BusinessDay 07 Nov 2017

Wednesday 07 November 2017
FINANCIAL TIMES
COMPANIES & MARKETS
@ FINANCIAL TIMES LIMITED 2015
Oil market rally spurs talk
of $70 before year end
Crude hits two-year peak, having risen
more than 40 per cent since June
DAVID SHEPPARD
The oil industry has started
to whisper of a prospect that
seemed unthinkable even
a few weeks ago: the prospect of
crude trading above $70 a barrel
before the end of 2017.
Brent crude hit a two-year high
of $64.05 a barrel on Monday, taking
gains since June to more than
40 per cent and defying those who
argued oil would be capped below
$60 this year by higher output from
the US shale industry.
The rising price of crude reflects
the success of Opec’s output cuts to
booming demand as the world enjoys
near-synchronised economic
growth.
Saudi Arabia — the largest producer
in Opec — is also in focus,
with the arrests of at least 11 Saudi
Arabian princes and dozens of
senior officials and businessmen
at the weekend raising tensions in
a country responsible for roughly
one in every nine crude barrels
pumped globally.
In the US, shale producers —
whose soaring output helped end
the $100 oil era in 2014 — appear to
have throttled back, with the number
of rigs drilling for crude tailing
off in recent months, as companies
focus on boosting profitability.
The rally in crude has inevitably
led to talk of just how much further
oil can rise, with analysts at Bank
of America Merrill Lynch saying
on Monday it was possible Brent
could see a “cyclical peak” of $75
a barrel in the near future.
Others have said that $70 a barrel
has become a real possibility,
with Opec’s members happy to
Qualcomm is set to dismiss
a $130bn unsolicited bid
from rival US chipmaker
Broadcom, setting up one of the
largest ever takeover battles with
both sides preparing for a long and
vicious campaign.
The bid, which Broadcom unveiled
on Monday, marks the culmination
of a ferocious consolidation
spree in the chip industry by
Hock Tan, chief executive of the
California-based company.
Qualcomm confirmed that it
had received the “unsolicited proposal”
and said its directors would
assess it. However, the company is
not prepared to engage with Broadcom,
several people informed on
the matter told the Financial Times.
One person close to Qualcomm
said the $70-a-share offer was significantly
below what the board
would consider seriously. Another
person described the offer as opportunistic,
given Qualcomm’s
share price has been depressed
reap higher short-term revenues
after oil’s painful three-year downturn,
despite the threat of rising
prices encouraging a new wave of
competing supply.
“We think both fundamental
data and an improvement in trader
sentiment act as strong support for
a continued test of the upside for
oil prices,” said Paul Horsnell at
Standard Chartered.
Hedge funds raised outright
bets on higher Brent prices to a
record last week, holding paper
contracts equivalent to almost
600m barrels.
The shift in short-term sentiment
has been remarkable. At a
major oil conference in London
three weeks ago not one panellist
or major attendee was seriously focused
on oil reaching $70 a barrel.
Francisco Blanch at BofA said
that while markets may overshoot
in the short run, prices for oil contracts
for delivery far in the future
remained firmly rooted closer to
$55 a barrel, suggesting the market
was not yet prepared to buy into the
rally outright.
“The rally in oil prices has coincided
with a cyclical upturn in the
global economy,” Mr Blanch said.
“[But] higher crude prices at the
prompt have not been matched by
a similar run up in longer dated
prices . . . The reality of this global
oil market is that US shale producers
are charged with providing the
marginal barrel.”
He said if longer-dated prices
reached even $60 he expected US
oil output to start growing again at
an annual rate of more than 1m barrels
a day — more than 50 per cent
higher than they currently forecast.
Qualcomm set to reject $130bn
bid from Broadcom
Chipmaker’s offer for rival would be biggest ever tech takeover
JAMES FONTANELLA-KHAN, ARASH
MASSOUDI AND TIM BRADSHAW
following a licensing dispute with
Apple.
Both companies have a significant
role in providing technology
to manufacture smartphones, including
Apple’s iPhone, which has
also raised concerns over antitrust
objections to the deal. A deal would
create a company with a combined
market capitalisation of more than
$200bn and would be the largest
ever in the technology industry.
Broadcom said it was offering
$60 in cash and $10 worth of Broadcom
shares for each Qualcomm
share. The deal, which includes
$25bn of net debt, has been made
at a 28 per cent premium to Qualcomm’s
stock price on November
2, the day before it emerged that
Broadcom was preparing a bid.
Shares in Qualcomm rose 4 per
cent in pre-market New York trading
to $64, giving it a market value
of close to $93bn and adding to
its gains from Friday when news
of Broadcom’s planned approach
leaked. Broadcom’s shares climbed
2 per cent to $279, reflecting a market
value of around $113bn.
May and Corbyn woo business in face of Brexit warnings
Prime minister calls for ‘strategic, long-term partnership’ at CBI annual conference
SARAH GORDON
Theresa May and Jeremy Corbyn
both struck a conciliatory
tone towards corporate Britain
at the CBI’s annual conference on
Monday, as business leaders warned
they needed certainty on a Brexit
transition deal by the end of the year.
Speaking to the business lobby
group at London’s O2 centre, the
prime minister called for a “strategic,
long-term partnership” with business,
and said she was determined to
give “as much certainty as possible”
on the Brexit transition period.
“The government I lead is determined
to support British business,”
she said, laying out the government’s
strategy for a “stronger, fairer, betterbalanced
economy”.
Mrs May’s stance towards business
has see-sawed since she became
prime minister. She originally
promised to promote better behaviour
by companies, but then backed
off from proposals such as introducing
workers on British boards. Since
the departure of advisers Nick Timothy
and Fiona Hill, No 10 has made
efforts to re-engage with business
leaders and their concerns.
Mr Corbyn said in a well-received
speech to the 1,300 delegates that
there was “common ground” between
business and the Labour party
on the threat a “no deal” on Brexit
posed to the economy.
“Many of you feel no closer to
having the clarity about the direction
of travel you so desperately need
Brent climbs above $64 a barrel after Saudi weekend graft crackdown
ANJLI RAVAL
Oil surged to a fresh two
year high in late afternoon
trading, with international
benchmark Brent crude
moving above $64 a barrel.
Prices were already on an
upward trend before Saudi Arabia’s
crown prince Mohammed
bin Salman issued a crackdown
this weekend on corruption with
dozens of princes, royals and
C002D5556
Jeremy Corbyn speaking at the CBI’s annual conference in London on Monday © Reuters
[than a year ago],” the Labour leader
said, blaming “chaos and confusion
at the heart of government”.
“Time is running out,” he said.
“Guarantees are needed now to stop
firms cutting the UK out of their business
models.”
He said a transitional arrangement
needed to be agreed immediately,
and added that EU citizens
working in the UK should be unilaterally
guaranteed full rights to
remain. “We agree on the need to
signal that the UK remains open to
the rest of the world, that Europe is
not the enemy,” he said.
Delegates at the conference appeared
impressed, albeit somewhat
surprised, by Mr Corbyn’s probusiness
tone.
After Paul Drechsler, the CBI
president, compared the approach
to Brexit to a soap opera,
consultant Dina Medland said on
Twitter that watching Mr Corbyn
address the conference was like
“switching from a soap suddenly
to a hard news story about human
issues — extraordinary delivery”.
Others applauded the confidence
of his delivery.
Carolyn Fairbairn, CBI director-general,
said: “Labour are right
that agreeing a transition deal as
soon as possible is mission critical
to maintain business confidence.
There is cross party agreement on
this now and so this is the time for
urgent action.”
Within his generally conciliatory
message, Mr Corbyn repeated
business tycoons under arrest.
Brent rose to a high of $64.05
a barrel, the highest since June
2015, before paring gains to
$63.78 a barrel – up $1.70.
The US marker West Texas
Intermediate broke above $56 a
barrel for the first time in more
than two years. It rose $1.46 a
barrel to $57.09 a barrel.
Traders and analysts said
that increased tensions within
the kingdom had compounded
BUSINESS DAY
A5
calls for employers to give British
workers a pay rise, and said a
Labour government would raise
taxes and nationalise utility companies.
Ms Fairbairn responded: “Industrial
strategy and Brexit must
be focused on building a fair,
innovative and productive UK
economy where society benefits,”
she said, but added: “there are
fundamental differences on the
ways to get there.
“It is clear that competitive markets
are the best way to improve
people’s lives. Abandoning this
model will hurt those who need help
most and make the UK a laggard in
the global race for investment.
Mrs May promised an industrial
strategy that would set the
“right frameworks” for business
investment, without making a plan
“for every corner of our economy”.
Her pledge was welcomed by
the CBI but Ms Fairbairn said:
“These welcome words must be
followed through: clarity on industrial
strategy and Brexit ambitions
must be matched with urgent
delivery,” she said. “Firms will do
all they can to make this happen.”
Gavin Patterson, chief executive
of BT, had told the conference
that BT was dependent on attracting
workers from the EU and that
it was “very urgent” to get clarity
on the transition arrangements.
“From the beginning of next calendar
year the value of a deal would
begin to deteriorate,” he warned.
with fundamental factors to
boost prices.
Demand has been robust
while supply cuts by global
oil producers have worked in
shrinking excess stockpiles
around the world.
Countries inside and outside
the Opec cartel are expected to
extend supply curbs of around
1.8m barrels a day throughout
the whole of 2018 when oil ministers
meet later this month.