Oil prices drop almost 1% on concerns US recession may be looming

A potential US recession weighed on crude prices. Above, a refinery near the Corpus Christi ship channel in Corpus Christi, Texas. (AFP)
Updated 25 March 2019
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Oil prices drop almost 1% on concerns US recession may be looming

  • Concerns about a potential US recession resurfaced late last week after bearish remarks by the US Federal Reserve
  • Ten-year treasury yields slipped below the three-month rate for the first time since 2007

SINGAPORE: Oil prices dropped by almost 1 percent on Monday, with concerns recession could be looming outweighing supply disruptions from OPEC’s production cutbacks and from US sanctions on Iran and Venezuela.
Brent crude oil futures were at $66.56 per barrel at 0410 GMT, down 47 cents, or 0.7 percent, from their last close.
US West Texas Intermediate (WTI) futures were at $58.52 per barrel, down 52 cents, or 0.9 percent, from their previous settlement.
Both crude oil price benchmarks have slumped by more than 3 percent since last week hitting their highest since November 2018.
Concerns about a potential US recession resurfaced late last week after bearish remarks by the US Federal Reserve, with 10-year treasury yields slipping below the three-month rate for the first time since 2007.
Historically, an inverted yield curve — where long-term rates fall below short-term — has signaled an upcoming recession.
Adding to the fears of a more widespread global downturn, manufacturing output data from Germany, Europe’s biggest economy, shrunk for the third straight month.
“Estimates for growth and earnings have been revised down materially across all major regions,” said US bank Morgan Stanley.
ANZ bank said the darkening economic outlook “overshadowed the supply-side issues” the oil market was facing amid supply cuts led by producer club OPEC as well as the US sanctions on Venezuela and Iran.
The Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies such as Russia, together referred to as ‘OPEC+’, have pledged to withhold around 1.2 million barrels per day (bpd) of oil supply this year to prop up markets, with OPEC’s de-facto leader seen to be pushing for a crude price of over $70 per barrel.


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.