NBAD Middle East & African Monitor – 10 March 2017
Oil price dip is a correction not a major reversal
The overall size and number of long speculative positions have outweighed the opposite short plays in the oil market over the past two months, this was highlighted by the last CFTC report which showed large punters held a net long position of 525,0000 contracts just before this week’s drop. So a correction was on the cards especially after crude prices had been stuck in a tight range for some time and had failed to test the US$60 level. The trigger for this week’s shake-out and consequent drop in WTI below US$50, was the 8.21 mio barrel jump in US inventories combined with concerns that the OPEC/non-OPEC cut agreement may not be extended in June and an increase in output by non-signatories to the deal. However as the well-known petroleum geologist Arthur Berman pointed out in his latest commentary, this rise in US stocks is pretty normal during the annual restocking season, and in fact a larger 13.8 mio barrel rise last month was ignored by the market. Berman also highlighted the comparative inventory indicator which moved up by just 2.4 mio barrels, which is not that significant compared to earlier years considering its stocking time, notably too gasoline stocks experienced a 6.56 mio drop last week, the biggest draw since 2011. Meanwhile on the production front there has been much talk about the recent increase in exports emanating from Libya and Nigeria, especially of the more attractive ‘sweet’ crude, however Shell Nigeria announced 3 days ago that production of this particular variety is to be halted for at least one month due to important maintenance work and recertification. In Libya a sudden upsurge in clashes around two of that country’s main export terminals has also affected overall production, which Libya’s state-owned oil company admitted yesterday has fallen to 620,000 bpd against 700,000 bpd in Feb. So while we cannot ignore the rebound in US shale production, ongoing high levels of inventories in both the US and Europe and that this current correction may have a little more space to run, the oil market is far more complex than just one headline number or story, on top of this global economic growth is improving and demand rising, thus the market rebalancing process is continuing despite some bumps in the road. On a technical basis the market has bounced off the 200-day MA at US$48.60 which also broadly coincides with the 50% retracement level (US$48.35) of the November-December rise in WTI, but there could be some further unwinding of speculative positions over the next couple of weeks and if this 50% retracement level breaks then US$46.90 is the near-term target.
Nigeria’s President to return to country after extended absence
President Buhari is reportedly set to return to Nigeria today after receiving medical treatment in London for an undisclosed illness. The President has been out of the country since the 19th Of January and rumours were beginning to abound on whether or not he would ever return, however a statement issued by the Presidency late yesterday claimed he would arrive home this morning. It will be interesting to see if Buhari’s return will affect recent policy moves, such as the unveiling of a national economic stimulus plan and some tinkering of the exchange rate regime, undertaken by his deputy, Yemi Osinbajo, who appears to have become increasingly popular with large sections of the population during his time as temporary head of state, driven by the growing perception that he is a man of action. This view gained traction following his decision to personally visit the restive Niger Delta region during ongoing negotiations with militant groups there, and his more recent surprise appearance at Lagos international airport where he reportedly declared the need for an urgent upgrade of some of the facility’s dilapidated infrastructure.
Iran conducts another ballistic missile test
Iran’s Revolutionary Guard has reportedly tested a sea-launched ‘Hormoz 2’ ballistic missile last week according to the state-controlled Fars media outlet. The missile has a range of around 300km and comes not long after the Iranian parliament voted to increase the country’s defence budget by 5%, with a specific focus on developing the domestic missile technology sector. Iran’s armed forces have also activated the Russian made S-3000 air defence system which the US and Israel had previously tried to block Moscow from supplying to the Iranians, and both events could be seen as another attempt by the regime to test a Trump administration which is still trying to find its feet amongst an ongoing battle with the media and opponents of the US President’s first main executive orders, such as the travel ban and the repeal of Obamacare.
Egyptian inflation hits record high
The annual urban CPI rate in Egypt rose to a thirty year high of 30.20% last month against 28.10% in January according to the latest data released by the country’s statistics agency. Food prices were the main driver as the market continues to absorb last year’s devaluation and float of the local currency, however most analysts agree that these pressures will likely begin to ease in the second half of this year.
Ghana issues GHS 1 bio bond
Ghana accepted just over GHS 1 bio in bids for a 3-year local bond yesterday at a yield of 21.50%. Both foreign and local investors were permitted to participate in the issuance. The government is facing a widening budget deficit that reached 10.20% of GDP last year.
DAMAC considers SUKUK issue
Damac Properties Dubai, is reportedly in talks with banks over a potential Islamic bond issuance this year according to a Bloomberg article. The company is rated at BB by S&P and has an existing US$650 mio Sukuk maturing in April 2019.
Tunisian airline suspends operations
Tunisair has reportedly suspended all of its flights for an indefinite period due to an alleged row between the airline’s pilots and maintenance staff over uniforms. Tunisair, the country’s flag carrier, has 29 aircraft and usually operates an average of 47 flights a day.
USD/SAR curve edges up on oil price dip
The USD/SAR forward curve edged up slightly yesterday as oil prices dipped. The offshore 1Y USD/SAR FX swap opened at 180/230 this morning against 170/200 on Monday.
A 3000 year-old statue depicting the ancient Egyptian Pharaoh Ramses II has recently been discovered under a slum on the outskirts of Cairo. According to archeologists this historical find could be one of the country’s most important ever.
Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
Tel: +971 2 6110 127
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