Saudi Arabia

Qatar is a major supplier of liquefied natural gas. donvictori0/Adobe Stock

Editor’s Note: This is the second part of Stuart Burns’ analysis of last week’s decision by several Arab nations to break ties with Qatar. On Friday, Burns covered the political backdrop. 

Qatar may well be asking: why now?

The country has been engaged in such activity (as detailed Friday) for a decade or more, but the young Saudi Deputy Crown Prince Mohammed bin Salman and Abu Dhabi’s Crown prince, Sheikh Mohammed bin Zayed, seem to have found common ground to take Middle East politics into their own hands and mold the region the way they would like to see it.

It would seem they are not above fabricating their own fake news to achieve it, either. For example, Qatar’s Emir Tamim is reported to have said that Hamas is “the legitimate representative of the Palestinian people,” and called Iran “a big power in the stabilization of the region.”

But attendees at the speech reported he said no such thing. Shortly afterward, it was discovered the Qatar News Agency (QNA) website had been hacked into and the stories inserted.

The timing of the diplomatic freeze is also relevant.

Just two weeks after President Donald Trump’s visit, you have to think this was discussed and approval was sought for U.S. backing, at least politically, for such a dramatic move. It should not be forgotten that the U.S. has a major intelligence-gathering military base in Qatar, the Al Udeid Air Base on Qatari soil is a pivotal staging ground for U.S. counterterror operations, the Washington Post states.

In a more recent development, Secretary of State Rex Tillerson on Friday made a call for de-escalation, asking the Saudi-led coalition to ease its blockade of Qatar on the grounds that it is creating food shortages and making the fight against ISIS more difficult, according to Bloomberg.

The alliance is trying to pull Qatar into line with the position taken by the other members of the Gulf Cooperation Council — aligning against Iran and backing away from supporting terrorist sympathizers. In that they are to be applauded, but the risk is the situation gets out of control. One must assume closed-door discussion has not worked and the GCC coalition is taking this more extreme step to shock Qatar into compliance. The danger is it could also drive Qatar further into the arms of the Iranians, further polarizing the region’s political blocs.

Not surprisingly, the move caused a jump in the oil price and jitters in the liquefied natural gas (LNG) market, in which Qatar plays an outsize role as a major supplier to Europe and Asia. Oil prices immediately jumped but then fell back, as it became clear Qatar’s 30,000 barrels a day were unlikely to have any impact of global supply.

Of more concern, however, was LNG.

Qatar supplies a third of the U.K.’s consumption and is the world’s largest exporter of LNG.

Qatari production of aluminum — at 610,000 tons per annum, in a 50:50 joint venture with Norsk Hydro — represents less than 1% of the global market Prices have been unaffected by the news of the GCC blockade.

In the short term, exports may be disrupted because cargoes were transhipped in neighbouring UAE onto larger vessels. However, Qatalum (the joint venture between Qatar Petroleum and Norsk Hydro) says it can ship directly from its own ports, if necessary.

Kagenmi/Adobe Stock

It was a busy week in the world. On Thursday alone there were elections in the U.K. (which resulted in a hung parliament) and former FBI Director James Comey testified before the Senate Intelligence Committee.

Before we head into the weekend, let’s look back at the top storylines in metals news on MetalMiner this week:

Climate of Corruption Tempers Comeback Optimism in Brazil

Speaking of politics, our Stuart Burns wrote about Brazil and its efforts to push its way out of the doldrums of a recession, while also struggling with the specter of corruption.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

One year after former President Dilma Rousseff was impeached, her successor, Michel Temer, is facing questions about corruption. The BBC reported Thursday Brazilian judges have chosen to delay voting on a case that could in fact send Temer packing (an outcome which would continue a period of presidential instability in Brazil).

Read more

profit_image/Adobe Stock

Editor’s Note: This is the first of two posts on the effects of the decision by several Gulf Cooperation Council (GCC) nations to sever diplomatic ties with Qatar. First, Stuart Burns expands on the political backdrop of the decision. On Monday, he’ll focus on the timing of the decision and its economic impacts. 

We tend to view Middle East politics as a simple rivalry between Sunni and Shiite sects — or, more recently, as a regional power play between predominantly Sunni Saudi Arabia and predominantly Shiite Iran.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Although these regional differences are often portrayed in religious terms, they have as much to do with national politics as they do with religion.

Our simplistic view is probably not helped by the tendency for the powers that be to historically resolve their differences or arrive at solutions behind closed doors, with little or no public debate.

The complexity of Middle East politics is often lost on us in the West. Our understanding is maybe not helped by our politicians, who paint various parties as either with us or against us.

But action led by Saudi Arabia and the United Arab Emirates this week illustrates the complex nature of regional politics and brings into focus how rapidly alignments and priorities are changing.

Read more

AdobeStock/Stephen Coburn

It isn’t an idle question. Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum.

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A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide – but particularly for those in the transportation or more energy intensive sectors.

But despite rising last year following the agreement on the parts of OPEC and major non-OPEC oil producers to limit output, the price has since fallen back so consumers are not surprisingly wondering where it goes from here.

Just this month the two architects and key players in last year’s agreement, Saudi Arabia and Russia, announced they would continue with the agreement, set to shortly expire, until March 2018 and indeed will accelerate cuts to reduce near record inventories. It should be said the announcement still must be officially agreed at next week’s meeting of OPEC ministers in Vienna.

While initially slow to contribute, Russia has stepped up cut backs of late and combined non OPEC cuts are said to be some 255,000 b/d in April, but others such as Brazil and Canada are expected to increase output in Q2 and the USA has added substantially since last year. According to Oilprice.com, U.S. oil production has risen to approximately 9.3 million barrels a day and is projected by the EIA to reach 10 million barrels a day by 2018. Read more

Saudi Arabia is pushing for an oil production cut among its fellow OPEC nations as well as other big producers such as Russia. In China, Beijing is pushing local governments to cut steel overcapacity.

Saudis: Let’s Make a Production Cut Deal

The Organization of Petroleum Exporting Countries will probably revive talks on freezing oil output levels when it meets non-OPEC nations next month as top exporter Saudi Arabia appears to want higher prices, according to OPEC sources, although Iran, Iraq and Russia present obstacles to a deal.

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Riyadh sharply raised expectations for a global production deal between on Thursday when Energy Minister Khalid al-Falih said Saudi Arabia will work with OPEC and non-OPEC members to help stabilise oil markets.

China Vows to Accelerate Steel Capacity Cuts

China should quicken capacity cuts in its bloated steel and coal sectors, the country’s top economic planning agency said on Tuesday, putting pressure on local officials to meet annual targets despite some worries the steps could hurt economic growth.

Free Download: The August 2016 MMI Report

China has promised to slash steel capacity by 45 million metric tons and coal capacity by 250 mmt this year, as it tries to rejuvenate two industries suffering from slowing demand and a massive supply glut.

The sale process of Tata Steel U.K. continues and tensions between Iran and Saudi Arabia continue to plague any OPEC production deal.

Cameron Insists Tata Steel UK is Getting Offers

Tata Steel has received a number of serious offers for its businesses in Britain, Prime Minister David Cameron said on Wednesday as steelworkers marched past Downing Street to put pressure on the government to get a deal.

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The U.K. steel industry has been hit by cheap Chinese imports, high energy costs and a global supply glut and in March Tata said it wanted to sell its remaining plants in the country, putting 15,000 jobs at risk.

Iran-Saudi Conflict Still Plagues Any OPEC Deal

The Organization of Petroleum Exporting Countries‘ thorniest dilemma of the past year — at least the one purely about oil — is about to disappear. Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way that was helped by supply disruptions from Canada to Nigeria.

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Yet, Saudi Arabia is still unhappy with Iran and its production threatening its Mideast oil leadership and dominance. OPEC meets next week.

It would seem Iran is not the only major Middle East economy on the cusp of radical change. If the espoused wishes of deputy crown prince Mohammed bin Salman al-Saud (or MbS as the media have got into the habit of calling him) are realized, the desert kingdom is in for a period of change over the next decade that would be unprecedented in it’s recent history.

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Certainly, oil has transformed the kingdom since it was first commercially extracted in 1938 but the culture of Saudi society has been carefully nurtured, protected, even shielded — one might say — from the corrupting influence of the outside world.

Group of big fuel tanks. Ras Tanura oil terminal, Saudi Arabia

A group of fuel tanks in the Ras Tanura oil terminal in Saudi Arabia. If Prince Mohammad has his way, this will someday be a thing of the past in the kingdom. Source: AdobeStock/eugenesergeev.

Yet the days of a close compact between the House of Saud dynastic monarchy and the religious Wahhabi clerical establishment that, in exchange for control over education and the judiciary, has provided the rulers with legitimacy, may be seeing the beginning of its end.

The Prince’s Plan

The new King Salman’s son, Prince Mohammad, believes Saudi Arabia has been addicted to oil, an addiction that has cost it dearly in terms of economic development and progress. Trying to look into the future, he clearly feels Saudi Arabia needs to face up to the march of time before it is too late. Read more

We wrote this week about the agreement by Russia and Saudi Arabia to limit production at January levels in the face of a record global oil glut.

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Needless to say, the oil price promptly dropped 3% as the market saw the statement for the hollow, face-saving attempt that it was. Saudi Arabia and the rest of the Organization of Petroleum Exporting Countries (OPEC) have long said they will only consider production cuts if non-OPEC members — for which, read Russia — and new entrants, read Iraq and Iran, will also limit output.

In this corner, the Organization of Petroleum Exporting Countries, led by Saudi Arabia and its government largesse. Source: Adobe Stock/Alexlmx

In this corner, the Organization of Petroleum Exporting Countries, led by Saudi Arabia and its government largess. Source: Adobe Stock/Alexlmx.

Freezing output at January levels still leaves the world in surplus and will do nothing to change that situation. Russia’s oil production hit a post-Soviet-era high in January of 10.8 billion barrels per day so, although output for the whole of 2016 is not expected to rise beyond 2015 levels, that is still record output.

Fighting Out of South America, Africa, the Middle East: OPEC

Meanwhile, Saudi Arabia produced 10.2 million bpd in January, below the most recent peak of 10.5 million bpd set in June 2015, but as this graph from Bloomberg shows, even freezing at January levels would be meaningless in the face of strong output from Iraq and the prospect of an additional 1 million bpd from Iran over the coming months.

Bloomberg_Oil Production by country

Source: Bloomberg

Fighting Out of the US, Canada, Brazil: Tight/Tar Sands/Deep-Water Oil

OPEC has made no secret of the fact that it is trying to squeeze out of the market what it perceives to be higher-cost producers; such as US tight oil, Brazilian deep water and Canadian tar sands producers, by driving down the price below the new upstarts’ cost of production.

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Today in MetalCrawler, major oil exporters Saudi Arabia and the Russian Federation talked about possible cuts in production to combat low, low prices caused by a worldwide glut. Final figures for 2015 showed that US construction had a great year.

Russia and Saudi Arabia Talk Oil

Senior OPEC and Russian oil industry officials had vague talks, Reuters reported, about possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signaled its resolve to allow the market to balance itself.

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The latest volley of comments highlighted the intensifying pressure of $30 a barrel oil prices on cash-strapped countries such as Russia, but did not appear to tilt the scales meaningfully towards any concerted action to reverse the price crash from the Saudis and their controlling bloc of votes in OPEC. The Saudis are said to have asked for more “cooperation” on any future production cuts.

US Construction Starts Up in 2015

Dodge Data and Analytics reported that, for the full year of 2015, residential construction was up 14% to $265.4 billion, beating 2014’s increase by 4%, and non-building (mostly civil projects such as utility work) rose an impressive 23% to $176 billion, bouncing back from last year’s 8% decline.

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By contrast, non-residential construction fell 8% to $204.2 billion, giving back some of the 2014 increase of 24% but still 14% higher than 2013.

Stock markets tumbled worldwide today as turbulence in China set off selloffs worldwide. In oil news, a diplomatic fight between Saudi Arabia and Iran could have major implications for oil production.

New Year Stock Selloff

China’s economic slowdown sent world stock markets tumbling on Monday, with Europe and the US following Asia sharply lower in a gloomy start to 2016.

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The Shanghai Composite Index dived 6.9% to its lowest level in nearly three months. The drop led the Shanghai and Shenzhen stock markets to halt trading for the remainder of Monday to avert steeper falls, according to the state-run Xinhua News Agency.

The Dow Jones Industrial Average briefly fell more than 450 points in mid-morning trade, down more than 2.5%, on pace for its largest percent decline on the first trading day of the year since 1932. The Dow also fell below the psychologically key 17,000 level in intraday trading.

Saudi-Iranian Row a Threat to OPEC?

The fallout over Saudi Arabia’s execution of a Shiite cleric is spreading beyond a spat between the Saudis and Iranians, as other Middle East nations choose sides and world powers Russia and China weigh in.

Relations between Saudi Arabia and Iran — two Middle Eastern powerhouses who are both founding members of the Organization of Oil Exporting Countries (OPEC) despite the fact that global bans have, until recently, limited Iranian oil exports — have deteriorated following Riyadh’s execution of Shiite cleric Nimr al-Nimr on Saturday.

Protesters in Iran’s capital, Tehran, stormed the Saudi embassy hours after the execution. The Saudis cut off all diplomatic ties with Iran soon thereafter and have since been joined in breaking off ties with Iran by Bahrain, which cited Tehran’s “blatant and dangerous interference.”

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The United Arab Emirates, meanwhile, announced it was “downgrading” its diplomatic relations with Iran. The UAE recalled its ambassador in Tehran and said it would also reduce the number of diplomats stationed in Iran.