Drones hit two Saudi Aramco oil facilities, fire under control: State media

Drones attacked the world's largest oil processing facility in Saudi Arabia and an oilfield operated by Saudi Aramco early Saturday, the kingdom's Interior Ministry said, sparking a huge fire at a processor crucial to global energy supplies.
No one immediately claimed responsibility for the attacks in Buqyaq and the Khurais oil field, though Yemen's Houthi rebels previously launched drone assaults deep inside of the kingdom.

It wasn't clear if there were any injuries in the attacks, nor what effect it would have on oil production in the kingdom. The attack also likely will heighten tensions further across the wider Persian Gulf amid a confrontation between the US and Iran over its unraveling nuclear deal with world powers.
Online videos apparently shot in Buqyaq included the sound of gunfire in the background and flames shooting out of the Abqaiq oil processing facility. Smoke rose over the skyline and glowing flames could be seen a distance away.
The fires began after the sites were "targeted by drones," the Interior Ministry said in a statement carried by the state-run Saudi Press Agency. It said an investigation into the attack was underway.
Saudi Aramco, the state-owned oil giant, did not immediately respond to questions from The Associated Press. The kingdom hopes soon to offer a sliver of the company in an initial public offering.
Saudi Aramco describes its Abqaiq oil processing facility in Buqyaq as "the largest crude oil stabilization plant in the world." The facility processes sour crude oil into sweet crude, then later transports onto transshipment points on the Persian Gulf and the Red Sea. Estimates suggest it can process up to 7 million barrels of crude oil a day.
The plant has been targeted in the past by militants. Al-Qaida-claimed suicide bombers tried but failed to attack the oil complex in February 2006. There was no immediate impact on global oil prices as markets were closed for the weekend across the world. Benchmark Brent crude had been trading at just above USD 60 a barrel.
Buqyaq is some 330 kilometers (205 miles) northeast of the Saudi capital, Riyadh.
While no group immediately claimed the attacks, suspicion immediately fell on Yemen's Houthi rebels.
A Saudi-led coalition has been battling the rebels since March 2015. The Iranian-backed Houthis hold Yemen's capital, Sanaa, and other territory in the Arab world's poorest country.
The war has become the world's worst humanitarian crisis. The violence has pushed Yemen to the brink of famine and killed more than 90,000 people since 2015, according to the US-based Armed Conflict Location & Event Data Project, or ACLED, which tracks the conflict.
Since the start of the Saudi-led war, Houthi rebels have been using drones in combat. The first appeared to be off-the-shelf, hobby-kit-style drones. Later, versions nearly identical to Iranian models turned up. Iran denies supplying the Houthis with weapons, although the UN, the West and Gulf Arab nations say Tehran does.
The rebels have flown drones into the radar arrays of Saudi Arabia's Patriot missile batteries, according to Conflict Armament Research, disabling them and allowing the Houthis to fire ballistic missiles into the kingdom unchallenged. The Houthis launched drone attacks targeting Saudi Arabia's crucial East-West Pipeline in May as tensions heightened between Iran and the US.
UN investigators said the Houthis' new UAV-X drone, found in recent months during the Saudi-led coalition's war in Yemen, likely has a range of up to 1,500 kilometers (930 miles).
That puts the far reaches of both Saudi Arabia and the United Arab Emirates in range.
The Houthi's Al-Masirah satellite news channel did not immediately acknowledge the attack Saturday.

Tale of two oil buyers: Saudi crude exports to China soar, US loses out

Signals from oil tankers last month suggest that Saudi Arabia is sending an ever-larger portion of its crude to China -- with the US losing out.
Saudi Arabia’s observed exports to China soared to 1.74 million barrels a day in July, the highest since Bloomberg began tracking the tanker shipments in January 2017. At the same time, the kingdom’s shipments to the US appear to have tumbled to 161,000 barrels a day, the lowest during that same period.

The divergence illustrates the current state of energy geopolitics. The Organization of Petroleum Exporting Countries -- of which Saudi Arabia is the largest producer -- and a group of allies last month agreed to extend production cuts. A big reason behind the curbs is soaring US output, which is near record levels in weekly data. US inventories have dropped in recent months as Saudi shipments to the country have declined.
At the same time, Saudi Arabia has grabbed a greater slice of China’s market as US sanctions cripple exports from Iran, the kingdom’s regional rival. Saudi crude flows to markets east of the Suez Canal were about 5.1 million barrels a day last month, tracking data show, and the number is likely to rise as some ships indicate their final destinations. Saudi flows west of Suez appear to have dropped to about 1.1 million barrels a day in July.
“East is where their focus is,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London, noting that China has refineries with about 800,000 barrels of daily capacity starting up. “The West has been cut quite significantly.”
Overall, Saudi shipments haven’t changed dramatically in recent months -- the 6.7 million barrels a day in observed cargoes the kingdom exported in July is only about 200,000 daily barrels less than in June.
China’s appetite
China imported a record amount of crude from Saudi Arabia in June, according to data from its General Administration of Customs. The country has a growing appetite for the feedstock, with the Hengli Petrochemical and Zhejiang Petrochemical megaprojects scheduled for this year. The Hengli plant in Dalian reached full capacity in May.
With China grabbing more Saudi crude, flows to India, Japan and South Korea also appear to have declined last month. Just three crude-laden ships sailed from Saudi Arabia for the US in July -- one each for the East, West and Gulf Coasts -- though more could emerge in the coming days as tankers indicate their final destinations. US-bound flows are down from 1.03 million barrels daily in July 2018.
Of the vessels that loaded crude in Saudi Arabia in July, ships holding some 13 million barrels haven’t yet revealed where they’re headed. Almost half of that amount is likely sailing east, tracking signals show.

Saudi Arabia's Crown Prince expects the Aramco IPO as early as 2020-21

Saudi Arabia is committed to selling shares in Saudi Aramco as soon as next year, Crown Prince Mohammed Bin Salman said in an interview with the Saudi-owned Ahsarq Al Awsat newspaper.
“We are committed to the Aramco IPO, given the proper circumstances and the right time, and as I said before I expect it will be between 2020 and early 2021,” the crown prince told the newspaper.

In the wide-ranging interview with the Saudi-owned newspaper, the crown prince also commented on recent attacks on oil tankers near the Strait of Hormuz and Saudi Arabia’s 2030 development goals. Here are the highlights from the interview:
Attacks against tankers, oil facilities and the Abha airport affirm Saudi Arabia’s call for the global community to take a firm stance against Iran.
“The kingdom does not seek war in the region, but will not hesitate in dealing with any threats towards our people, sovereignty, unity and vital interests.”
Iran didn’t respect the Japanese prime minister’s efforts, and attacked the tankers while he was still a guest in Tehran, the crown prince said.
Saudi Arabia holds its relationship with the US in the highest regard because it is a key factor in the region’s security and stability, and that bond won’t be affected by media campaigns.
Saudi Arabia supported all efforts to reach a political solution in Yemen, but the Houthis would rather put Iran’s interests before Yemen and its people.
The Kingdom won’t tolerate the presence of militias on its borders.
Saudi Arabia is committed to supporting the Sudan and its people.
The Kingdom has begun implementing its 2030 vision in different aspects, and is already seeing results on the ground.

India seeks Saudi investment in strategic oil storage to resurrect refinery

India has invited Saudi Arabia to invest in its strategic oil storage even as it looks to resurrect a $ 44 billion (Rs 3.08 lakh crore) refinery project with the world's largest oil producer after the BJP-ruled Maharashtra government denied land at the initial site.
Saudi Oil Minister Khalid Al Falih, on his second visit to India in three weeks, discussed with its Indian counterpart Dharmendra Pradhan the 60 million tonne (MT) a year mega oil refinery cum petrochemical complex, whose initial allocated land in coastal Ratnagiri district of Maharashtra was denotified by the state government earlier this month, as part of electoral understanding between the ruling BJP and Shiv Sena.
"The (two) ministers reviewed various Saudi investment proposals in the Indian oil and gas sector, including the urgent steps to be taken to expedite the implementation of the first joint venture West Coast Refinery and Petrochemical Project in Maharashtra, estimated to cost $ 44 billion, which will be the largest greenfield refinery in the world," an oil ministry statement said Sunday.
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The two minister held talks late last night.
Shiv Sena had opposed the project at Ratnagiri district and the BJP agreed to its demand of shifting out the project as part of electoral understanding for the ensuing Lok Sabha polls.
No alternate site of the project has yet been identified and the statement did not elaborate on steps to be taken for implementation of the project.
Saudi Aramco and its partner ADNOC of UAE have signed agreements to take 50 per cent stake in the project. The remaining is held by public sector oil firms - IOC, BPCL and HPCL.
Pradhan invited Saudi Arabia to invest in India's strategic oil reserves. "Invited HE @Khalid_AlFalih to partner in India's Strategic Reserves Program and further enhance Saudi investments in India's refining & petrochemical sectors. Strategic engagements in energy will mutually benefit both our countries and further bolster our bilateral ties," he tweeted after the meeting.
The official statement said: "Saudi Arabia's participation in Indian Strategic Petroleum Reserve (SPR) program was also discussed."

India has built 5.33 MT of emergency storage enough to meet its oil needs for 9.5 days, in underground rock caverns in Mangalore and Padur in Karnataka, and Visakhapatnam in Andhra Pradesh. It has allowed foreign oil companies to store oil in the storages on the condition that the stockpile can be used by New Delhi in case of an emergency.

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Abu Dhabi National Oil Company (ADNOC) has hired half of the 1.5 million tonne strategic oil storage at Mangalore and 2.5 million tonne Padur facility.
In Phase-II, India plans to build an additional 6.5 million tonne facilities at Chandikhol in Odisha and Padur, which is expected to augment the emergency cover against any supply disruption by another 11.5 days.
India, which meets 83 per cent of its oil needs through imports, built the storages as insurance for any disruption in supplies. It has the right of first refusal to buy the crude oil stored in the facilities in case of an emergency.
The statement said that the visit of the Saudi Oil Minister was a follow up the first State visit of Saudi Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud last month.
"Both the ministers agreed to take concrete steps for early implementation of the decisions taken in the oil and gas sector during the visit of His Royal Highness Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud to India last month," it said.
The visit, it said, reflects the intensifying engagement between the two countries in the hydrocarbon sector.
Saudi Arabia is the second largest supplier of crude and LPG to India. In 2017-18, India's crude oil imports from Saudi Arabia were 36.8 MT, accounting for 16.7 per cent of its total imports.

Rupee, bonds recover sharply, stocks get boost on soft oil, US-China talks

The rupee and bonds recovered sharply and equity indices rallied on Friday as oil prices softened after Saudi Arabia warned of an oversupply.
The rupee closed at 72.4 a dollar against its previous close of 73.5. The rupee had ended at 74 a dollar in October. The yields on the 10-year bonds closed at 7.78 per cent, down from its previous close of 7.82 per cent.
As yields fall, prices of bonds rise.
In absolute terms, the rupee's gain was the sharpest since September 19, 2013, when it had strengthened by Rs 1.6 against the dollar. The Reserve Bank of India (RBI) was not seen intervening in the market, currency dealers said. The rupee may strengthen some more, riding on the momentum, dealers said, but strengthening beyond 70 a dollar is unlikely.
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The local equity markets also rallied on Friday along with global equities amid a possible thaw in the US-China stand-off. The sharp decline in oil prices and pullback in the rupee boosted sentiment as it helped ease pressure on the domestic macro.
The benchmark Sensex rose 580 points, or 1.68 per cent, to end at 35,012. The Nifty50 ended at 10,553, up 173 points, or 1.7 per cent -- extending its weekly gain to nearly five per cent. The gains for the week were the most since May 2016. Last week, the Nifty had ended at a seven-month low.
Market players said crude oil below $73 a barrel had been a big sentiment booster. Brent crude prices have come off by 16 per cent from $86 a barrel a month ago. The waiver granted to India by the US from Iran sanctions further helped sentiment.

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Besides, improvement in GST collections and favourable earnings posted by some companies saw investors adding to risky bets.
The rupee was mirroring the sentiment of its Asian peers, which also saw sharp gains against the dollar as the greenback lost against major currencies worldwide. At the close of market hours in India, the US dollar index was down 0.24 per cent to 96.05. The index measures the dollar's strength against major global currencies. Ironing out differences with China on trade issues also led the US dollar to lose up some strength, as investors went easy on their safe haven concerns.
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Crude oil prices were trading at $73 a barrel, with the contract for it being down 6.4 per cent this week for a fourth consecutive week. However, Iran sanctions may upset the math once again, but emerging markets are clearly cheering the fall in crude prices.
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In Asia, the rupee gained 1.4 per cent against the dollar, closely following the South Korean won, which gained 1.45 per cent against the greenback. Still, the rupee is the worst-performing in the region, having fallen 11.82 per cent year to date.
While currency dealers say banks and oil importers have started taking long positions on the rupee, expecting the momentum to continue, brokerage Morgan Stanley continued to remain bearish on the rupee.
"The tension between the RBI and the government raised investors' concern about the RBI's independency and risks of a steeper curve in India rates. Thus, we remain bearish on the rupee despite the lower oil price having temporarily relieved some pressure on inflation and the currency," Morgan Stanley wrote in a report.
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"Our oil strategists continue to see oil prices moving higher in 2019 as oil balance remains tight. In addition, the continued global volatility and widening twin deficits could keep INR under pressure. Our economists see funding pressure as likely to persist and pose downside risks to growth," Morgan Stanley said.
After a sharp rebound from recent lows, experts said, investors should exercise with caution.
"The problems that we were stuck with earlier have not gone away completely. I don't see markets going up dramatically from here. The concerns surrounding IL&FS and NBFC liquidity aren't entirely resolved. These issues are still lingering and could blow up anytime," said UR Bhat, director, Dalton Capital Advisors.
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In a report, Nomura said Asian currencies could be gaining against the US dollar on China-US trade concerns easing out and a possible Democratic win in the US mid-term elections. Nomura, while cautious on other Asian currencies, said it would go long on rupee for now.
The data released by the RBI showed that India's foreign exchange reserves were at $392 billion, the lowest since July 2017. The reserves have fallen as a result of the RBI's intervention in the market to give support to the exchange rate. The reserves were at $425 billion in April this year.
The data also showed that the RBI not only intervened in the spot market but also heavily in the forwards market. The net dollar position in the forwards markets of the RBI is in negative now, from being a long $17 billion in April.
"This essentially implies a change of net short of $20 billion from end-March in forwards. The recent spurt in RBI's selling activity reflects increased intervention in forwards, in conjunction with spot," wrote brokerage Edelweiss in a report.
This implies an estimated spot and forward forex intervention of $39.5 billion in the first half of financial year 2018-19 (FY19), which is "possibly a much more significant number" than the brokerage's estimated balance of payment deficit of $25-30 billion for FY19.
This also explains the liquidity deficit and the recent spike in bond yields, which has started correcting on oil prices cooling and on the RBI's secondary market bond purchases.
After buying Rs 360 billion of bonds in October, the RBI plans to buy Rs 400 billion of bonds from the secondary market in November.
The India VIX index fell five per cent to 18.23. Overseas investors pulled out nearly Rs 2 billion from the cash segment, while domestic investors bought shares worth Rs 8.5 billion, the provisional data provided by the stock exchanges showed.
Among the Nifty stocks, 37 gained, while 13 ended with losses. Vedanta, Maruti and BPCL gained more than six per cent each, while Tech Mahindra and Wipro declined more than three per cent.

Khashoggi murder: CEOs may miss Riyadh event, but won't refuse Saudi money

Saudi Arabia is pouring $20 billion into a new investment fund run by Wall Street’s Blackstone Group. The French oil giant Total just inked a nine-billion-euro petrochemical deal with the kingdom. The British defense company BAE Systems is selling 48 Typhoon combat jets to Riyadh for an estimated five billion British pounds.
The world’s biggest companies might be talking about distancing themselves from Saudi Arabia amid a growing furor over the killing of the dissident journalist Jamal Khashoggi. But as American and European executives pull out of a showcase Saudi investment conference next week to avoid controversy, many companies are so deeply invested that they are unlikely to sever ties or avert future deals with the oil-rich kingdom.

Companies are still assessing the situation, which shifted rapidly as the kingdom announced on Friday that Mr. Khashoggi was dead and that it had arrested 18 Saudis in the case. But short of sanctions on Saudi Arabia, or a wholesale change in policy by the United States, Britain or other governments to curb political or commercial ties, big business won’t readily quit its relations with Riyadh.
“Saudi Arabia still has enormous wealth and powerful cachet,” said Bruce O. Riedel, a former C.I.A. analyst and an expert on Saudi Arabia at the Brookings Institution. “It will continue to be a crucial economic player, and it cannot be ignored. The question is whether business as usual will go on.”
Companies don’t always break out how much money they have reaped from Saudi connections. But a review of the kingdom’s broad spending on its military, infrastructure, oil, chemicals, technology and even entertainment underscores how Riyadh is simply too big a customer to ignore.
In the last decade, Saudi Arabia was awarded $138.9 billion in potential military contracts under the United States’ Foreign Military Sales rules, according to the Congressional Research Service. American companies including Lockheed Martin, Raytheon and Boeing, not to mention President Trump, are salivating over recent Saudi pledges to buy nearly $110 billion worth of arms in coming years. Much of that commitment has yet to be fulfilled.
Companies like BAE and Thales of France have also profited handsomely, as European defense companies exported €57 billion worth of armaments to Riyadh between 2001 and 2015, according to the Stockholm International Peace Research Institute.
And that’s just spending on weaponry. Saudi Arabia has also dished out billions in fees to American and European banks for advising on business deals. The kingdom bought around $20 billion worth of American products last year, including Ford autos and Boeing jets. Riyadh also sealed $15 billion in deals with General Electric for goods and services in areas like power generation, mining and health care. And the oil giants can’t possibly walk away from one of the world’s biggest producers.
American start-ups have benefited from the largess, as Saudi Arabia became their biggest source of capital last year. Saudi Arabia’s Public Investment Fund recently invested $1 billion in Lucid, a competitor to Elon Musk’s Tesla car company, and $3.5 billion in Uber.
Crown Prince Mohammed bin Salman has pledged $45 billion to Japan’s SoftBank Vision Fund for technology investments intended to help modernize the oil-dependent Saudi economy by 2030.
The kingdom has been signing deals for futuristic buildings, AMC movie theaters and swank French hotels as part of a $500 billion blueprint for Neom, a modern city to rise from the desert by 2025. Riyadh is exploring nuclear energy deals to help power it all in anticipation of the day when the oil wells run dry.
Western banks have lined up for the chance to advise the Saudis. The kingdom has generated about $1.1 billion worth of fees for banks since 2010 in a variety of deals, including mergers and acquisitions and the arranging of loans and bonds, according to data from Dealogic.
The biggest quarry is Saudi Aramco, the world’s largest oil producer, as it prepares to list itself on public stock markets in anticipation of raising over $100 billion. The initial public offering has stalled, but two advisers to the offering, JPMorgan Chase and Morgan Stanley, are still working for Saudi Aramco in its negotiations to buy a majority stake in a Saudi chemical maker known as Sabic, according to people briefed on the matter.
Saudi Arabia has also showered billions of dollars on private equity firms so they can strike deals. The kingdom has pledged to provide up to $20 billion for a $40 billion infrastructure investment fund run by Blackstone, which had its first deal close this year.
While Stephen A. Schwarzman, Blackstone’s co-founder and chief executive, dropped out of the conference on Monday, the firm has no plans to sever ties with the kingdom.
“We have relationships with them, their institutions, over decades,” Jonathan D. Gray, Blackstone’s president, told analysts on an earnings call on Thursday. “We think of ourselves as long-term, responsible stewards of capital.”
Laurence D. Fink, the chief executive of BlackRock, went further, telling CNBC this week that while he was pulling out of the conference, his firm, the world’s largest asset manager, wouldn’t back away — even if the government ordered Mr. Khashoggi’s killing.
Some companies did not even try to distance themselves from the Saudis amid the Khashoggi furor. A spokeswoman for BAE said in a statement that it would send several senior executives to the Saudi conference.
Separating itself from the Saudis would be difficult for a defense contractor like BAE, which has 6,000 employees in the kingdom. The company counts on Saudi Arabia for at least 15 percent of its revenue, from both the sale of equipment like the Typhoon and the contracts to service them.
Such sales are built on the back of the British government’s relationship with the Saudi government, which has grown more critical for Britain as it prepares to leave the European Union. Prime Minister Theresa May unlocked the BAE deal when Prince Mohammed visited London in the spring, and she is angling to lure any eventual Saudi Aramco listing to the British stock exchange.
The situation is also critical for France, which has longstanding ties to Saudi Arabia and is the third-largest foreign investor after the United States and the United Arab Emirates. France sold €11 billion worth of arms to the kingdom in the last decade, and recently approved licenses for more sales potentially worth €14.7 billion. That doesn’t count €4 billion in French exports to the kingdom last year, and oil and chemical deals worth over €20 billion signed in the last two years.
After President Emmanuel Macron welcomed Prince Mohammed to the Élysée Palace in April with a kiss on the cheek, the countries created the Saudi-French Business Council. It is headed by Mohammed bin Laden, the founder of the Saudi Binladin Group and the father of Osama bin Laden, to explore more French investments.
Despite its flashy spending, Saudi Arabia needs foreign money more than ever. Foreign direct investment to the kingdom fell to a 14-year low of $1.7 billion last year, down from $7.4 billion in 2016 and $12 billion in 2012 because of fewer investments by multinationals, according to the United Nations. The economy only recently emerged from a recession in the first quarter of this year, a downturn that was brought on by low oil prices.
Prince Mohammed sought to counter some capital flight by arresting members of the royal Saudi family in November and holding them at the opulent Ritz-Carlton hotel in Riyadh — the same setting for the gathering next week. But the arrests have added to investors’ worries.
Even as the conference has caused consternation, companies still appear to be laying the groundwork for deals.
Though the chief executive of Thales, Patrice Caine, pulled out of the conference, the French company is sending a subordinate the Saudis would respect, and a spokesman, Cédric Leurquin, said Thales hadn’t changed its position on investing in Saudi Arabia. Although Mr. Leurquin would not divulge sales figures for Saudi Arabia, Thales has 700 employees in the kingdom, which it supplies with military hardware, missiles, electronic warfare systems and even high-tech security surveillance systems for Mecca and other holy sites.
A week after Mr. Khashoggi’s disappearance made headlines, Total, one of the world’s largest oil and chemical groups, announced a €9 billion joint venture with Saudi Aramco for a refining and petrochemical complex in Jubail. Total did not respond to requests for comment.
“This is a very serious topic where you cannot win,” Joe Kaeser, the chief executive of the German industrial giant Siemens, said this week as he tried to decide whether to attend the conference. The company received a blockbuster order last year for five gas turbines in Saudi Arabia, and has a gas turbine factory in its Eastern Province.
“If we skip communicating with countries where people are missing, I can just stay home,” Mr. Kaeser declared.

Saudi Arabia says ready to pump more oil to balance global market

Saudi Arabia, the world's top crude exporter, said today it was prepared to use its spare production capacity, estimated at two million barrels, to balance the global oil market.
"The kingdom is prepared to utilise its spare production capacity when necessary to deal with any future changes in the levels of supply and demand," a cabinet statement said following a meeting chaired by King Salman.

Women drivers to impact economy, boost gasoline demand: Saudi minister

The end of Saudi Arabia’s driving ban for women will have an impact on the economy and gasoline consumption, the energy minister said.
The oil-rich kingdom will allow women to drive from Sunday, ending its status as the only country in the world to ban half the population from getting behind the wheel.

“There will be more cars on the road,” Khalid Al-Falih said in Vienna, where he was attending an OPEC meeting.
"Women will be more empowered and more mobile and I think they will participate more in the job market over time, so I think it’s going to contribute to employment of females in Saudi Arabia. A secondary effect will probably be higher gasoline demand.”
The plan to allow women to drive is one of the most dramatic move in the government’s bid to open up Saudi society and modernize the economy. Yet at the same time, the government has jailed some women who campaigned to drive for years. Saudi Arabia adheres to an austere version of Islam and has curbs on women, barring them from driving and requiring them to have the permission of a male guardian to marry or travel abroad.
When asked if he was looking forward to his daughters being able to drive, Al-Falih said, “absolutely.”

MSCI adds Saudi, Argentina to index, emerging markets to grow by $600 bn

Emerging market stocks are about to get a $600 billion boost.
That’s how much the asset class will expand after MSCI Inc. said on Wednesday it will add both Saudi Arabia and Argentina to its equity index of developing nations. Neither decision was assured, and together, they could prompt a relief rally after a selloff knocked $2.7 trillion from emerging economies since late January amid threats of a global trade war and higher US rates.
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Saudi Arabia — home to the Middle East’s biggest bourse — and Argentina, pummeled by a currency rout that prompted it to seek help from the International Monetary Fund, join the likes of China, India and Brazil. The change could attract billions of dollars of foreign-investment flows from index-tracking funds.
“The news on Saudi and Argentina will boost inflows to those markets short-term, but the outlook for EM assets will depend more fundamentally on global conditions — notably the dollar, US yields and the risk of an escalating trade war,” said Geoff Dennis, head of global emerging-market strategy at UBS in Boston. “It’s only a short-term lift to the asset class overall.”
The potential for an MSCI inclusion made the market in Riyadh a magnet for foreign investors, turning it into the world’s second-best performer this year. By contrast, waning confidence in Argentina’s economy, a currency slump and one of the world’s highest inflation rates is shrinking the Buenos Aires market.
“By supporting the inclusion of Saudi Arabia and Argentina in emerging markets, international institutional investors confirmed that they are now able and ready to access and operate in these markets,” Sebastien Lieblich, MSCI’s managing director and global head of equity solutions, said in a statement. An initial public offering of state-owned Saudi Aramco could increase Saudi Arabia’s weight to 4.4 per cent from 2.6 per cent within the MSCI EM Index, he said in an interview on Thursday.
The index provider did add a caveat, saying that it would reconsider the Argentine decision should authorities introduce “any sort” of restrictions on market accessibility. The index compiler also said that due to lower liquidity in the nation’s local markets, only foreign listings such as American Depositary Receipts will be initially eligible to enter the index.
The Tadawul All Share Index advanced 0.3 per cent as of 12:24 p.m. in Riyadh. Exchange-traded funds tracking equities listed in both countries climbed in post-market trading on Wednesday. The Global X MSCI Argentina ETF advanced 7.4 per cent, while the iShares MSCI Saudi Arabia ETF advanced 2.4 per cent.
For Saudi Arabia, the upgrade will help improve liquidity after regulators implemented a series of changes aimed at adapting the bourse to international standards. Argentina’s benchmark index stands to rally by as much as 20 percent, Morgan Stanley says, after a peso rout created one of the world’s worst-performing stock markets in dollar terms.
Inclusion “is a game-changer for Saudi Arabia’s capital markets,” said Antoine Maurel, head of global markets for Middle East, North Africa and Turkey at HSBC Bank Middle East Ltd., who estimates it will lead to $35 billion of inflows. “This will create a much deeper and more liquid market,“ said Maurel, whose bank was among the first qualified foreign investors to trade Saudi stocks directly three years ago.
Saudi Arabia may see inflows of as much as $40 billion in the coming year, Khalid Al Hussan, chief executive officer of the bourse, said in a phone interview. And a timeline for the bourse’s own IPO will be announced in the second half of the year, he said in an interview to Bloomberg Television
Modernization of the Saudi stock market is part of a broader plan spearheaded by Crown Prince Mohammed Bin Salman to steer the nation’s economy away from oil and diversify the government’s sources of revenue.
That includes selling shares in government-owned Saudi Aramco, which is expected to stage an IPO in Riyadh that could be the world’s biggest. The IPO could happen before the end of 2018, according to Capital Markets Authority Chairman Mohammed El-Kuwaiz.
Saudi Arabia opened its $524 billion stock market to foreign investors three years ago. Since then, it eased requirements for these investors with measures such as lowering the minimum amount of assets under management to get QFI status and aligned trade settlement times with international standards.
In Argentina, hopes for an upgrade had faltered as the peso tumbled, making the central bank jack up interest rates to a world-beating 40 percent and leading the government to turn to the IMF for a record $50 billion credit line. Finance Minister Nicolas Dujovne welcomed the return to a status the nation last held nine years ago, saying Argentina will gain access to cheaper credit and bring more investment, growth and employment.
It’s a welcome outcome as well for investors who had been pinning hopes on an upgrade as the nation’s stocks head for the worst year in almost 10 years. An upgrade will allow funds that track more than $1 trillion to invest in the nation’s stock market, leading to about $3.5 billion of inflows, according to Ernesto Allaria, the president of stock operator BYMA.
The inclusion, coupled with the IMF deal, is expected to lead to capital inflows into the country, helping to ease pressure over the central bank to stabilize the currency, Jim Barrineau, head of emerging-market debt at Schroders in New York, wrote in a note. The recent selloff in stocks and an “attractive” exchange rate means that Argentine stocks offer “interesting opportunities” for foreign investors, according to BlackRock Inc.
“The decision will bring a positive confidence shock that the market will welcome, because it needed it,” said Alberto Bernal, chief strategist at XP Securities in Miami. “Combatting populism is a difficult task. It’s a good example for the region to see Macri rewarded for making reforms.”
Other analysts and investors were still a bit skeptical. Win Thin, the New York-based head of emerging markets at Brown Brothers Harriman & Co., said Argentine stocks may see some knee-jerk buying following the MSCI decision to upgrade the country to emerging-market status, but this doesn’t solve its problems. The Saudi market will probably face hurdles in retaining foreign money unless companies become more transparent, some traders said.
Mark Mobius, who has gained a reputation for being optimistic more often than not on emerging-markets’ prospects, said earlier this month he isn’t completely bullish on Saudi Arabia because the range of offerings is limited and a number of restrictions are still in place.
“It is very good to have more opportunities for investors to invest,” said Akira Takei, a fund manager at Asset Management One Co. in Tokyo, which oversees around $500 billion. “But the MSCI inclusion doesn’t mean they have become good in terms of quality of the economy. Argentina and Saudi Arabia still have hurdles to tackle.”

An oil giant is taking big steps; Saudi Arabia can't afford for it to slip

Ras Tanura port, Saudi Arabia, on the calm blue waters of the Persian Gulf, operates with militarylike precision. Black- and red-hulled super oil tankers must ask for permission to load months in advance. Detailed records go back 30 years to trace any vessels that have broken the rules by dumping oil or using substandard equipment. High-tech radars constantly scan for potential troublemakers, like boats sent from Iran.
At the top of the hexagonal control tower, staff dressed in neat white uniforms with officers’ epaulettes keep watch, looking over the sweep of countless storage tanks and ships. “If a target tries to hide behind a ship, we can see him,” said Salah al-Ghamdi, the chief pilot at the facility.
Thousands of ships depart these waters annually, transporting the wealth of crude beneath the Saudi Arabian desert to gas-guzzling nations. The kingdom accounts for almost one-sixth of world oil exports, and even a minor disruption here could send shudders through global markets.
The state-run oil giant that operates the port, Saudi Aramco, is the economic force behind Saudi Arabia’s transformation into a regional powerhouse. The deep oil reserves, which the company extracts, transports and sells, have made the country an important part of a geopolitical equation that includes the United States, China and Russia. Leveraging its engineering expertise, Saudi Aramco has built schools, roads, hospitals and much of the other infrastructure that girds Saudi society.
As the kingdom now prepares for its next evolution, Saudi Aramco is again central — in a role that leaves the company and the country at risk.
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The Saudi crown prince, Mohammed bin Salman, has unveiled an ambitious effort called Vision 2030 to wean the country from its dependence on oil and overhaul the economy. As part of his plan, he wants to sell a piece of the state oil giant to the public, in part to raise money for other investments.
It is one of the most highly anticipated initial public offerings, which the crown prince estimates could value Saudi Aramco at $2 trillion. But a stock sale leaves the opaque company more exposed to outside forces, a compromising position for a political beast with a powerful hand over prices at the pump.
With global prices north of $70 a barrel, Saudi Arabia and its oil giant are under pressure to increase production. It could put them at odds with some other nations in Organization of the Petroleum Exporting Countries, which meet this coming week.
“Saudi Aramco has always carried the kingdom on its back,” said Jim Krane, an energy and geopolitics fellow at Rice University’s Baker Institute. “But to support the kingdom in the coming decades, it needs to transform itself.”
In essence, the crown prince wants the kingdom and Saudi Aramco to plan for the day far in the future when the oil age draws to a close. The present is already making the crude business look less attractive. Countries around the world are shifting to renewable power, while technological advances like electric cars are eroding demand for oil.

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To diversify, Aramco is building vast new facilities that will turn crude into more profitable petrochemicals, and it is increasingly drilling for gas. It is also working with Google to establish data centres in the kingdom to develop data-analytics and cloud-computing capacity.
But the initial public offering will draw scrutiny to a company whose inner workings have long been kept out of sight. Pressure from investors, combined with a prince in a hurry to transform his country, could jeopardize the long-term approach that has made Aramco a dominant force.
For two years, a special team has been working with an array of Western bankers and advisers, preparing for how to handle quarterly reporting of results and coordinate trading between stock exchanges. A local Saudi listing seems certain, but London, New York and bourses in Asia are still in the running for a piece.
Amin H Nasser, Aramco’s chief executive, said in an interview that the company was preparing to list in all those locations. Speaking with a picture of the crown prince in the background, he added, “It makes us ready for any market the government decides.”
The ‘Golden Ghetto’
Othman al-Khowaiter was born in 1933, the same year that Standard Oil of California secured a sweeping oil concession from the founder of Saudi Arabia. The Khowaiter family was made up of poor farmers, and as a child, he worked as a houseboy. He would follow the same path as the country’s nascent energy business.
The founder, King Abdulaziz ibn Saud, needed cash to run his country, created from a patchwork of tribes. The American company, the predecessor to what is now Chevron, paid him 50,000 British pounds’ worth of gold for the contract. The company sent teams of American geologists to explore Saudi Arabia’s deserts, accompanied by Bedouin guides and soldiers from the king to ward off raiders.
Lacking today’s sophisticated tools to find oil and gas underground, they interpreted clues on the surface — fossils, domes and folds in the rock — that hinted oil may be trapped underneath. One geologist, Ernie Berg, noticed that a wadi, or ancient riverbed, took a mysterious turn. He surmised that the bend had been caused by a large uplift, indicating an underlying oil field.
It led to the 170-mile-long Ghawar field, which remains by far the world’s largest oil discovery. Such finds altered Saudi Arabia’s prospects. After a pause during World War II, money started coming in, and jobs were suddenly on offer for the new company, the Arabian American Oil Company, or Aramco.
Aramco soon became a magnet for men like Mr. Khowaiter. In a society that had long been defined by tribal connections, the company modelled itself as a meritocracy offering young hopefuls the chance for advancement. Mr. Khowaiter spent several days in 1949 crossing the country, hitching rides with passing trucks from his home in central Saudi Arabia to Dhahran on the eastern coast, where Aramco was ramping up its operations.
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“I heard about people working for Aramco, that the door was open to getting an education,” Mr. Khowaiter said, over tea and pecan pie.
Back then, Al Khobar — now a major port near Dhahran — was a medieval-looking walled town that lacked the facilities, roads or people needed for an international oil hub. Saudi employees there lived in palm-thatched huts and were plagued by diseases like malaria.
Mr. Khowaiter, who was sent by the Saudi government to study petroleum engineering at the University of Texas, eventually spent 35 years at the company, rising to become vice president of drilling before retiring in 1996. He still lives in Dhahran, now Aramco’s headquarters, in a gated community dotted with date palm trees known as the “golden ghetto,” a wealthy enclave with a Mexican theme restaurant and a golf course, among other entertainment.
Stories like Mr. Khowaiter’s are common, the most famous being Ali al-Naimi’s. Mr. Naimi, the son of a pearl diver and his Bedouin wife, began studying at an Aramco-sponsored school and was first hired by the company as an office boy at 12 years old. He embraced American culture, even learning to play shortstop in baseball, and pestered the company to send him abroad — first to Beirut, Lebanon, and then to the United States, where he earned his undergraduate and master’s degrees.
In 1988, Mr. Naimi became Aramco’s chief executive, the first Saudi in the position. In 1995, he was named Saudi Arabia’s oil minister.
“Without Aramco, I don’t know what life would be,” Mr. Khowaiter said. “We would not be at the level we are now.”
A Unique Long View
Aramco’s path has long been driven by politics. Riyadh’s relationship with the United States frayed during the Arab-Israeli war in 1973. Washington supported Israel. In retaliation, Saudi Arabia and other Arab states imposed an oil embargo on the United States. That same year, the Saudis took a 25 per cent stake in Aramco, eventually gaining full control by 1980.
The American influence is still apparent. Many expatriates stayed, and American companies kept buying and selling Saudi oil. Unlike the rest of Saudi Arabia, where recreation and entertainment are largely forbidden, Aramco compounds have baseball diamonds and movie theatres. Men and women work together and mingle in public. English is widely spoken.
Saudi Aramco’s success, in many ways, is tied to its roots. It is run more like a private company than a state-run fief, with top executives typically chosen for competence rather than connections. Its employees are efficient, skilled and highly educated, making the company an outlier in a kingdom where state control has stifled innovation and limited the kinds of opportunities that should be available in such a wealthy country.
The company is widely praised for embracing technology and, unlike many government-controlled energy companies, finishing projects on time and on budget. While Aramco does not disclose its financial results, analysts say its large, long-running fields most likely mean that the costs of bringing the oil out of the ground are among the lowest in the industry. Rystad Energy, a Norwegian market research company, estimates Saudi Aramco’s operating costs to be $4.88 for each barrel of oil. Last year, Exxon Mobil reported worldwide production costs of $10.12 a barrel.
Its Saudi parentage gives the company an advantage over the likes of Exxon and Royal Dutch Shell. Aramco doesn’t face the relentless quarter-to-quarter pressure to produce profit. It can take a really, really long-term view, and over the years has persistently opted for the most advanced — and expensive — technology to ensure it will be able to pump vast quantities of oil for decades.
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“Saudi Aramco has a much better business model than the international majors,” said J. Robinson West, chairman of the BCG Center for Energy Impact, a consultancy.
When Aramco first drilled at the Shaybah oil field in the 1990s, it picked a then unusual and costly process known as horizontal drilling. Rather than exploring straight down into the ground, Aramco’s wells lace through Shaybah. One has so many branches it is known as the “fishbone.”
They more than compensate for the cost, though. During the process, the wells have more contact with oil-bearing rocks to produce more crude, while expending less energy on pumping.
This approach is one reason giant fields like Ghawar continue to produce despite having been tapped for decades. Fields in areas like the North Sea in Europe, or in the Gulf of Mexico, have declined sharply.
“Saudi Aramco has the longest time horizon in the industry,” said Daniel Yergin, an oil historian.
With oil reserves pegged at about 260 billion barrels — far more than any publicly listed competitor — Aramco has around 70 years’ worth of resources at present production levels. It has the two largest oil fields ever discovered. And more are coming, with the recently developed Manifa capable of producing 900,000 barrels of oil a day. Western oil majors only rarely get access to such giant deposits.
“We are in a unique position where we have exclusive access to all of Saudi Arabia’s fields,” said Suha Kayum, an Aramco research scientist. “We basically develop our fields to last for centuries.”
Change Is Coming
About an hour’s drive from Dhahran, a gargantuan industrial complex dominates the desert landscape. Two square miles, it looks like a small city, except people are eerily absent and the streets are lined with pipes, storage tanks and smokestacks. Sadara, as this complex is called, represents what could be the new Aramco.
The ambitious project, which began operating last year, is the result of a $20 billion investment by the company and its partner, Dow Chemical. In all, 26 separate plants brew an array of petrochemicals from oil and gas for foam, insulation and plastics, as well as chemicals that will go into adhesives, coatings and cosmetics.
The idea is not only to feed expanding world markets for these products but to sow the seeds of a diversified Saudi economy. Officials hope Sadara will drive growth in industries like furniture and car parts, providing jobs to the country’s young and fast-growing labour force.
“We see the world changing,” said Abdulaziz al-Judaimi, Aramco’s senior vice president for chemicals and refining. “It is very much for us to read the future, and engineer our future in a way that we keep our market share.”
Aramco is separately trying to up its output of natural gas. Past policies and Saudi geology have left the kingdom surprisingly short of gas, which is increasingly used in electricity generation. The company is even on the hunt for international gas deals that could bring fuel back to Saudi Arabia, a role reversal for one of the world’s most dominant exporters.
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But whether politics and profits can peacefully coexist in this blend is a big uncertainty for Saudi Aramco.
Investors in a public Saudi Aramco may want to know why the company has research centres across the globe when others have been cutting back.
They might question why the company needs to lend executives and engineers to the government to carry out pet projects for the kingdom, like building a new university on the Red Sea.
Or they might wonder why Saudi Aramco maintains as much as two million barrels a day of spare pumping capacity for the country to intervene in world markets, an amount that is equal to the total oil production of Nigeria.
“They have a gold-plating mentality,” Floris Ansingh, a former head of Royal Dutch Shell’s operations in Saudi Arabia, said of Aramco. “They are very demanding on the technical side. They act like a rich company.”
After a public listing, he said, “this mentality has to go.”
©2018 The New York Times News Service

Saudi Arabia to invest $64 bn in Western-style entertainment in next decade

Saudi Arabia announced plans today to spend billions on building new venues and flying in Western acts, in a total overhaul of its entertainment sector that would be unthinkable not long ago.
Long known for its ultra-conservative mores, the kingdom has embarked on a wide-ranging programme of social and economic reforms driven by Crown Prince Mohammed bin Salman.
At a glitzy press conference in Riyadh, General Entertainment Authority chief Ahmad bin Aqeel al-Khatib told reporters the kingdom is set to invest $64 billion in its entertainment sector over the coming decade.
"We are already building the infrastructure," Khatib said, adding that ground had been broken for an opera house.
"God willing, you will see a real change by 2020," Khatib said, adding that more than 5,000 events were planned for the coming year.
Behind him, a screen teased the names of international acts like Maroon 5, Andrea Bocelli and Cirque du Soleil.
Neither a breakdown of how the money would be spent or a schedule for the cultural programme was provided.
But it follows a series of events in recent months including concerts, a Comic-Con festival and a mixed-gender national day celebration that saw people dancing in the streets to thumping electronic music for the first time.
Authorities have also announced plans to lift a decades-old ban on cinemas this year, with some 300 expected to open by 2030.

Saudi Aramco to enter India as part of Asia expansion: CEO tells Nikkei

Saudi Aramco, the state oil company of Saudi Arabia, is considering entering India as part of its Asian expansion, Nikkei said on Tuesday, citing Aramco's CEO who said that plans for an Indian refinery are crystallising.

"Saudi Aramco is looking at additional investments in China, and India is also a very important destination which we are giving great consideration, and (where we are) currently in discussion with some companies," Aramco CEO Amin Nasser told the Nikkei Asian Review in an interview.
The Saudi government has said it plans to sell about 5 per cent of Aramco, hoping to raise some $100 billion or more in what would likely be the world's biggest initial public offer (IPO).
"At the moment, we are prepared for a listing in the second half of 2018," Nasser confirmed to Nikkei.
Saudi officials have said they may list Aramco on one or more foreign markets such as New York, London and Hong Kong in addition to Riyadh, which would boost the company's global profile and reduce the strain on the Saudi market.