The Wall Street Journal - 16.03.2020

THE WALL STREET JOURNAL. Monday, March 16, 2020 |B9

THE TICKER|Market events coming this week

FedEx is expected to post quarterly earnings of $1.48 a share on Tuesday.

RICHARD B. LEVINE/ZUMA PRESS

Monday

Empire Manufacturing Feb., previous 12.9 Mar., expected 3.5

Earnings expected* Estimate/YearAgo($) HealthEquity 0.35/0.27

Tuesday

Fed 2-day meeting starts

Business inventories Dec., previous up 0.1% Jan., expected down 0.1%

Capacity utilization Jan., previous 76.8% Feb., expected 77.0%

Industrial production Jan., previous down 0.3% Feb., expected up 0.4%

Retail sales Jan., previous up 0.3%

Feb., expected up 0.1%

Retail sales, excl. autos Jan., previous up 0.3% Feb., expected up 0.1%

Earnings expected* Estimate/YearAgo($) FedEx 1.48/3.03 HD Supply 0.55/0.70 MongoDB (0.28)/(0.17) XP Inc. 0.09/n.a.

Wednesday

Fed rate-policy meeting Target rate 1.00-1.25

EIA status report Previouschangein stocks in millionsof barrels Crude oil up 7.7 Gasoline down 5 Distillates down 6.4

Mort. bankers indexes Purch., previous up 6% Refinan., prev. up 79%

Building Permits

Jan., previous 1.551 mil. Feb., expected 1.49 mil.

Housing Starts Jan., previous 1.567 mil. Feb., expected 1.50 mil.

Earnings expected* Estimate/YearAgo($) Five Below 1.94/1.59 General Mills 0.76/0.83 IAA Inc. 0.35/n.a.

Thursday

Current account 3rd qtr., previous $124.09 bil. deficit 4th qtr., expected $105.5 bil. deficit

EIA report: natural gas Previouschangein stocks in billionsof cubic feet down 48

Initial jobless claims Previous 211,000 Expected 220,000

Leading indicators Jan., previous up 0.8% Feb., expected up 0.2%

Philadelphia Fed survey Feb., previous 36.7 Mar., expected 10.0

Earnings expected* Estimate/YearAgo($) Accenture 1.72/1.73 Cintas 2.03/1.84 Darden Restaurants 1.88/1.80 Lennar 0.85/0.74 Ollie’s Bargain Outlet Holdings 0.76/0.71

Friday

Existing home sales Jan., previous 5.46 mil. Feb., expected 5.52 mil.

Earnings expected* Estimate/YearAgo($) Tiffany & Co. 1.76/1.67

* FACTSET ESTIMATES EARNINGS-PER-SHARE ESTIMATES DON’T INCLUDE EXTRAORDINARY ITEMS (LOSSES IN PARENTHESES) NOTE: FORECASTS ARE FROM DOW JONES WEEKLY SURVEY OF ECONOMISTS

MARKETS

“The recent outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-chang- ing global landscape,” said Aramco Chief Executive Amin Nasser, citing what he said were the company’s steps “to rationalize our planned 2020 capital spending.” Aramco—the world’s most valuable oil company—said it intends to declare cash divi- dends of at least $75 billion in 2020, up from $73.2 billion in 2019. Aramco’s announcement comes little more than a week after Saudi Arabia instigated an oil-price war aimed at grabbing market share from Russia. The friction between the two nations grew out of nego- tiations between Saudi-led OPEC and Russia, in which Moscow rejected a Saudi pro-

posal to cut production in response to the coronavirus outbreak. About a week ago, Aramco slashed most of its official selling prices and said it was preparing to boost supply to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity. The moves pushed global oil prices down by more than 20%. The price war has driven down shares in Aramco, which had remained relatively resil- ient in the face of the coronavirus’ damaging effect on oil demand. “It’s an ideological move” on the part of Crown Prince Mohammed bin Salman to cut prices, said a Saudi government adviser. The crown prince’s moves reinforced fears about the

company’s governance under an autocratic leader whose in- terests don’t always align with shareholders. Senior staff and consultants at the company have pur- chased swaths of Aramco shares and many are con- cerned that the plans they have been asked to execute could cause them to lose money, according to current and former Saudi government advisers. Over five million individu- als, nearly all of them Saudis, bought into the IPO. Some middle-class Saudis invested their savings or took out loans to buy into the listing. For them, the sustained drop in share prices “could be a trag- edy,” said a former Saudi government adviser. Aramco’s IPO was a key plank of the crown prince’s plan to reform the Saudi econ-

omy and bring foreign investors into the kingdom. But in December, most international funds stayed away when the company listed at a lofty market capitalization of $1.7 tril- lion, as they worried over governance issues and considered the share too pricey. In recent months, Aramco has been pursuing a second stock offering that would list the company internationally. The price war has “literally burned all global energy investors,” a Saudi official has previ- ously said. Saudi Arabia “won’t sell a share of [Aramco] to for- eigners again,” he said. The price war, along with fears of political instability tied to the March 6 arrest of senior Saudi royals, threatens the kingdom’s ability to attract new foreign investment, the current and former Saudi advisers said. Several European

and U.S. funds that were due to travel to the kingdom to ex- plore projects, including a pipeline-manufacturing plant, have postponed their trips fol- lowing the events, a consul- tant to these companies said. The company’s stock has shed 12.8% since March 5— when it became apparent Saudi Arabia was unlikely to reach a deal with Russia on OPEC cuts. The company’s shares have declined 8.3% from the IPO price of 33 riyals. Aramco has lost about $140 billion of its value—the equiv- alent of the annual gross do- mestic product of medium-size economies such as Kuwait and Ukraine. The stock briefly rose on the annual results before con- tinuing its decline and was down 0.17% on the day to 28.95 riyals Sunday on Saudi Arabia’s Tadawul exchange.

DUBAI—State oil giant Saudi Aramco will cut its spending this year due to the coronavirus pandemic, while it increases its dividend, the company said Sunday, as its share price continued to decline amid the Saudi regime’s price war with Russia. The company’s net profit for 2019 fell 21% to 330.69 billion riyals ($88.11 billion), down from 416.52 billion riyals ($111 billion) a year earlier. The decrease was due to lower crude prices and production cuts the Saudi government agreed to with the Organization of the Petroleum Exporting Coun- tries, the company said. In its first financial results since its record $29 billion share sale in December, the Saudi Arabian OilCo., as the company is formally known, said it expects capital spending for 2020 to be between $25 billion and $30 billion, down from $32.8 billion a year earlier, due to market conditions and recent price volatility. The decision to cut expen- ditures follows the company’s announcement last week that the Saudi government has or- dered it to boost production capacity by 1 million barrels a day to 13 million barrels a day. Saudi Arabia has said an up- grade of this kind would typi- cally cost $30 billion. The coming production increase presents a new challenge for Saudi Aramco’s oper- ations: Its facilities sustained a massive drone and missile attack in September. The company said it restored its capacity within 11 days.

BYSUMMERSAID ANDBENOITFAUCON

Aramco to Cut Spending, Boost Dividend

As it begins a price war in crude with Russia, Saudi producer reports profit slid last year

The Abqaiq oil processing plant in Saudi Arabia was damaged in a drone attack last year, setting back output. Aramco is now seeking to ramp up production.

FAYEZ NURELDINE/AGENCE FRANCE-PRESSE/GETTY IMAGES

snarling transportation and the oil-price spike above a record $145 in July 2008 that preceded the financial crisis. Since then, horizontal drill- ing and hydraulic fracturing techniques spurred a historic production boom that made the energy industry an integral part of the U.S. economy and supported states from Texas to North Dakota. Soaring shale output powered the U.S. ahead of Russia and Saudi Arabia to become the world’s largest producer of oil and gas. Banks lent heavily to energy producers, helping many sur- vive the sector’s last major downturn after Saudi Arabia cut prices in 2014 to challenge the shale boom. Oil companies are a chunk of the high-yield bond market, meaning many investors fear a wave of de- faults and bankruptcies that could contribute to further market stress. “It’s an oil crisis upside

Continued from page B1

down,” said Regina Mayor, who leads KPMG LLP’s energy practice. “My clients are trying not to panic.... It’s a drive to the bottom, and it’s not good for anyone.” Saudi Aramcoslashed most of its prices recently by $6 to $8 a barrel, and Saudi officials have said the kingdom plans to increase output. The move came after Russia refused to accept deeper supply curbs at a meeting this month in Vi- enna. The Wall Street Journal reported that Saudi pleas for deeper cuts alienated both Russian President Vladimir Pu- tin and his energy minister, Al- exander Novak. The clash is an unprece- dented shift because supply is expected to increase signifi- cantly during a sizable demand drop. After the two nations coordinated oil supply as part of a price-stabilizing alliance between the Organization of the Petroleum Exporting Countries and other nations starting in 2016, their shift to a price war focused on market share threatens to amplify pressure on global growth. “We’re at a different way of looking at things,” said Darwei Kung, head of commodities and portfolio manager at DWS Group. “We’re cautious in terms of our positioning.”

Companies includingOcci- dental PetroleumCorp.,Mar- athon OilCorp.,Diamondback EnergyInc. andApacheCorp. have pledged to curb spending in response to the splintering of the Saudi-Russia alliance. Billionaire shareholder activist Carl Icahn has bought more Occidental shares as they plummet, doubling down on his fight to take control of the embattled company, The Wall Street Journal reported. Shares of S&P 500 energy companies recently hit their lowest level in more than 15 years, while Exxon Mobil Corp. andChevronCorp. have together lost about $200 billion in market value already

this year. The industry’s latest challenge also reflects sudden in- vestor skepticism that institu- tions from OPEC to governments and central banks can keep the economy balanced in response to the coronavirus. Entering the year, most Wall Street analysts expected oil to stay in its long- standing trading range, pro- jecting U.S. crude between about $50 and $60. As hedge funds and other speculative investors increased wagers on rising prices, they hit a peak above $63 on Jan. 6 after a U.S. airstrike killed a high-ranking Iranian military leader.

In the two months since then, they have been sliced nearly in half, leading cascad- ing declines across global markets. The S&P 500 is in bear- market territory, defined as a drop of 20% from a recent peak, and on Thursday ended an 11-year bull-market run that drove the index up about 300%. Meanwhile, the yield on the benchmark 10-year U.S. Trea- sury note, which affects every- thing from auto loans to mort- gage debt, tumbled to a record low of 0.5% last Monday from 1.91% at the end of last year. It ended the week at 0.95%. Those moves in tandem with tumbling raw-materials prices are sending a worrying economic signal to many investors. “Oil declining dramatically is a telltale sign that the industrial economy is in trou- ble,” said Gary Ross, chief executive of Black Gold Investors LLC and founder of consulting firm PIRA Energy Group. This week’s latest market malaise began last Sunday evening when oil-futures trading began at 6 p.m. ET. Prices fell around $30 a barrel before trimming some of that slide, but the damage quickly began rippling across asset classes. U.S. stocks fell hard enough at

the open Monday morning to trigger a circuit breaker for the first time in 23 years that kept trading frozen for 15 min- utes. “Nobody was saying it was going to open at $30,” said Robert Yawger, director of the futures division at Mizuho Se- curities U.S.A. in New York. “It’s a nasty situation.” Now, investors are weighing how much further oil prices can fall. U.S. crude fell to $26 in February 2016 before recov- ering as the Chinese economic outlook improved and OPEC cut supply. Four years later, analysts say they are strug- gling to find a similar solution. “I couldn’t think of anybody who warned of this,” said Gene McGillian, vice president of re- search at Tradition Energy in Stamford, Conn. “The world, if it wasn’t for the production agreement, is awash in oil.” Rob Thummel, a senior portfolio manager at Leawood, Kan.-based investment firm Tortoise, said he still thinks prices will recover in the long term because large producers need them to support their economies. But the OPEC sur- prise has him bracing for more big swings for now. “It’s a complete shock to ev- eryone,” he said. “This is all fear and anxiety.”

Oil Crash

Sets Off

Speculation

S&P 500 energy shares hit their lowest level in more than 15 years.

BENJAMIN LOWY/GETTY IMAGES

COMMODITIES

The Wall Street Journal - 16.03.2020

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