A2 Friday 15 May 2015
BUSINESS DAY Friday 15 May 2015 FT FINANCIAL TIMES A3 US oil veteran rejects Saudi shale claims Page A5 World Business Newspaper Brazil - Oily mess Page A6 In association with US oil chief rebuffs Saudi ‘gloating’ with pledge shale will bounce back ED CROOKS AND BARNEY JOPSON A leading figure in the US oil industry has insisted the shale slowdown is temporary and rejected claims by Saudi Arabia that it was succeeding in squeezing American shale producers. Harold Hamm, chief executive of Continental Resources, rejected claims by a Saudi official, reported in the Financial Times yesterday, that the lower oil price had deterred investment in higher-cost sources of oil, such as shale. “They want to stop shale oil,” he told the FT. “They might for six months but not for the rest of time.” He also argued that the Saudi comments would be likely to strengthen political support in the US for a relaxation of the country’s decades-old ban on crude oil exports. Opec, the producers’ cartel, kept output steady in November, despite the plunge in crude prices, in effect relinquishing its traditional role of adjusting production to support prices. Saudi Arabia later said its aim was to put pressure on highcost producers such as the US shale drillers, though it denied seeking to target American companies directly. The weakness in the oil price has curtailed drilling activity in US shale. But Mr Hamm reiterated his view that a price of about $70 per barrel for West Texas Intermediate - the US benchmark crude - which is currently trading at about $61, would be enough to stimulate increased activity and production growth. “[The Saudis] need to be a little slow to gloat,” he said. Bombardier slows private jet output but rival expects more lift from world’s rich ROBERT WRIGHT Canada’s Bombardier yesterday blamed a waning appetite for private jets from Chinese tycoons and Russian oligarchs for forcing it to cut 1,750 jobs and slow down production of its high-end business aircraft. The production cutbacks for the Global 5000 and 6000 - which whisk chief executives and plutocrats between continents - are the latest setback for the company as it grapples with the high costs and lacklustre order book for its C Series commercial jet. But Bombardier’s description of the market bemused its leading competitor and a senior analyst, who both predict continued strong demand from the rich to fly around in the ultimate luxury. Bombardier said that “current economic conditions and geopolitical issues” in Latin America, China and Russia had hit its new orders across the business jet market. Yet Richard Aboulafia, an analyst at the Virginia-based Teal Group, insisted that the global corporate jet market continued to enjoy growth - “not great growth, but OK growth”. Demand for the very largest corporate jets has remained robust since the financial crisis, according to Teal figures. The aggregate value of annual deliveries of jets costing more than $26m grew 29 per cent between 2008 and last year. Annual deliveries of aircraft costing less than $26m fell 52 per cent over the same period. Mr Aboulafia blamed Bombardier’s rapid recent increases in production for its decision to cut back. Its two rivals in the large business jet market - France’s Dassault Aviation and General Dynamics’ Gulfstream - had increased production more slowly and reported no such need to slow down. “This idea of shrinking in this market - that’s so far a Bombardier problem and I think it will stay that way,” Mr Aboulafia said. Gulfstream confirmed it was standing by its forecast that this year it would produce 115 large-cabin aircraft, about the same as last year, and 10 more medium-cabin aircraft than in 2014. Bombardier declined to comment on how its strategy compared with competitors’. Teal predicts that Bombardier will produce 75 Global 5000 and 6000 aircraft this year and 69 in 2016. The company built 80 of the two models in 2014. Up to 1,000 of the Bombardier job cuts will fall around Montreal, 480 around Toronto and 280 in Belfast, Northern Ireland, the company said. U.S. Senate Majority Leader Mitch McConnell (R-KY) (C) departs the Senate floor after a vote at the U.S. Capitol in Washington, yesterday. President Barack Obama’s trade agenda, which focuses squarely on developing stronger ties with Asia, gets a shot at new life on Thursday when the U.S. Senate is set to hold an important test vote on legislation to help him complete a Pacific Rim deal. REUTERS Draghi warns central banks against ‘blind’ risk-taking ECB president alert to danger of financial instability and inequality CLAIRE JONES Mario Draghi has warned central banks to beware of the risk that aggressive monetary easing, including mass bond buying, could lead to financial instability and worsen income inequality. The European Central Bank president said the apparent success of policies such as the ECB’s €1.1tn quantitative easing package should not “blind” policy makers to the potential consequences of their actions on risk-taking in financial markets and in exacerbating wealth disparities. “Because the use of these new instruments can have different consequences than conventional monetary policy, in particular with respect to the distribution of wealth and the allocation of resources, it has become more important that those consequences are identified, weighed and where necessary mitigated,” Mr Draghi said at the International Monetary Fund in Washington. Central banks have faced criticism that their response to the financial crisis is stoking assetprice bubbles and increasing inequality. But this was the first time Mr Draghi has spoken in depth of concerns about aggressive action by central banks. He defended the decision to launch QE and other easing measures unleashed over the past year and claimed there was little to suggest imbalances in the financial system had already emerged. He also noted that all monetary policies had effects on wealth distribution and inaction by the ECB would have penalised young people. Mr Draghi argued that while the impact of QE on asset prices and economic confidence had been substantial, what ultimately mattered was what happened to investment, consumption and inflation in the eurozone. In an attempt to play down talk that the ECB could slow the pace of its €60bn per month asset purchase plan before the planned cut-off point of September 2016, he said: “We will implement in full our purchase programme as announced and, in any case, until we see a sustained adjustment in the path of inflation.” There was no inflation in the eurozone in the year to April 2015. The ECB targets a level of below but close to 2 per cent. The restated commitment to QE follows weeks of volatility in German bonds. They suffered a dramatic sell-off amid speculation the ECB would taper its bond-buying following signs of economic improvement in the eurozone. Figures published this week showed the region’s economy outpacing its US and UK rivals in the first quarter on the back of a spending spree fuelled by cheap energy prices and low inflation. “After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk,” said Mr Draghi. “For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis.”