Oil jumps as Iran shoots down US drone in Gulf

The shooting down of a US drone has raised fears of a military confrontation between Tehran and Washington. (Reuters)
Updated 20 June 2019

Oil jumps as Iran shoots down US drone in Gulf

  • The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile
  • Also propelling oil higher was a decline in US crude inventories and the prospect of prolonged supply restraint by producer group OPEC and its allies

LONDON: Oil rose more than 3 percent toward $64 a barrel on Thursday after Iran shot down a US military drone, raising fears of a military confrontation between Tehran and Washington.
Expectations that the US Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in US crude inventories also supported prices.
US crude was up 5.8 percent at $59.91 per barrel, a three-week high. Brent crude was up 4.3 percent at $64.52 per barrel, also a three-week high, having earlier gained 3.4 percent to $63.93. US West Texas Intermediate crude rose $2.33 to $56.09.
“The risk of a military conflict in the Middle East has risen because of a ratcheting up of tensions between the United States and Iran,” said Abhishek Kumar of Interfax Energy in London. “Elsewhere, the US Federal Reserve has signaled its willingness to loosen monetary policy over the coming months, which is being perceived as favorable to oil demand.”
The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile, a US official said. Iran’s Revolutionary Guards said the drone was flying over southern Iran. Tension has been rising in the Middle East, home to over a fifth of the world’s oil output, after attacks on two tankers near the Strait of Hormuz, a chokepoint for oil supplies. Washington blamed Tehran for the tanker attacks. Iran denied any role.
Concern about slowing economic growth and a US-China trade dispute has pulled oil lower in recent weeks. Brent reached a 2019 high of $75 in April.
The prospect of further rate cuts could prove the more significant factor for oil, said Petromatrix analyst Olivier Jakob, should Iran-US tension not escalate.
“The Fed and the cutting of rates is something that will provide more substantial support,” he said.
Also propelling oil higher on Thursday was a decline in US crude inventories and the prospect of prolonged supply restraint by producer group OPEC and its allies.
US crude stocks fell by 3.1 million barrels last week, more than analysts expected, the Energy Information Administration said on Wednesday.
OPEC and allies including Russia agreed this week to meet on July 1-2, ending a month of wrangling about the timing.
The coalition known as OPEC+ looks set to extend a deal on cutting 1.2 million barrels per day of production. The deal expires at the end of June.


Saudi defense contractor to invest up to $16 million to further localize services

Updated 18 November 2019

Saudi defense contractor to invest up to $16 million to further localize services

DUBAI: Saudi-based defense contractor Middle East Propulsion Company (MEPC) plans to invest between $13 million and $16 million over the next two years to build test cells for aircraft engines and establish new production lines.
These expansion activities should complement the company’s objective to localize high-tech repairs and combine them in one roof for the Saudi defense ministry, which is a major customer, CEO Abdullah Al-Omari told Arab News.
Instead of sending aircraft engines and engines modules overseas for further servicing, thus take up more time before military assets return to actual service, localization not only cuts the turn-around period but also reduces Saudi government spending for the repairs.
“We have accomplished more than 1,600 engine and engine modules [since 2001, they] have been maintained totally in Saudi Arabia,” Al-Omari said at the sidelines of the Dubai Airshow. “The engines consume 45 percent of what you spend on aircraft.”
The company works on 150 to 160 engines and engine modules every year.
MEPC is the first specialized MRO (maintenance, repair and overhaul) company operating in the Middle East, according to its website. It has invested over $26 million during the previous two years for the localization of its MRO services.
“We used to send these parts to outside, it takes 6 months to 24 months sometimes … in case of the Apache engines, minimum turn around is 24 months,” Al-Omari said, but their localization efforts have greatly improved their capability by cutting the turn-around period to only 150 days.
The speed at which MEPC is able to repair engines and modules, boosts the readiness of Saudi military, Al-Omari added.
The company is in talks with major defense contractors, including Honeywell for the Abrams talks and GE T700 engines, for possible tie-ups to further improve their capability, he said.
“Currently there is a potential with the Kuwait army to provide them with similar services [being delivered to the Saudi defense ministry],” Al-Omari said, and expects that cooperation would start “within the next two years or so.”