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Middle East & African Monitor - 08 December 2016

  • Early oil market rebalancing depends on Non-OPEC members participation
  • Iran pushes ahead with missile program - Republicans call on Trump to act
  • QIA to buy US$11 bio stake in Russian oil company
  • Egypt & China sign US$2.6 bio currency swap agreement
  • Shell eyes oil & gas deals in Iran
  • Oman to Offer up to US$2 bio in international bonds next year
  • SAR rates stage strong rally

REGIONAL COMMENTARY

Early oil market rebalancing depends on Non-OPEC members participation
The UAE’s Oil Minister, Suhail al Mazrouei, and his Nigerian counterpart, Emmanuel Ibe Kachikwu, were quoted as saying yesterday that cuts by non-OPEC members are essential, If hopes for a fully balanced oil market during the first half of next year can be realized. Thus OPEC’s decision to reduce output by 1.2 mio barrels needs to be supported by a further 600,000 barrel reduction from non-members such as Russia, both ministers stated, with al Mazrouei adding that while he believed “shale will come back if the price is right,” he also did not anticipate any “significant” growth in production from that particular source in the near term despite the recent jump in prices following the OPEC agreement. Thus far Russia and Mexico have committed to joining the OPEC move and suggested cuts of 300,000 and 215,000 bpd respectively, with Oman also expected to participate. A non-OPEC meeting to discuss the issue is set to take place in Vienna this coming Saturday, while OPEC will implement its already agreed planned cuts at the start of 2017. Meanwhile the latest EIA report for the week ending December 2nd 2016 showed that commercial crude inventories in the US had fallen by 2.4 mio barrels.

Iran pushes ahead with missile program - Republicans call on Trump to act
The head of the Iranian Revolutionary Guards ‘Aerospace’ division, Brigadier General Amir Ali Hajizadeh, was quoted by the state-run Fars news agency claiming this week that his country had increased its production of ballistic missiles and was working on improving their precision in targeting. “Iran has increased the missile accuracy and production based on the recommendations of the General Commander of the Armed Forces, Supreme Leader Ali Khamenei,” Hajizadeh stated adding that, “In addition to enhancing the precision-striking power and quality of ballistic missiles, the Iranian authorities and experts have used innovative and shortcut methods to produce inexpensive missiles and today, we are witnessing an increase in production of ballistic missiles.” This development has persuaded the US Defence department to initiate a fresh investigation into Iran’s missile program, while some Republican Senators are now actively calling on President-elect Trump to take steps against Tehran on this matter as soon as he enters office. Tom Cotton the Senator of Arkansas is one of those demanding action and was quoted by Fox news this week as saying; “We have many strengths, we are the strongest economy in the world, we are able to impose sanctions for breaches of the nuclear deal and other commitments that the Iranian regime did not take seriously. These ballistic missiles can reach the territory of the US and its allies. The Iranian regime needs to stop manufacturing missiles and completely stop supporting terrorism and fueling instability in the region,” Cotton said warning that Tehran; “must understand that Trump is different from other ex-Presidents.”

QIA to buy US$11 bio stake in Russian oil company
Qatar’s Sovereign Wealth Fund and Glencore have agreed to take a joint 19.75% stake in Russia’s largest oil firm Rosneft for US$11 bio, according to Russian media reports last night. Glencore said in a later statement that it would finance part of this deal by putting up EUR 300 million of its own equity, with the balance financed by banks and by the Qatar Investment Authority, which is also the commodity trading firm’s largest shareholder.

Egypt & China sign US$2.6 bio currency swap agreement
Egyptian and Chinese officials finalized a US$2.6 bio currency swap deal earlier this week, that will enable the Central Banks of each country to exchange payments in EGP and CNY, and is aimed at facilitating trade settlements between the two. Meanwhile Egypt’s foreign exchange reserves rose by over US$4 bio to US$23.06 bio in November against US$19.04 bio the previous month. This increase is attributed to the arrival of the first US$2.75 bio tranche from the IMF and around US$2 bio from other international lenders.

Shell eyes oil & gas deals in Iran
Despite ongoing concern by many foreign firms on the potential risks of investing in Iran, due to remaining US sanctions and an incoming Trump administration, Royal Dutch Shell has signed a provisional agreement with Tehran to “explore areas of potential cooperation.” The agreement reportedly covers the development of Iran's oil fields in South Azadegan and Yadavaran, near to the country’s border with Iraq as well as the Kish gas field. It’s worth noting however that this MOU is only preliminary and does not guarantee any actual investment by Shell at this stage.

Oman to Offer up to US$2 bio in international bonds next year
Although the exact size and timing of another international bond issue by Oman has not yet been officially announced, most expect the country to try and raise between US$1.5 – US$2 bio via such an issuance in 2017.

SAR rates stage strong rally
The dramatic move in the SAR swap curve this past week or so has been something of a surprise but clearly continuing to be driven by a number of factors including; The Kingdom’s successful international bond issue, as much of these proceeds were deposited with the local banks, the suspension of the SAR 20 bio monthly domestic bond issues (which will restart next year), the extension of the repo window out to 3 months, the government’s move to settle SAR 100 bio in payments due to construction firms by the end of this year which in turn should help boost local banking liquidity, and of course the OPEC production cut agreement. Since the 30th of November, SAR rates have rallied aggressively with the 5y-10y sector dropping by 50bps, and seeing 10Y SAR now trading cheaper than the 10Y AED swap. However we caution against betting on further significant gains into 2017 and as such suggest taking advantage of the recent moves by paying 10Y SAR/AED IRS spread at -10 bps which is carry-positive.

Middle-East-African-Monitor-08-12-2016

AND FINALLY…
Did you know that in 1968 there were reportedly only 13 cars in Dubai? By 2015 there were more than 1.4 mio vehicles on the city’s roads. 

Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
MarketInsights&Strategy@nbad.com
Tel: +971 2 6110 127

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