinetree88 > 2020-04-07 15:23 | Report Abuse
Muhibbah didn't rebound much yet compared to other peers. Think looks lots of room to bounce.