APICORP’s CHIEF ECONOMIST’S TOP THREE SIGNPOSTS FOR ENERGY INVESTMENTS IN 2019

• Oil price to recover slightly, Brent at $60-$70/barrel into H2 2019
• Geopolitics, social media and computerized trading accentuating volatility
• Private and government investment gaps leave room for Multilateral Development Banks (MDBs)funding
• APICORP’s research in 2019 to focus on gas, energy storage and technology service

Khobar, Saudi Arabia, 30 January 2019: Leila Benali, Chief Economist, Energy Economics and Sustainability at The Arab Petroleum Investments Corporation (APICORP), a multilateral development bank, shares her thoughts on the outlook for the energy sector in 2019 in the latest report.

Benali said, “2018 ended with more red flags than ringing bells for global energy markets, as analysts looked for historical comparisons to make sense of declining stock prices, fluctuating commodity and currency markets.”

Benali believes we need to understand that continued volatility, perceptions and computerized speculation will continue playing significant roles in global energy markets.

As she explains, “Unlike previous periods of volatility, computerized trading, quantitative hedge funds, and passive funds now drive much of the trades. Consequently, trades rely on momentum as inputs, while downward movements in bearish markets are exacerbated.

“Geopolitical issues aside, as far as oil prices are concerned, there will be few new factors to consider. For instance, the International Maritime Organization (IMO) announced that it will fully implement the Sulphur caps in January 2020, as shipping companies order more scrubbers and refiners in preparation for ‘IMO 2020’.”

Benali anticipates OPEC+ cuts will aim to contribute to balancing the market in the short term, but that Brent would be trading between $60-70/b by the second half of 2019, barring a sharp economic shutdown.

“That being said, if additional supply growth materializes in a context of weaker demand, we might be back to ‘lower for longer’,” said Benali.

Energy investments, with a reduced pool of investors will see MDBs role develop. Among the traditional energy players, there is a new cycle of convergence and integration between upstream, downstream and utilities.

Benali highlights, “In addressing climate concerns, players are investing to reduce the carbon intensity of their operations with diversification into mobility, logistics, petrochemicals, utilities and storage, driving the strategies of several majors and NOCs. The US energy industry, particularly unconventional developments, continues to have relatively easy access to capital, through publicly issued securities, foreign backers and domestic private equity.” She also points out that the picture in the rest of the world is mixed.

“Another major break with the past is that we are in the midst of a major questioning of globalization and multilateralism, coupled with rising populism and isolationism, that have challenged binding global climate agreements. The multilateral institutions that were created to foster this cooperation are also coming under pressure.”

APICORP estimates that energy projects worth $337 billion were underway in the MENA region in 2017, and$622 billion are planned over the next five years.

“Around 80% of energy investments in the MENA region are still government-led, but budgets are squeezed as these governments have no choice but to run expansionist budgets, due to populism elsewhere.”

“With private and government capital holding back or focused on selected strategies, Multilateral Development Banks (MDBs) can close funding gaps by prioritizing sectors which are instrumental to their development and are of substantial economic importance.”

The structural transformations in the sector bring fascinating mixes of opportunities and inevitably change the way energy is financed. Consequently, APICORP’s research this year is expected to focus on areas where investment support and private sector development are particularly needed, in order to facilitate energy transitions and support sustainability agendas for gas, system flexibility and technology services.

The full version of the report can be found on http://bit.ly/2WBHmRI