tv Bloomberg Markets Middle East Bloomberg December 17, 2016 11:00pm-12:01am EST
underwater drone. aacy: we will start with chart that encapsulates what has happened the last couple of weeks. daily count of certain terms in all the new stories that come across the bloomberg terminal. those terms are fiscal easing versus monetarily policy. fiscal stimulus has surpassed monetary policy by the most since about early 2008. now we are talking about government spending, fiscal stimulus all based on the hopes donald trump and his new administration. so we'll have to see if that
will pan out. in the middle east, we are under two hours away from the opening of the emirates markets, dubai and i would abby -- and abu d habi. -- bye was down almost 1% was down almost 1%. saudi arabia is up of a -- up a third of a percent, despite lifting interest rates in the wake of the fed. we will be talking more about that later on. first, let's take a look at how markets closed in the u.s.. 500 down almost a fifth of a percent. dow jones basically unchanged. nasdaq down by a third. so a little bit of that exuberance we have seen the last couple of weeks finally starting
to peter out a little bit. let's check in on the first word headlines around the world. the car bomb that killed 30 people was a terrorist attack. the bombing in the central city also wounded 55 people after exploding. the incident comes a week after another major attack killed 44 people in istanbul. rose and attention shifted to applicants. goldman sachs raised its second-quarter forecast for crude, trading in new york, after saying stockpiles should fall and boost prices next year. warned that the
fed may have to raise rates more than three times next year. he doesn't know if i'll see makers are already behind the curve on inflation. isestors have sold bonds greek -- this week in anticipation that the central bank will anticipate policy tightening next year. says china will return an underwater drone it seized from the navy in the south china sea. the pentagon said it's been working with counterparts in beijing and the two sides have "come to an understanding." china's ministry of defense pledged to return the drone while also criticizing the u.s. for hyping the incident in a diplomatic row.
tracy: the company will issue new ordinary shares to pay for 10% of ad co-, giving abu dhabi a 10% stake -- a 2% stake in bp. >> we've been working here for 75 years. it's important work of bp has had for a long time, a strategic relationship in abu dhabi. oure honest, given discipline financial framework and meeting our nations in the u.s., it took us a while to work through the point where we could make this great investment with abu dhabi. the key element, which is bp shares, abu dhabi will be the owner of about 2% of bp. for bp, it will mean another
160,000 barrels a day. so continuing a long-term relationship. that's important for us. the economics are good for us. for bp, it brings in a strategic owner of the company, which i am also very pleased about. bp has worked very long time. i would like to believe that we can show them what we can do technically and management capability. we will move and work where that knock, which is going through its own transformation as a company, and we will bring our own people and maximize the future recoveries of abu dhabi's resources. we've got a lot of experience in working in managing a really big oil fields, late life oil freelance -- oil fields. as one of the things we bring. as well as a deep sense of responsibility about the privilege of working with the national resources of abu dhabi.
in many ways, the crown jewels of abu dhabi. should we take this as a sign? confidence inhave the price. we really retooled bp, getting ourselves down. a year ago, we were saying $50. now we can do to 55. i think we are going to remain very disciplined about the capital we spend, the projects we select. we've worked through some a difficulties in the u.s. that i think the company is now well positioned for growth toward the end of the decade. tracy: we recently saw a historic deal with opec for the production cut. i saw a potentially even more historic deal by non-opec producers to join in with some of those production cuts. how do you feel that opec in the future of oil at the moment? >> i think it is significant
what happened on november 30. you've got non-opec countries seriously talking about reducing output. some people have said that opec is not a real organization anymore and doesn't actually bring things together. opec is an important organization and this agreement is significant. he cannot he see in the curtailment and notices going out in the middle east. there's a schedule of reducing output from russia. i think it is very serious. i think oil prices between $55 and $60 seems realistic for 2017. and growth continues in china and in north america. tracy: donald trump has nominated rex tillerson for the potential secretary of state. do you think he is the right man for the job? >> he is an excellent person who knows the world, next and went later around the world. he knows how to get things done. is a very serious person.
i think he will do a great job. not just because i am in the oil and gas industry. this is a man who really knows the world and knows how to manage -- manage global organizations. tracy: we know donald trump is potentially more friendly to the oil and gas industry than his predecessors. what does that mean for you and other oil companies? >> surprises are happening all over the world. a lot of the world's surprise it was happened in the u.k.. columbia was a surprise. the u.s. was a surprise. i think we are in for moore surprises in 2017. we are a very long-term industry. we will navigate and work through this for us in bp has family got his financial framework and discipline back and we will adapt to whatever circumstances. tracy: later in the show, the
you can see the wide bars on this chart are long and short-term debt. shares have taken a bit of a fall, although it is recovering so far this year. walk us through the share sales. >> i think this is a big reason for doing it this way. pricehare for the same they paid. bp is satisfying in stock. to the congo disaster. the debt load has been rising subsequently because of lower oil prices. i think it makes it that much more tractor for bp to pay stock and give some protection to the
structure the deal this way and being in a -- one of the largest investors. tracy: bp in exchange gets a long-term investor with some very deep pockets. dhabird that they abu stake will be supported by one of the biggest sovereign funds in the world. >> yes. gass a major oil and investor. etiquette makes sense to give it a bp stake. it makes sense for all those interests to be held there. tracy: before we go into more details, step back for a second
and talk about the history between bp and adnoc. thatd have a share in adco expired in 2014. they let it expire. why did they let it expire and then wait for two years essentially to buy a new steak? >> it's an incredibly interesting concession. it is a 75-you can session. it goes to the early days of the oil in the middle east. when the concession expired, exxon decided not to bid for the renewal. concluded very quickly. they're still a stake out there for show if show continues to be interested. tracy: that was my next question -- there is still a stick out ell, if shell is
still interested tracy:. that was my next question. abu dhabi could be getting advice from the suit -- these two super majors and getting a more balanced picture. japan and south korea have come in with smaller states, but they do not have the same weight as a totale.s hotel -- ap or . i was that it was important to have two in there. tracy: my conversation with paul dudley, he said now was a good time to ramp up investment in the company is still going to be quite consider in terms of deals and any ramp up in spending. but oil potentially has turned a corner. we have seen a historic deal with opec and non-opec producers. should we take this particular
deal as a sign that we might finally get that upturn in investment? >> we've seen the three consecutive years -- we have seen that in three consecutive years. to besly, there has investment in new production. oil prices have recovered somewhat this year on the back of the opec deal. so yes, we may see more spending next year. but i don't think the floodgates will i think it will be cautious but i don't think the floodgates will open. i think it will because it's and careful. -- it will be cautious and careful. is bp achieving its spending? >> like all the major oil companies, the focus on cost, part of the industry to
cut cost on all nonessentials. i think this will be a multiyear process of continuing to squeeze out costs. it does take a long time to reduce structural costs. if oil prices recover and there's more oil productivity, some of the costs will come back and cyclical cost will return. on the other hand, there has investment.ff of that cannot be sustained indefinitely. the industry has to invest in its future at some point. most of the cuts have been in high-cost, more expensive projects. people talk about the deepwater in the arctic and canadian oil sands and so on. with abu dhabi, it is completely on the opposite end of the spectrum. it is a stable country. low-cost operating position, -- veryge reserves
large oil reserves. kind of unique. you might find reserves around iraq, but a far more political risk. tracy: i like the anecdote of one of the oil majors. i think it was bp that standardized all of the light bulbs on an oil reagan to bring down the cost. people do not talk about -- oil rig to bring down the cost. people do not talk about the .uts and bolts i want to bring up one of the cyclical factors that is ,otentially out there -- shale and whether or not we see the big shale recovery that will knock some of the potential for the opec deal to bring prices back up. this is the number of bricks in the u.s. permian basin. that's one of the most profitable shale territories in the u.s.. you can see it's been rising. it is now back to its highest since 2015 as prices recover.
how much is shale going to be a headache for opec? >> i think that's been the problem all along them that's why oil prices fell. opec has now decided to cut production to increase prices. it still remains very concerned that that will trigger a rebound in shale. the permian is a bit unique. tracy: but even the overall rig count has been coming back. >> the permian has been strong even in lower oil prices. the question is when will the drilling be coming back in the back of not the coda and also. the eagle is out texas. those were the a guest contributors to shale oil. that: is there anything
opec producers can actually due to go up against shale? in some respects, they are adamant they are not targeting shale. they don't see it as a competitor. >> i think they need to take is a civil oil price level and maybe that's $60 or something like that. we are really searching for what level that is. so opec can meet in its market shell -- market share. opec and shale can divide the world between them. tracy: we still have wti and brent hovering above $50 a barrel. is that where you were expecting the price to be following an opec deal of this magnitude? >> i think, because the expectation that the price movie is cap by the return of shale production, i think the feeling is that it is difficult.
mess -- hedge fund managers have talked about $70. also, do forget the huge inventories that are still there. this deal, it depends on who you believe, whether it's the opec figures or the eia, they all have different figures. there is a view that by the second half of next year, oil inventories worldwide will be drawn down -- will be starting to draw down. , stretching months into years, to draw down these unusually high inventories. side, we haveplus seen the price curve begin to find. some people are saying that this is exactly what opec wanted. it wanted to take aim at the contango in the oil structure to allow people to hoard oil and store it for future delivery. is that the right way to think about it?
>> i think that was part of the aim, yes. but that curve can finance an extent and then it becomes unattractive to keep storing oil . and at that point, people will start dumping inventories. that in itself keeps the firm inventorieste until have been fully drawn down to a normal level. until then, it is hard to get a sustained upward moving prices. tracy: you poured water a little bit on the notion of $78 per barrel oil next year. what's your forecast and what are you looking out for in terms of a catalyst for price? right?an have spikes, the market will rio -- will overreact when we are another. it's hard for me to see prices sustained above 70, let's say. a dealssume that the of is fairly effective through the first half of next year. then the price of $55, $60, something in that range, but that's a more realistic and
let's say short-term. or medium sustainable price. tracy: what are you actually looking out for for next year in terms of interesting developments that could give us clues into where oil is heading? >> obviously, compliance on the up a deal. how good is a compliance and how good is the compliance of the non-opec members, particularly russia. a lot of them would be natural declines it would happen anyway. compliance from russia would be historic. they never really complied. will it be just the permian on shale oil or will we see the other shale basins? tracy: that was robin mills, founder and ceo of qamar energy, talking all things oil. thank you, robin. the world's biggest iron ore mine has just opened in the
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it is half past 8:00 p.m. welcome black that's welcome back to bloomberg markets middle east. bp has cemented its 77-year relationship with abu dhabi with its 10% interest all one of the largest onshore oil concessions. it will swap about $2.2 billion of its own shares for -- as pay in a stake in adco, giving abu dhabi a 2% stake in bp.
>> it will mean another 160,000 barrels a day, in addition to the 95,000 barrels a day that we produce year in abu dhabi. so continuing a very, very long relationship. that is important for us. the economics are good for us, created for our shareholders. for bp, it brings in a strategic owner of the company, which i'm also very pleased. donald trump'sof granddaughter reciting a chinese parliament is being seen as a positive sign by a beijing official. the finance minister referred to the video, saying that it underscored the strength of the ties between the two nations. tidest towards cultural --
mine isbillion s 11d one of the largest on record. ale to lowerw v costs. beijing's administration has ordered more than 1200 factories in the city to either suspend or cut output, due to severe smog. this after earlier issuing the years first riddler for high levels of air pollution. the city shut down within 700 plants and asked 500 more to reduce output. the affected factories are mainly in the printing construction materials in the petrochemical industries. news, 24 hours a day, powered by more than 2600 journalists and analysts in more
than 120 countries. this is bloomberg. let's talk more about the bp deal for a 10% stake in adco. we have bloomberg news lilies commodities reporter sam here. sam, let's start off with a very broad overview. the stateat say about of the industry? the most obvious is that the industry and companies operating in the industry are more optimistic after the opec deal. they may be considering moving forward into new projects now. the structuring for the deal, shares instead of cash, there's not so much cash sloshing around in the offers, and find more
innovative ways to structure a deal. after two years of reduced spending, they need to get back in the game, start getting some -- replenishing their reserves, ready for more production in the next few years. if the shareonder element of the bp deal becomes a blueprint for other investments in the industry. on that note, what sorts of investments are we likely to see in the coming year? do you expect investment to pick up? >> we know that a lot of of the companies, the major companies, are looking at spending, now looking at new deals. i couldn't comment on the structure of the deals they are considering without knowledge of ita. total -- but total -- but totae
certainly has a pipeline for potential deals with resilient gonda that is working on. we're look -- with brazil and uganda that it is working on. can we afford it? can we keep paying dividend to shareholders? that has always been important to the business model. and are we confident that the opec deal will stick? and prices will stay high so we upld -- so we do not end overextended? tracy: we've all been so focused on this production deal. it is finally here. i guess we will be ping attention to compliance in the coming year. but what is the next thing on the horizon? >> there's likely to be a meeting in january. and there's likely to be -- they are likely to be meeting throughout when he 17. throughout 2017. compliance is a big one. implementation as well. we will have to think about when all those barrels will come off.
and there has to be a mechanism for that. monitoring of the members who these cuts,rom nigeria and libya, as well as monitoring what the market is doing outside of opec and the non-opec countries that joined in the deal, how much u.s. shale oil is coming on. is russia keeping to its cuts of 300 barrels of a? anil dash barrels a day. day?0 barrels a it's only to six months. that's the only binding part of it. we are looking to see if they can expand that for a full year. it will have a much bigger impact. it will surgically or the inventories off. -- it will start to clear the inventories off. thank you so much for joining us today. coming up, the fed is looking at three rate hikes next year.
tracy: welcome back. you are watching bloomberg markets middle east life from dubai. a quick round up of the main stories from around the middle east. setevacuation of aleppo is to resume after a new deal was reached between rebels and pro-syrian government forces. both agreed to restart the evacuation of the east of the city, which ground to a halt amidst confusion, leaving thousands of people trapped. the two sides also agreed to evacuate wounded people from to hounds held by pro-government towns heldtwo shia by rebel forces.
two airlines will cochair on dhabi.sinking to abu the tie up the gives them another option in europe over its struggling partnership with air berlin and eric thalia. central banks across the array being golf followed the fed by raising rates on thursday. all hike borrowing costs within the deaths within hours of the first rate hike of the year. the prospects of more u.s. rate hikes in 2017 will complicate their efforts to bolster economic growth and ease a cash squeeze amongst gulf banks. for more on that story, we have our guest.
i think a chart summarizes some gulfe problems in not just economies but some emerging markets more generally. this surge in the u.s. dollar index, the purple line, after the fed raised on not only short-term interest rates, but also its outlook for interest rates in 2017, now looking at potentially three rate hikes. more hawkish than a lot of people had expected. let's start very broadly for emerging markets. how much trouble is the rise in the u.s. dollar? , the rise ofegion the dollar is not a welcome thing to happen. it has been happening for the past year. you see now that they want to stimulate their nonoil economy, they want to attract investments and it becomes difficult to attract investments are capital when you have a stronger dollar. this it poses problems. we see for the first time this year gulf officials openly
talking about how a strong dollar is not very healthy for their economy. and that would counterfeit efforts to further revive economic growth. tracy: what about the fed itself? last year, we had a big discussion over whether the u.s. can go it alone in terms of raising interest rates. thelso talked about whether federal reserve cared about interest rates and the rest of the world. are those going to be revived now? >> is clear now that the fed is going ahead with it. we've seen hesitation in 2015. people expected the fed to raise rates sooner than it did. perhaps that is the silver lining for this region. andcan argue that companies economies have already started know, adapt to historic economic growth and central banks have already taken action to boost liquidity. so for the fed to raise interest
rates now, it's better than maybe six months ago. but it's clear that the fed is going ahead. at least people expect that the head is going to raise rates more in 2017. everybody knows it's coming. but how will they react to it at that point? it's difficult. if you look outside the gulf region, turkey is more vulnerable to fed rates increases in 2017, especially with the so-called trumpflation coming. tracy: we fail to differentiate between economies. there is a big difference between gulf economies here that are cash strapped and others that actually have very deep pockets. so they could whether a dollar surgery well. >> we can easily divide them into two groups. there is the group that had significant financial buffers to weather the storm or at least diversify their economies. that is kuwait, qatar, the uae.
and saudihrain arabia. the second group, if you look at more thanick prices, $90 a barrel. we are still way off. we are still more than $20 way off. for the uae and co. eight, the current prices for brent are roughly the same breakeven prices, give or take a few dollars. in those countries, they have smaller populations and significantly more reserves, money and sovereign wealth funds to whether that. that.weather so this is probably the last middle east show i'm going to host before the end of the year, which is why i keep asking everyone this question.
for 2017our outlook and what in particular will you be looking for for clues as to how gulf economies are going to whether things like higher u.s. interest rates, higher u.s. dollar and potentially if not lower oil prices, but prices that weren't as high as they used to be. >> if we talk about the goal, we talk about [indiscernible] it is the biggest economy in the arab world. what we are looking at now is the 2017 budget, which is set to come out sometime at the end of december. even though opec reached the agreement, even though oil is in themid-50's, if you look at latest bloomberg survey for economic growth in saudi arabia, 2017, it is under 1%. that is not enough to create jobs. that is not enough to basically ,- it's more or less expected but points to a very painful transition.
so we're looking at the budget to see if they have achieved their targets for the deficit in 2016. how is spending going to be in 2017? will there still be a sturdy measures -- austerity measures? this is the main thing we are looking at. the same thing for the rest of the region. but saudi arabia is [indiscernible] [laughter] tracy: economy in the room. i'm sure you have much more to write about next year. thanks for joining us today. staying with this theme, we have goldman sachs saying that 2017 will be the year to cherry pick emerging-market assets, specially those less exposed to trade volatility. speaking to us earlier this month, sheila patel said there is plenty to be upbeat about in middle eastern stocks despite a year of global, political uncertainty. tothere will be challenges>>
this region. but when you look at some of the trends, particularly what is going on in the opening of the markets in saudi and hopefully that continues and also some of the developments here in the emirates, there is interesting investment to look at. >> talk to me more about saudi arabia. i mentioned how a lot of people had almost written off the kingdom and now a remarkable turnaround. where is it going? what are you telling your clients about the saudi transformation story? >> since vision 2030 was announced, many people are turning their issa saudi and asking where is it going from here? the key is reform come opening of markets and msci inclusion. i think you see steps being taken tour that. as on as we continue to have progress on the kind of things that will develop in msci inclusion, like more free flows, access to the markets, that inclusion will bode well for the entire region. it is the big market of the
region and it needs to be open. are other interesting stories. we have the egypt story. is that of interest? >> i think egypt is of interest. people will continue to look at the political situation and be a bit concerned. here in the emirates, there is private to be interested about and continuing to diversify aside from oil. when they get more educated, they get more excited. chinese tourism in dubai and abu dhabi is growing by leaps and bounds, and concurs with the growth of the mill class in china. and you're sitting to see that out of india's well. fromin abu dhabi, tourism the chinese has gone up 300% in the last five years. >> this transformation is not going to be great. it's going to be painful. it's going to take time. what are the risks as you try to move away from dependence on oil.
this doesn't happen overnight. totakes years and years actually execute. >> absolutely. it takes time. what we've seen over and over again in every emerging-market or emerging trading economy is the fits and starts come from changes in policy from changes in reform. the more you look at this region and you look around the world, take a look at india, when the pace of reform is clear, when investors feel they know what their opportunity set is and how it will be judged, when they feel the market is open and fair, they come. so key question will be -- what are the opportunities as tourism continues develop -- continues to develop? you voice some concern in the past -- a concern actually -- about this rising tide of anti-globalization. we have seen it was a donald trump. you been caught off guard by that. now the politics in a lot of mainland europe continuing in that trend.
how do we modify political risk as we draw 2016 to a close? >> i think political risk is one of the hardest a judge. what we have to do consistency is look at the probability side of things that might happen versus the reality. opportunitiesding even around brexit and around the elections in the u.s., despite the fact that most prognosticators commingling myself, were wrong about those outcomes. that's because there's this pricing. inherent in volatility is trading opportunity. it means so activity is key, figuring out where there is domestically oriented stories that will grow with emerging markets economy will be critical. sheila patelas from goldman sachs talking to us earlier this month. coming up, we look at one of the world's largest oil exporters looking at renewable energy investment. this is bloomberg.
welcome back. one of the world's largest oil exporters wants to spend more money on a noble energy projects. saudi arabia is seeking a financial advisor to help attract investors into three renewable power projects in the kingdom. matthew martin joins us with more. let's start with the obvious. why would saudi arabia want to invest in renewable energy? >> as you mentioned, whenever anybody think so saudi ever -- saudi arabia, they think of the oil industry. saudiless known is that arabia burns about 10% of its daily production domestically on power production. is an increasing realization that is a huge opportunity lost because this is
subsidized domestically and it is wasted into the local economy when this could be saved and sold abroad much more profitably for the kingdom. a potential to do something about that they keep the oil sales to earn more, especially when the financials of the kingdom are much more strained. part of the strategies to look to the renewable sector as a way oil backg some of the out into global markets and not wasting it locally. forgive mewill little bit of skepticism. saudi has announced huge renewable power targets and then cut them or drop them. is it something different this time around? >> the big things happened in the last year>> -- [indiscernible] is also headramco of the energy ministry. three -- thessed
energy ministry has been everything include including oil extraction and exports. he has been an advocate that the fact that all these things need to be under one of bella so you can address subsidies, i the makeup of power production locally and stop these competing five downs from suffering the kingdom's previous attempts to address the issues. so he now has his wish. he's really in the driving said -- driving see. people are feeling more optimistic that this will see results this time compared to previous attempts. tracy: so we know they've hired an advisor for this. what are the prospects for attracting foreign investors? is this an attractive potential deal at this moment in time? >> this is a teaser at the moment. the total they need to raise is probably $1.5 million.
saudi arabia is an attractive market. it has a very high credit rating. foreign investors and not taking much credit risk from that perspective. of sun also vast amounts and saudi arabia. if it is not oil, then you know -- for sun, for son another easy resource there to tap. they shouldn't be any problem to attract foreign investors to the country. in saudi arabia wants them to transform aramco from just being veryl company into being a large, diversified energy company. learnudi arabia wants to about solar so we can be the energy company of the future and not just an energy company of the past focused on hydrocarbons. tracy: i wanted ask a broader question about renewable energy in the region.
i think we hit a milestone last week and that the cost of solar power actually went below the cost of more traditional types of fuel. how much does that transform or how much pressure does that put on local economies to transform? >> there has been a growing recognition that this shift is happening for some time. dubai has some of the lowest -- solar power costs in the world. so far, it has been the middle this.heerleader on they have done very well and have had successful projects and have been ambitious and tried to do that. so what we are certain to see now is saudi arabia is waking up please is like, a weight as well. abu dhabi is talking -- is turning to think about solar as well. happening.s shift is as costs fall, we will see it more and more now. uscy: thank you for joining
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