Putin Targets U.S. Fracking With Oil Price War, in New Threat to Trump's Election-Year Economy - Newsweek

Russia has declined to reduce oil exports at the request of Saudi Arabia along with OPEC that led to the biggest decline in oil prices in five years on Friday--causing another headache for the American economy as markets have already seen significant ups and downs due to the ongoing Coronavirus (COVID-19) outbreak.

Now some oil experts are predicting barrel prices as low as $20 within the year, while Russian President Vladimir Putin has voiced confidence that his country can weather out a sustained and significant price reduction. Some analysts have argued that Russia's efforts are intended to counter U.S. shale producers and push back against U.S. sanctions targeting the Nord Stream 2 oil pipeline, which would connect Russian oil directly to Europe.

"The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2," Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, told Bloomberg.

Putin told a meeting of finance and energy ministers on Sunday that "we need to be prepared for different scenarios," RT reported. He said that it was unclear how long the situation would continue, but expressed confidence that the Russian economy could deal with any fall out.

Gas is flared as waste from the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom on March 22, 2014 near Buttonwillow, California David McNew/Getty

George Friedman, chairman of Geopolitical Futures, told Newsweek that Russia's refusal to cut production had more to do with combatting the economic impact of coronavirus and was not intended to directly target the U.S.

"The Saudi recommendation for cutting production in order to increase prices is something Russia could do only if prices rapidly increase," Friedman said. "But given the downward pressure from the coronavirus, I think the Russians calculated that cutting prices wouldn't stabilize them and refused the Saudi request. It was not intended to hurt the U.S. but to try to protect the Russian economy."

The situation escalated on Friday, as Russia refused to reduce oil output against the wishes of OPEC leaders, arguing that such measures unnecessarily benefited the U.S. Saudi Arabia, which is currently more dependent on maintaining the status quo when it comes to oil pricing, had urged Russia to join with OPEC to make the cuts.

Under Trump, the U.S. has surpassed Saudi Arabia and Russia to become the world's biggest oil producing nation, largely spurred by the expansion of fracking. Saudi Arabia had tried unsuccessfully to flood the oil market and reduce prices drastically to maintain its dominance back in 2014. But U.S. production proved more resilient than the Saudis anticipated.

Some analysts are suggesting that Russia may similarly be underestimating or misunderstanding how the U.S. oil industry will respond.

"While the crash in oil prices that began in late 2014 [due to Saudi Arabia flooding the market] did ultimately result in hundreds of shale producers declaring Chapter 11 bankruptcy, the net result of that process is that most of those companies reorganize themselves and come back with far less debt load," David Blackmon, an independent energy analyst and consultant, wrote for Forbes.

"The strategy also fails to recognize that most producers have already put hedges in place for most of their equity production through the remainder of 2020 and beyond," he noted.

But the Russian effort will certainly have an impact on the oil economy.

″$20 oil in 2020 is coming," Ali Khedery, who formerly worked as Exxon Mobil's senior Middle East advisor and is now the CEO of U.S.-based strategy firm Dragoman Ventures, tweeted on Sunday. "Huge geopolitical implications," he added.

A price dip of as much as Khedery is predicting would be a drop of more than half of what it is today, which would cut deep into oil producers' pockets. With coronavirus already reeking havoc on the stock market, Trump may find it to be more difficult to tout his economic achievements as his re-election campaign moves forward.

The president's re-election campaign did not immediately respond to a request for comment.

Republicans and Trump have consistently pointed to sustained GDP growth, healthy job creation and a booming stock market, as the November election approaches. They have argued that only Trump is positioned to maintain the economy moving forward.

But critics note that the president has failed to deliver the 4 to 5 percent economic growth he promised, pointing out that there were significantly better quarters of economic growth during former President Barack Obama's last four years in office. Additionally, the national debt and deficit has continued to rise substantially, with Trump's signature tax cuts having greatly reduced revenues, while primarily benefiting the wealthiest Americans and corporations.

While Russia would also be impacted by a significant decline in oil prices, it appears to have some room to maneuver before it feels the pain. Saudi Arabia needs a price of about $83 to balance its budget, while Russia only needs a price of about $42. Meanwhile, shale oil producers spend more to extract oil and generally break even with an average price of $68 per barrel.

Shale production has contributed about 10 percent to the current U.S. GDP growth over the past decade, according to a report by the Federal Reserve Bank of Dallas. A collapse in the price of oil could damage shale producers and lead to economic fallout.

As for Russia, the country's leaders are voicing confidence that their economy can withstand tanking prices. Russian Finance Minister Anton Siluano asserted last week that even prices as low as $30 would be fine. "We will finance our spending for four years without problems," he said.

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2020-03-08 16:45:15Z
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Saudi Arabia, in Move Aimed at Russia, Cuts Oil Prices and May Raise Production - The New York Times

Saudi Arabia slashed its export oil prices over the weekend in what is likely to be the start of a price war aimed at Russia but with potentially devastating repercussions for Russia’s ally Venezuela, Saudi Arabia’s enemy Iran and even American oil companies.

The Saudi decision to cut prices by nearly 10 percent on Saturday was a dramatic move in retaliation for Russia’s refusal on Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.

The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

“If a true price war ensues, there will be plenty of pain in the oil markets,” said Badr Jafar, president of Crescent Petroleum, a United Arab Emirates oil company. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”

A major drop in oil prices would hurt producers around the world, particularly Venezuela and Iran, whose oil-based economies are already under pressure from American sanctions. Export earnings of both countries have already been reduced to a trickle, and a further decline would stretch their abilities to pay for vital services and security.

The one bright spot may be at the gas pump. The average price of a gallon of regular gasoline in the United States, according to the AAA Motor Club, has already fallen five cents in the last week, to $2.40 from $2.45, and prices could easily drop below $2 a gallon in some states in the coming weeks. Lower-income drivers, who typically own older, less fuel-efficient vehicles and spend a higher percentage of their wages on energy, stand to gain the most.

But a prolonged price collapse would add to financial pressure on highly indebted American oil companies, dozens of which have gone out of business in recent years, with a decline in American oil production likely to follow. Oil companies have been laying off workers in Texas and other oil producing states.

Canadian oil sands development, already lagging because of environmental concerns and costs, stands to be hit hard by a price war. And developing countries that depend on oil, like Nigeria, Angola and Brazil, may suffer significant economic slowdowns.

The first big impact was felt by Saudi Arabia itself. Shares of Saudi Aramco, the Saudi national oil company, plummeted by more than 9 percent on Sunday, falling below its December initial public offering price of 32 riyals for the first time.

The Riyadh stock exchange fell more than 8 percent. On the Kuwaiti exchange, trading on a major index was halted after it tumbled 10 percent.

Get an informed guide to the global outbreak with our daily coronavirus newsletter.

As they cut prices, Saudi officials are now preparing to ramp up the kingdom’s oil output to compensate for the lost revenue caused by lower prices. China, the biggest oil importer, has historically bought oil at cheap prices to stockpile for future use when prices rise.

Low oil prices, now about $45 a barrel for Brent crude, the international benchmark, and $41 for West Texas Intermediate, the U.S. marker, could also stoke public discontent with governments, including Saudi Arabia’s, as falling revenues mean less money for social and other programs used by governments to bolster support.

Saudi Arabia is the world’s largest oil exporter and has been producing about 9.7 million barrels a day, well under its roughly 12 million-barrel-a-day capacity.

Whether producing more oil will help the kingdom is another question. There is no easy cure for the predicament that Saudi Arabia and the rest of the oil industry face. The world is awash in oil, analysts say, and demand will probably continue to decline.

The prospect of more oil on the market could accelerate the collapse in prices, which have fallen about a one-third this year.

Both Russia and Saudi Arabia appear to be acting for short-term advantage with risky strategies. Russia has gained significant political clout in the Middle East by aligning with OPEC. Helping to support oil prices in concert with Saudi Arabia and other Persian Gulf states has helped the government of President Nicolás Maduro survive in Venezuela. Now, the Russians have chosen to go it alone, refusing to coordinate with OPEC in proposed production cuts perhaps in the hope of undercutting American oil producers.

For Saudi Arabia, cooperation with Russia had reinforced OPEC’s clout at a time it is being threatened by the recent surge in American oil production that has turned the United States into a major crude exporter for the first time in decades.

“Saudi Arabia is protecting its market position in the face of a collapse in oil demand, a shrinking physical market and greatly reduced prices,” said Sadad al-Husseini, a former executive vice president of Saudi Aramco. He argued that both Russia and Saudi Arabia would “come out of this down cycle as stronger players, while shale oil, oil sands and other costly or politically unstable producers struggle for financing.”

But their success is far from certain.

The last time Saudi Arabia and other OPEC members allowed global supplies to rise in the face of increasing volumes of oil from shale producers in the United States was in late 2014, and prices plummeted to below $30 a barrel. Two years later, Russia joined with OPEC in a production pact that has helped prop up prices for the last three years by coordinating cuts in output.

But OPEC’s intention in 2014 of undercutting American and other producers backfired and reduced its share of the market. American oil companies managed to increase production anyway, as they became more efficient at drilling through shale and investors continued to pour money into their enterprises. This time may be different, though, because Wall Street has grown tired of sluggish oil investment returns and the high debts of many small and medium-size companies.

At the meetings at OPEC’s headquarters in Vienna last week, Russia declined to go along with a Saudi-led proposal to cut 1.5 million barrels a day, or around 1.5 percent of global supply, to deal with plunging demand because of the spreading coronavirus epidemic. The two sides also failed to agree on an extension of existing cuts of 2.1 million barrels a day. That failure opens the way for increases by those producers that do have additional capacity.

“If you are Russia, it’s worth it for you to take a three-month price hit to see if you can knock out U.S. oil exports,” said Amy Myers Jaffe, an oil and Middle East expert at the Council on Foreign Relations. “They might be correct for three months but the shale never gets destroyed.”

She said that the divergence in Saudi and Russian strategies “signals that the relationship between Saudi Arabia and Russia is on the skids.”

In a report published last month, the International Energy Agency, the Paris-based monitoring group, said the Saudis could produce more than 2 million barrels a day more while the United Arab Emirates, Kuwait and Iraq could add roughly 1 million barrels a day between them.

Falling prices are a huge problem for Saudi Arabia and other oil-dependent nations. Low prices erode the petroleum revenues that sustain the government budgets of these countries.

Jim Krane, a Persian Gulf analyst at Rice University’s Baker Institute, said that oil prices were already well below the $80-a-barrel level that the Saudis need to finance government spending.

A weakened Aramco share price could be a blow to the prestige of the country’s crucial decision maker, Crown Prince Mohammed bin Salman. He led the campaign to bring Aramco to the public markets, and many Saudis bought shares.

The crown prince’s ambitious and expensive economic development program, known as Vision 2030, could also be in trouble, Mr. Krane said, if oil producers open the taps and beat down prices.

“A price war would cause the Saudis to put the entire Vision 2030 diversification plan on hold, while the kingdom hunkers down on austerity wages,” Mr. Krane said.

In what may signal increasing political jitters in the kingdom, the prince has detained members of the royal family considered to be potential rivals for his authority.

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2020-03-08 16:36:43Z
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Saudi Arabia, in Move Aimed at Russia, Cuts Oil Prices and May Raise Production - The New York Times

Saudi Arabia slashed its export oil prices over the weekend in what is likely to be the start of a price war aimed at Russia but with potentially devastating repercussions for Russia’s ally Venezuela, Saudi Arabia’s enemy Iran and even American oil companies.

The Saudi decision to cut prices by nearly 10 percent on Saturday was a dramatic move in retaliation for Russia’s refusal on Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.

The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

“If a true price war ensues, there will be plenty of pain in the oil markets,” said Badr Jafar, president of Crescent Petroleum, a United Arab Emirates oil company. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”

A major drop in oil prices would hurt producers around the world, particularly Venezuela and Iran, whose oil-based economies are already under pressure from American sanctions. Export earnings of both countries have already been reduced to a trickle, and a further decline would stretch their abilities to pay for vital services and security.

The one bright spot may be at the gas pump. The average price of a gallon of regular gasoline in the United States, according to the AAA Motor Club, has already fallen five cents in the last week, to $2.40 from $2.45, and prices could easily drop below $2 a gallon in some states in the coming weeks. Lower-income drivers, who typically own older, less fuel-efficient vehicles and spend a higher percentage of their wages on energy, stand to gain the most.

But a prolonged price collapse would add to financial pressure on highly indebted American oil companies, dozens of which have gone out of business in recent years, with a decline in American oil production likely to follow. Oil companies have been laying off workers in Texas and other oil producing states.

Canadian oil sands development, already lagging because of environmental concerns and costs, stands to be hit hard by a price war. And developing countries that depend on oil, like Nigeria, Angola and Brazil, may suffer significant economic slowdowns.

The first big impact was felt by Saudi Arabia itself. Shares of Saudi Aramco, the Saudi national oil company, plummeted by more than 9 percent on Sunday, falling below its December initial public offering price of 32 riyals for the first time.

The Riyadh stock exchange fell more than 8 percent. On the Kuwaiti exchange, trading on a major index was halted after it tumbled 10 percent.

Get an informed guide to the global outbreak with our daily coronavirus newsletter.

As they cut prices, Saudi officials are now preparing to ramp up the kingdom’s oil output to compensate for the lost revenue caused by lower prices. China, the biggest oil importer, has historically bought oil at cheap prices to stockpile for future use when prices rise.

Low oil prices, now about $45 a barrel for Brent crude, the international benchmark, and $41 for West Texas Intermediate, the U.S. marker, could also stoke public discontent with governments, including Saudi Arabia’s, as falling revenues mean less money for social and other programs used by governments to bolster support.

Saudi Arabia is the world’s largest oil exporter and has been producing about 9.7 million barrels a day, well under its roughly 12 million-barrel-a-day capacity.

Whether producing more oil will help the kingdom is another question. There is no easy cure for the predicament that Saudi Arabia and the rest of the oil industry face. The world is awash in oil, analysts say, and demand will probably continue to decline.

The prospect of more oil on the market could accelerate the collapse in prices, which have fallen about a one-third this year.

Both Russia and Saudi Arabia appear to be acting for short-term advantage with risky strategies. Russia has gained significant political clout in the Middle East by aligning with OPEC. Helping to support oil prices in concert with Saudi Arabia and other Persian Gulf states has helped the government of President Nicolás Maduro survive in Venezuela. Now, the Russians have chosen to go it alone, refusing to coordinate with OPEC in proposed production cuts perhaps in the hope of undercutting American oil producers.

For Saudi Arabia, cooperation with Russia had reinforced OPEC’s clout at a time it is being threatened by the recent surge in American oil production that has turned the United States into a major crude exporter for the first time in decades.

“Saudi Arabia is protecting its market position in the face of a collapse in oil demand, a shrinking physical market and greatly reduced prices,” said Sadad al-Husseini, a former executive vice president of Saudi Aramco. He argued that both Russia and Saudi Arabia would “come out of this down cycle as stronger players, while shale oil, oil sands and other costly or politically unstable producers struggle for financing.”

But their success is far from certain.

The last time Saudi Arabia and other OPEC members allowed global supplies to rise in the face of increasing volumes of oil from shale producers in the United States was in late 2014, and prices plummeted to below $30 a barrel. Two years later, Russia joined with OPEC in a production pact that has helped prop up prices for the last three years by coordinating cuts in output.

But OPEC’s intention in 2014 of undercutting American and other producers backfired and reduced its share of the market. American oil companies managed to increase production anyway, as they became more efficient at drilling through shale and investors continued to pour money into their enterprises. This time may be different, though, because Wall Street has grown tired of sluggish oil investment returns and the high debts of many small and medium-size companies.

At the meetings at OPEC’s headquarters in Vienna last week, Russia declined to go along with a Saudi-led proposal to cut 1.5 million barrels a day, or around 1.5 percent of global supply, to deal with plunging demand because of the spreading coronavirus epidemic. The two sides also failed to agree on an extension of existing cuts of 2.1 million barrels a day. That failure opens the way for increases by those producers that do have additional capacity.

“If you are Russia, it’s worth it for you to take a three-month price hit to see if you can knock out U.S. oil exports,” said Amy Myers Jaffe, an oil and Middle East expert at the Council on Foreign Relations. “They might be correct for three months but the shale never gets destroyed.”

She said that the divergence in Saudi and Russian strategies “signals that the relationship between Saudi Arabia and Russia is on the skids.”

In a report published last month, the International Energy Agency, the Paris-based monitoring group, said the Saudis could produce more than 2 million barrels a day more while the United Arab Emirates, Kuwait and Iraq could add roughly 1 million barrels a day between them.

Falling prices are a huge problem for Saudi Arabia and other oil-dependent nations. Low prices erode the petroleum revenues that sustain the government budgets of these countries.

Jim Krane, a Persian Gulf analyst at Rice University’s Baker Institute, said that oil prices were already well below the $80-a-barrel level that the Saudis need to finance government spending.

A weakened Aramco share price could be a blow to the prestige of the country’s crucial decision maker, Crown Prince Mohammed bin Salman. He led the campaign to bring Aramco to the public markets, and many Saudis bought shares.

The crown prince’s ambitious and expensive economic development program, known as Vision 2030, could also be in trouble, Mr. Krane said, if oil producers open the taps and beat down prices.

“A price war would cause the Saudis to put the entire Vision 2030 diversification plan on hold, while the kingdom hunkers down on austerity wages,” Mr. Krane said.

In what may signal increasing political jitters in the kingdom, the prince has detained members of the royal family considered to be potential rivals for his authority.

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2020-03-08 16:33:00Z
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How the 'boring' Toyota Camry became the best-selling passenger car in America - CNBC

The Toyota Camry has a reputation, even within Toyota itself, for being a humdrum car.

But gosh does it ever sell.

The Camry was the top-selling passenger car in the United States in 2019, and is one of the best-selling vehicles of all time.

It remains one of Toyota's most successful vehicles of any shape, despite the fact that it is trying to compete in a market that is tilting in favor of sport utility vehicles and crossovers. 

That isn't to say the shift hasn't away from cars hasn't hurt it. Sales are falling, from a peak of about 473,000 in 2007 to about 337,000 today. 

Unlike U.S. automakers, which have cut production of their own sedans and coupes, Toyota is not pulling out of traditional passenger cars any time soon. The company sees the abandonment of these segments by others as an opportunity to grab market share, which it has. In the standard midsize sedan segment, Toyota told CNBC it gained about 4% market share between 2015 and 2019, rising from 15% to 20%. 

It is possible that the pendulum of consumer taste could swing back toward low-slung passenger cars, but many auto industry observers think the slide toward higher-riding crossovers and sport utility vehicles is here to stay. The Camry was once Toyota's best-selling vehicle, but now that title belongs to Toyota's RAV4 midsize crossover SUV. 

So the automaker has been spicing up the Camry, in keeping with Toyota President Akio Toyoda's directive to stop producing "boring" cars. For example, it shocked many in the industry when it released a sport-tuned version of the humble sedan bearing the Toyota Racing Development badge for the 2020 model year.

In a tougher market for cars, it helps to take some risks. 

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2020-03-08 14:15:24Z
CAIiEDAGkN-LPp41gPfBQlS8ZfQqGQgEKhAIACoHCAow2Nb3CjDivdcCMN_4ngY

Saudi Arabia launches oil price war after Russia deal collapse - Financial Times

Saudi Arabia has launched an aggressive oil price war targeting its biggest rivals after Russia refused to join production cuts with Opec, in a move that threatens to swamp the crude market with supplies just as the coronavirus outbreak hits demand.

Saudi Arabia will raise production and offer its crude at deep discounts to win new customers next month, according to two people familiar with the country’s oil policy, which risks sending prices tumbling further. Oil prices had already dropped by a third since January to near $45 a barrel.

The kingdom plans to pump more than 10m barrels a day next month while announcing unprecedented discounts of almost 20 per cent in key markets, in an apparent attempt to punish Russia, while squeezing the US shale industry and other higher cost producers.

Production could eventually surpass 11m b/d, one of the people said, well above the roughly 9m the Riyadh had previously proposed lowering its output to.

Crown prince Mohammed bin Salman, the country’s de facto ruler, moved at the weekend to consolidate his position, arresting at least three members of the royal family that may have posed a threat to his accession to the throne.

The fall in oil prices risks new turmoil in the kingdom, as MBS’s plan to modernise the economy relies at least in part on higher energy revenues to fund the transformation.

Shares in Saudi Aramco, the state oil company, dropped almost 9 per cent on Sunday, falling below its December stock market listing price. The broader Saudi stock market sank more than 8 per cent.

Saudi Arabia had last week sought the support of Opec and allies outside the cartel, such as Russia, for a substantial cut in production to stabilise the oil market, which has been reeling as the spread of coronavirus hits the global economy and saps demand for crude.

But Russia torpedoed the plan, eyeing an opportunity to hit US shale producers, infuriating the kingdom and resulting in the countries removing all restrictions on their output from April.

“Opec and other countries including Russia couldn’t get an agreement. If others will push their production, why is Saudi Arabia not doing the same,” said a second person familiar with the kingdom’s output policy. “Now we have the right to sell more to compensate for any loss in prices.”

Russia has built up a $170bn national wealth fund from excess oil revenues in recent years and believes it can tap that to offset any short-term price war, despite crude plunging close to its budget break even price of around $42 a barrel.

Mikhail Leontiev, press secretary for Rosneft, Russia’s largest oil producer, said that the relationship with Saudi Arabia had become “meaningless”.

“The true result of the arrangement is that the total volume of oil that was reduced as a result of the repeated extension of the Opec+ agreement was completely and quickly replaced in the world market with American shale oil,” he said in a statement to state-owned news agency TASS.

Rosneft is majority owned by the Russian state and run by one of president Vladimir Putin’s closest and longest-serving associates.

“The proposal that was made was not a partnership. A partnership agreement always implies a compromise,” Mr Leontiev said, adding that the collapse of the agreement allows Russia to concentrate on monetising its crude resources.

The last price war in 2014 upended the global oil industry, inflicting pain on producers from the North Sea to North Dakota, and forcing them to adapt to the decisive end of the $100-oil era.

Higher output from Saudi Arabia would again hit the US shale sector, the rapid growth of which over the past decade has made the US the world’s top producer and forced rivals to restrict output in a bid to prop up the price.

The US shale industry has struggled to generate consistent profits, however, and is struggling with tighter access to financing, leaving it vulnerable.

But the kingdom appears to be targeting Russia in particular.

Saudi Arabia is set to announce that it will sell its crude into north west Europe, a key market for Russian barrels, at discounts to its reference price of more than $8 a barrel compared to March, according to an official price list seen by the Financial Times.

In the US it is also set to discount its crude by around $7 a barrel in April compared with March. It also made prices cuts to Asia of between $4-6 a barrel.

Monthly price adjustments are normally only a few cents or at most a dollar or two, leaving little doubt over what the kingdom is hoping to achieve.

Saudi Arabia’s 12m b/d production capacity has largely been restored after the drone and missile strikes on its key facilities in September.

The kingdom maintains the most spare production capacity globally, allowing it to raise its output faster than rivals.

The move will put pressure on Saudi Arabia’s allies in the Gulf like the UAE and Kuwait to cut their prices and potentially increase output to remain competitive.

A price war is likely to prove painful for all sides, but will hit the economies of weaker oil-dependent producers like Nigeria and Angola particularly hard, as they have little scope to increase output and less ability to borrow to plug budget shortfalls.

The price cuts threaten to further weigh on international oil prices, with Brent already down from $70 a barrel in early January to near $45 a barrel. It fell 9 per cent on Friday alone after the so-called Opec+ deal unravelled.

Traders and analysts have warned an all-out price war could see oil prices fall to $30 a barrel or lower, bringing back memories of the last time Saudi Arabia opened the taps in 2014.

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2020-03-08 11:53:22Z
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Saudi Aramco shares fall below IPO price for first time, Gulf stocks plummet after OPEC deal failure - CNBC

Storage tanks are seen at the North Jiddah bulk plant, an Aramco oil facility, in Jiddah, Saudi Arabia, Sunday, Sept. 15, 2019.

Amr Nabil | AP

Shares of Saudi state oil giant Aramco traded below their original IPO price for the first time Sunday, at 30.90 riyals ($8.24) at 12:30 p.m. in Riyadh compared to the listing price of 32 riyals in December. That's down 6.36% on the day.

Saudi Arabia's stock exchange, the Tadawul, was down 7.7% in afternoon trading after plans to orchestrate a supply cut among OPEC and non-OPEC states collapsed amid investor fears surrounding the fast-spreading coronavirus. 

Aramco became the world's most valuable publicly-traded company when its share price gave it a record valuation of $1.7 trillion after 1.5% of the enormous firm was listed on the local stock exchange late last year.

Stock markets across the rest of the Gulf also fell dramatically during Sunday trading. 

Abu Dhabi, Dubai and Kuwait indexes were all down several percentage points following the market open. The Abu Dhabi index fell 5.8%, Dubai's Financial Market General Index was down 7.47% and Kuwait's premier market index had plunged by 10% at 1:30 p.m. Dubai time, causing trading on the Kuwait index to be suspended.

Regional markets have been left shaky after OPEC and non-OPEC allies on Friday failed to agree on how much oil production to cut, with Russia reportedly refusing to give the green light to the deepest supply cuts since the global financial crisis. 

International and U.S. oil benchmarks traded at multi-year lows on Friday, with Brent crude closing at $45.27, down more than 9%, while U.S. West Texas Intermediate sank more than 10% lower to $41.28, its lowest level since 2016.

The numbers paint a picture of investors worried about the global demand outlook as the deadly coronavirus, which has killed at least 3,507 people and sickened more than 103,000, slows economic productivity and trade around the world.

— CNBC's Sam Meredith contributed to this report.

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2020-03-08 10:14:34Z
52780639491845

1 Top-Notch High-Yield Dividend Stock to Buy This Month - Motley Fool

Like most stocks, Enterprise Products Partners (NYSE:EPD) has tumbled over the past few weeks because of the COVID-19 coronavirus outbreak. Overall, units of the master limited partnership (MLP) have fallen more than 20% below their recent high. The main factor weighing on the energy company is the unknown of how much impact the outbreak will have on the global economy.

While the coronavirus outbreak might have some near-term effect on the energy market, the long-term outlook for Enterprise Products Partners looks bright. That's one of the many reasons why the recent sell-off looks like an excellent buying opportunity for dividend investors. 

Image source: Getty Images.

It has one of the best financial profiles in the energy sector

With its unit price tumbling in recent weeks, Enterprise Products Partners now yields 7.4%. While that might not be the highest in the energy sector, it's one of the safer payouts. Three factors drive that view. 

First, Enterprise Products Partners produces very stable cash flow since long-term contracts and other predictable sources lock in more than 85% of its annual earnings. Second, the company distributes only around 60% of its cash flow to investors through its high-yielding payout, enabling it to retain a lot of money to help finance expansion projects. Finally, it has one of the highest credit ratings in the midstream sector, backed by a low leverage ratio of 3.3 times debt-to-EBITDA, well below the 4.0 target of most MLPs.

That strong financial profile gives Enterprise Products Partners the flexibility to continue growing its distribution to investors even as it keeps expanding its midstream footprint.  

It has one of the best growth profiles in the midstream sector

Enterprise Products Partners generated record earnings and cash flow last year. Overall, it produced $6.6 billion in cash that it could have distributed to investors, up 11% year over year. It retained $2.7 billion of that money to finance expansion projects, covering a significant portion of the $4.7 billion it invested on growth projects last year. It was easily able to fund the remaining amount with its top-tier balance sheet. 

Enterprise Products Partners expects to invest another $3 billion to $4 billion on expansion projects this year and spend an additional $2 billion to $3 billion in 2021. Those investments should give it the fuel to continue growing its cash flow. Overall, it has $7.7 billion of growth projects under construction that should start up by 2023, with several more in development. That's one of the largest backlogs in the midstream sector.

With such a visible growth pipeline, Enterprise should have the fuel to keep increasing its distribution. The MLP has given its investors a raise for 21 straight years, including in each of the last 62 consecutive quarters.  

A plan to take advantage of its increasingly attractive valuation

Typically, companies with strong financial profiles and growth prospects trade at premium valuations. However, with Enterprise's unit price declining this year, it now trades at less than eight times cash flow. That's well below its historical mid-teens multiple as well as the valuation of some of its peers.

Because its units are trading at such a low value, Enterprise plans to allocate more of its cash flow toward its repurchase program this year, with it currently intending to use 2% on the buyback. If its value keeps falling, the MLP could potentially use its strong balance sheet to opportunistically repurchase more units, especially if capital spending trends toward the lower end of its budget range.

A steadily growing high yield at a dirt cheap price

Enterprise Products Partners' sell-off last month has allowed income investors to lock in a higher yield on this top-notch MLP. That potentially sets them up to earn attractive total returns in the coming years as Enterprise's expansion program gives it the fuel to keep growing cash flow as well as its distribution.

 

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2020-03-07 17:24:00Z
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