CGI Gulf Insights of the Week (95)

ByCGI Gulf Insights of the Week
Monday, 14 January 2019
Published inJanuary 2019

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CRIF GULF WEEKLY INSIGHTS

Country Risk Update
Saudi Arabia

Risk Indicator - DB3c
Risk Level - Slight

Ratings Trend - Deteriorating

The majority of the latest oil production cuts are likely to be borne by Saudi Arabia, curtailing its short-term growth prospects. Saudi Arabia’s oil reserves, which have allowed it to build up huge financial buffers, will support short-term government spending.

Market Overview

Oman's oil minister says crude will average over $60 a barrel this year
Italy’s top oil producer and Oman’s energy minister predict the latest oil rebound will stick. Prices are up more than 20 percent since hitting an almost two-year low in December, enough to alter OPEC+ rhetoric from reassuring investors that it will cut output to taking credit for the rebound, and in the case of Oman, forecasting where oil will trade for the year. Oman Oil Minister Mohammed Al-Rumhi told Bloomberg TV that the agreement between the Organization of Petroleum Exporting Countries and partners including Russia and Oman can sustain prices at $60 a barrel. He sees crude trading between that bottom and $70 a barrel this year. Claudio Descalzi, the chief executive officer of Italy’s Eni SpA, told Bloomberg TV the range will be between $60 and $62 a barrel. “I see demand for hydrocarbons still growing,” Descalzi said. “When we talk about 1.3 to 1.4 million barrels a day, that is still there,” referring to potential demand increases. A few weeks ago, as global benchmark Brent crude briefly dipped below $50 a barrel, OPEC ministers were taking turns to remind investors that they would trim supply. That message, along with brightening prospects for US-China trade talks seem to have worked, pushing the gauge above $60 a barrel and ending talks about an extraordinary OPEC meeting.

OPEC+ oil cuts helped US shale, says Saudi energy minister Al-Falih
Saudi Arabia’s energy minister has no quarrels with US shale and even sees output cuts by OPEC and its allies as directly aiding American drillers. “The action we have taken, quickly in December and that we’re seeing implemented as we speak, is a lifeline to US shale producers,” Khalid Al-Falih said at a conference in Abu Dhabi. The Organization of Petroleum Exporting Countries, led by Saudi Arabia, agreed to cut oil output this year to support prices. The group and its allies, known collectively as OPEC+, said they would start to trim 1.2 million barrels of daily production this month to stabilise the market. They already reduced output by 600,000 barrels a day in December, Al-Falih said last week. Crude producers in the US are pumping a record 11.7 million barrels a day, according to the Energy Information Administration. Shale explorers need almost $54 a barrel for their oil to eke out a profit because of rising costs for equipment, crews and raw materials needed to extract crude, according to JPMorgan Chase & Co. With oil prices rising, thanks in part to the Saudi-led cuts, that break-even level is in sight.

Saudi Arabia to build $10bn Aramco-run oil refinery in Pakistan
Speculation over Saudi Arabia’s rumoured building of an oil refinery in Pakistan has been all-but set in stone after the Minister for Petroleum and Energy Khalid Bin Abdul Aziz Al-Falih’s visit to the country on 13th January 2019. Al Falih visited the port city of Gwadar that stands at the apex of China’s $60 billion investment in a transport corridor running through Pakistan. There he spoke to reporters and said that Saudi Arabia will visit $10 billion in an Aramco run oil refinery. Al Falih is quoted by English language news daily Dawn to say that the refinery will be “a landmark investment for the entire region.” The proposed refinery would be “a centre point for changes in the purchase, import and export of oil,” and that it would be completed “in minimum time,” he said. The minister was accompanied by the CEO of Aramco Trading Ibrahim Qassim Al Buainain, and in the country on “on the instructions of the King,” he told reporters. His visit will be followed by that of Crown Prince Mohammed bin Salman in February during which he would sign an agreement for the refinery in the city. The agreement is expected to form the major portion of investments Saudi Arabia is expected to make in the country. Pakistan’s Board of Invest chairman had previously said that Saudi Arabia is also interested in exploring other investments in petrochemicals, mining and energy, including with power generating firm ACWA.

Naspers Acquires Minority Stake In Dubizzle For $190 Million
Naspers, one of the world's largest technology investors, has revealed that it has acquired the share capital held by non-controlling shareholders of Dubizzle (46.4%) for $190 million. Following the acquisition that was executed in April 2018 by Naspers’ subsidiary, OLX Group, the company currently holds a 100% effective interest in Dubizzle, said Naspers in its interim report. In July 2013, Naspers increased its total interest in Dubizzle to 53.6% by acquiring an additional 28.6% of the company. The fair value of the total purchase consideration was $13.34 million, consisting of $6.78 million in cash for the additional interest and $6.56 million being the acquisition date fair value of the existing interest held in Dubizzle. According to the recent deal, Dubizzle is currently valued near to $410 million. Founded in 2005 by J.C. Butler and Sim Whatley, Dubizzle became part of Naspers in 2013. Today it receives over 17 million visits per month. The company is a leading online classified and community portal in the UAE, allowing buyers to search and connect with sellers, with a wide range of listings from jobs and residential property to cars. Dubizzle is part of the OLX group, which operates within the UAE and North Africa. With more than 330 million monthly users worldwide, the OLX Group allows customers to buy and sell almost anything through consumer brands including Avito, Dubizzle, letgo and OLX.

Aramex Acquires Saudi TAL For $80 Million
Global logistics and transportation solutions provider, Aramex, announced on 13th January 2019, that it has acquired commerce and contract company, Saudi TAL, for approximately $80 million. Aramex’s Q3 2018 net profit surged by 38% to $30.7 million, up from $22.3 million in Q3 2017, driven by the boom in global e-commerce, with its International Express business growing by 18% for the same period. Saudi Arabia is Aramex’s largest market in the Middle East and holds significant growth potential for the business, according to Bashar Obeid, Chief Executive Officer of Aramex. Bashar stated that the acquisition of Saudi TAL supports Saudi Arabia’s Vision 2030, which aims to encourage private sector investment to diversify the economy. The transaction comes in line with Aramex’s strategy to have leaner and more efficient operations in all markets that it operates in. According to the company, the deal will allow Aramex to focus on upgrading last-mile delivery through innovative solutions, which will ultimately result in enhanced customer experience. Last month, Aramex launched Aramex Fleet, a crowd-based delivery platform that connects Saudi nationals to flexible last mile delivery work to leverage on Saudi Arabia’s sharing economy and support strong demand for Aramex services in the Kingdom.

Commodity Tracker

Business Events this Week In UAE

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@ Dubai World Trade Centre
Date: 13th January 2019 - 15th January 2019

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