Oil jumps on fears of new Iran sanctions, Iraq conflict

Iraqis queue outside a petrol station in Kirkuk, in this October 13, 2017 photo, amidst mounting tension between Iraq and its northern autonomous Kurdish region. (AFP)
Updated 16 October 2017
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Oil jumps on fears of new Iran sanctions, Iraq conflict

SINGAPORE: Oil markets jumped on Monday on concerns over potential renewed US sanctions against Iran as well as conflict in Iraq, while a falling US rig count supported prices there.
Brent crude futures, the international benchmark for oil prices, were at $57.82 at 0156 GMT, up 65 cents, or 1.1 percent, from the previous close.
Traders said that worries over renewed US sanctions against Iran were pushing prices up.
US President Donald Trump struck a blow against the 2015 Iran nuclear deal on Friday, defying both US allies and adversaries by refusing to formally certify that Tehran is complying with the accord even though international inspectors say it is.
Under US law, the president must certify every 90 days to Congress that Iran is complying with the deal. The US Congress will now have 60 days to decide whether to reimpose economic sanctions on Tehran that were lifted under the pact.
During the previous round of sanctions against Iran, some 1 million barrels per day (bpd) of crude oil supplies were cut off global markets. While analysts said they did not expect renewed sanctions to have such a big impact again, especially as the United States would likely act alone, they did warn that such a move would be disruptive.
“If Iran (were) found breaching their nuclear agreement and had their trade agreement revoked, (that) would be the biggest catalyst for upward momentum on crude prices,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.
There were also concerns about the stability of Iraq, the second biggest oil producer within the Organization of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia.
Iraqi forces on Sunday began moving toward oil fields and an important air base held by Kurdish forces near the oil-rich city of Kirkuk, Iraqi and Kurdish officials said.
Greg McKenna, chief market strategist at futures brokerage AxiTrader said that “Trump’s reopening of the Iran nuclear issue, (and) the ongoing threat of the Kurdish pipeline being cut off” were the main factors pushing up oil prices.

US RIG COUNT DROPS
Within the United States, crude prices were also up as drillers cut back the number of rigs tapping new production.
US West Texas Intermediate (WTI) crude futures were trading at $51.86 per barrel, up 41 cents, or 0.8 percent.
Drillers cut five oil rigs in the week to Oct. 13, bringing the total count up to 743, the lowest since early June, General Electric Co’s Baker Hughes energy services firm said in its closely followed report late on Friday.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.