Finding the opportunity in falling oil prices


Robin Mills
  • English
  • Arabic

‘You never want a serious crisis to go to waste.” Barack Obama’s former chief of staff Rahm Emanuel used this familiar aphorism when discussing the 1973 oil shock, and it applies again now. But today’s crisis is the reverse – plunging rather than soaring prices. And of course what is a crisis for some is a mild inconvenience to others and an opportunity for still others.

In response to Opec's decision on Thursday not to cut production, oil prices plummeted. US crude was down a remarkable 10.2 per cent, albeit in thin Thanksgiving trade, while the UK's Brent dropped about US$2 to $70.45. The sharp falls were surprising, given that Opec's decision – or non-decision – had been fairly well telegraphed.

Prices may fall further, or may stage a modest rebound, but it seems clear that expectations of a new floor of $100 per barrel were misplaced. So what should producers, governments and consumers do in preparation for an extended period of weak prices?

Firstly, they should not think of current prices as “low”. Since the birth of the modern petroleum industry, the inflation-adjusted oil price has averaged above $70 for just 16 of 153 years. Prices in a range of $60 to $80 would be enough to keep oil competitive as an energy source and industry profitability still strong.

So if you are a government official, this fall should not come as a surprise. The wiser states have already been trimming their budgets; for others, the time of consequences is approaching. Cutting wasteful subsidies now makes even more sense – the required hike to reach market prices is less. Indeed, Indonesia and India are already taking advantage of the low oil prices as an opportunity to reduce subsidies.

Countries such as Venezuela, Algeria and Nigeria, which have in recent years specialised in repelling foreign energy investment, should reconsider. Lower oil earnings mean they need to sustain production while saving budget space for other spending that the government considers vital. As moderate prices make US shale projects less lucrative, the Middle East’s low-cost fields regain their attraction.

If you are an executive in an oil company, remember that the industry has overreacted to such boom-and-bust cycles so often before – overspending during the early 1980s in expectation of relentlessly rising prices, gutting research and the workforce in the 1990s, then suffering for it from rising costs and skills shortages in the 2000s, before repeating the mistake during the financial crisis.

Is it too much to hope for that this time may be different? Of course oil companies will seek to halt unprofitable projects and squeeze suppliers. When pay rates for cooks on offshore Australian platforms reach $445,000 per year, costs have to be realigned with reality.

But this should also be an opportunity to invest in technology and in building a younger and better-skilled workforce.

For the bolder chief executives, this is a chance to make acquisitions, such as Halliburton’s recent move for Baker Hughes, as valuations suddenly look more affordable.

The supermajor oil companies such as Shell may seek to fix their problems by delivering growth; the smaller independents may consolidate to build the scale to compete.

If you are an oil consumer – and it's hard not to be – lower crude prices may mean cheaper motoring. But it is not a bonanza or a licence to buy a gas guzzler. Most of the price at the pump in European countries reflects tax, not purchase of crude oil, while in the Middle East and Asia prices could even go up if governments cut subsidies.

Cheaper oil makes the climate challenge even more pressing – attention on low-carbon energy should not wander. From Russia to Saudi Arabia, the imperative of diversifying oil-dependent economies demands real action rather than rhetoric. And in these two areas above all, the opportunity presented by lower oil prices should not be wasted.

Robin Mills is the head of consulting at Manaar Energy and the author of Capturing Carbon

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UAE currency: the story behind the money in your pockets
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Profile

Company: Justmop.com

Date started: December 2015

Founders: Kerem Kuyucu and Cagatay Ozcan

Sector: Technology and home services

Based: Jumeirah Lake Towers, Dubai

Size: 55 employees and 100,000 cleaning requests a month

Funding:  The company’s investors include Collective Spark, Faith Capital Holding, Oak Capital, VentureFriends, and 500 Startups. 

Results

5.30pm: Maiden Dh165,000 (Turf) 1,600m; Winner: Al Battar, Mickael Barzalona (jockey), Salem bin Ghadayer (trainer).

6.05pm: Maiden Dh165,000 (Dirt) 1,200m; Winner: Good Fighter, Richard Mullen, Satish Seemar.

6.40pm: Handicap Dh185,000 (T) 1,200m; Winner: Way Of Wisdom, Tadhg O’Shea, Satish Seemar.

7.15pm: Handicap Dh170,000 (D) 2,200m; Winner: Immortalised, Tadhg O’Shea, Satish Seemar.

7.50pm: Handicap Dh185,000 (T) 2,000m; Winner: Franz Kafka, James Doyle, Simon Crisford.

8.25pm: Handicap Dh185,000 (D) 1,200m; Winner: Mayadeen, Connor Beasley, Doug Watson.

9pm: Handicap Dh185,000 (T) 1,600m; Winner: Chiefdom, Mickael Barzalona, Salem bin Ghadayer

ELIO

Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett

Directors: Madeline Sharafian, Domee Shi, Adrian Molina

Rating: 4/5

Russia's Muslim Heartlands

Dominic Rubin, Oxford

TCL INFO

Teams:
Punjabi Legends 
Owners: Inzamam-ul-Haq and Intizar-ul-Haq; Key player: Misbah-ul-Haq
Pakhtoons Owners: Habib Khan and Tajuddin Khan; Key player: Shahid Afridi
Maratha Arabians Owners: Sohail Khan, Ali Tumbi, Parvez Khan; Key player: Virender Sehwag
Bangla Tigers Owners: Shirajuddin Alam, Yasin Choudhary, Neelesh Bhatnager, Anis and Rizwan Sajan; Key player: TBC
Colombo Lions Owners: Sri Lanka Cricket; Key player: TBC
Kerala Kings Owners: Hussain Adam Ali and Shafi Ul Mulk; Key player: Eoin Morgan

Venue Sharjah Cricket Stadium
Format 10 overs per side, matches last for 90 minutes
When December 14-17

The Dictionary of Animal Languages
Heidi Sopinka
​​​​​​​Scribe

UPI facts

More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions

How to play the stock market recovery in 2021?

If you are looking to build your long-term wealth in 2021 and beyond, the stock market is still the best place to do it as equities powered on despite the pandemic.

Investing in individual stocks is not for everyone and most private investors should stick to mutual funds and ETFs, but there are some thrilling opportunities for those who understand the risks.

Peter Garnry, head of equity strategy at Saxo Bank, says the 20 best-performing US and European stocks have delivered an average return year-to-date of 148 per cent, measured in local currency terms.

Online marketplace Etsy was the best performer with a return of 330.6 per cent, followed by communications software company Sinch (315.4 per cent), online supermarket HelloFresh (232.8 per cent) and fuel cells specialist NEL (191.7 per cent).

Mr Garnry says digital companies benefited from the lockdown, while green energy firms flew as efforts to combat climate change were ramped up, helped in part by the European Union’s green deal. 

Electric car company Tesla would be on the list if it had been part of the S&P 500 Index, but it only joined on December 21. “Tesla has become one of the most valuable companies in the world this year as demand for electric vehicles has grown dramatically,” Mr Garnry says.

By contrast, the 20 worst-performing European stocks fell 54 per cent on average, with European banks hit by the economic fallout from the pandemic, while cruise liners and airline stocks suffered due to travel restrictions.

As demand for energy fell, the oil and gas industry had a tough year, too.

Mr Garnry says the biggest story this year was the “absolute crunch” in so-called value stocks, companies that trade at low valuations compared to their earnings and growth potential.

He says they are “heavily tilted towards financials, miners, energy, utilities and industrials, which have all been hit hard by the Covid-19 pandemic”. “The last year saw these cheap stocks become cheaper and expensive stocks have become more expensive.” 

This has triggered excited talk about the “great value rotation” but Mr Garnry remains sceptical. “We need to see a breakout of interest rates combined with higher inflation before we join the crowd.”

Always remember that past performance is not a guarantee of future returns. Last year’s winners often turn out to be this year’s losers, and vice-versa.

if you go

The flights

Etihad, Emirates and Singapore Airlines fly direct from the UAE to Singapore from Dh2,265 return including taxes. The flight takes about 7 hours.

The hotel

Rooms at the M Social Singapore cost from SG $179 (Dh488) per night including taxes.

The tour

Makan Makan Walking group tours costs from SG $90 (Dh245) per person for about three hours. Tailor-made tours can be arranged. For details go to www.woknstroll.com.sg

Key facilities
  • Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
  • Premier League-standard football pitch
  • 400m Olympic running track
  • NBA-spec basketball court with auditorium
  • 600-seat auditorium
  • Spaces for historical and cultural exploration
  • An elevated football field that doubles as a helipad
  • Specialist robotics and science laboratories
  • AR and VR-enabled learning centres
  • Disruption Lab and Research Centre for developing entrepreneurial skills
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THE SPECS

Engine: Four-cylinder 2.5-litre

Transmission: Seven-speed auto

Power: 165hp

Torque: 241Nm

Price: Dh99,900 to Dh134,000

On sale: now

Maestro
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