Market Movements 02-09-2015Change Closing pts

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OPEC oil output falls from record in AugLONDON, Sept 2, (RTRS):OPEC oil output fell inAugust from the highestmonthly level in recent histo-ry, a Reuters survey found onWednesday, as disruptions toflows on Iraq’s northernpipeline halted supplygrowth from the group’s sec-ond-largest producer.

Largely stable output from SaudiArabia and other Gulf members ofthe Organization of the PetroleumExporting Countries indicated theyare not wavering in their focus ondefending market share instead ofprices.

OPEC supply fell in August to 31.71million barrels per day (bpd) from arevised 31.88 million bpd in July,according to the survey, based on ship-ping data and information from sourcesat oil companies, OPEC and consult-ants.

Oil has weakened due to surging out-put and is trading below $50, not farfrom a more than six-year low close to$42 reached last month. OPEC’s shiftto the market-share strategy in 2014,led by Saudi Arabia, deepened the

decline.Despite calls from some members

for an emergency meeting, even OPECdelegates who favour supply cuts donot expect any to be agreed, leaving asurplus which OPEC’s own numbersindicate is at least 2 million bpd on themarket.

“I really see no chance for holding ameeting before the scheduled Dec. 4meeting, which will reach no concreteagreement to drastically cut produc-tion,” said a delegate from one ofOPEC’s African members.

“We know that the present oversup-ply is more than 2 million barrels perday.”

The decline in OPEC output fromJuly’s level was the first since Februarybased on Reuters surveys. Even so,OPEC has boosted production byalmost 1.5 million bpd since theNovember 2014 switch in policy todefend market share.

July’s output from OPEC’s current12 members was revised lower but isstill the highest since Reuters recordsbegan in 1997. OPEC output wasabove 32 million bpd in 2008 untilIndonesia left the group at the end ofthe year.

The biggest drop in August camefrom Iraq, one of the main drivers of

Kuwait real estate activityNational Bank of Kuwait

The European Commission gaveits approval Wednesday of RoyalDutch Shell’s planned acquisitionof Britain’s BG Group in a deal thatmust also be cleared by Australianand Chinese regulators.

The Commission said theplanned £47-billion (64-billion-euro,$71.9-billion) hook-up of Shell andenergy group BG “would not raisecompetition concerns” in eithertheir oil or liquefied natural gas

(LNG) activities.“The transaction was cleared as

it will not grant Shell market powerin oil and gas exploration, LNG liq-uefaction or LNG wholesale supply.Shell will also not be able to pre-vent competitors from using its gasinfrastructure in the North Sea,” aCommission statement said.

In its own statement on theEuropean decision, BG noted that“other pre-conditional approvals

are required from Australia (anti-trust and foreign investment) andChina (anti-trust) and regulatory fil-ings have been submitted for eachof these approvals.”

BG also said the deal — whichwas announced April 8 with thesupport of executives in both com-panies hoping to close it by early2016 — “will also require supportfrom both BG Group and Shellshareholders.” (AFP)

Europe approves Shell’s purchase of BG Group

The expansion of Saudi Arabia’sKhurais oilfield is expected to bedelayed from the originally plannedtimeframe of 2017 and the start-update is now unclear, sources said.

The sources said authorities hadnot given reasons for the delay.However, since global oil prices start-ed to fall sharply last year, national oilgiant Saudi Aramco has slowed someprojects, shelving less important onesand asking for discounts on some

contracts which it had awarded.“The project is important because

of the associated gas that comeswith the expansion of the oilfield ...but Aramco has stretched the time-frame of the field. The picture will bemuch clearer in November orDecember,” said one source whodeclined to be identified because ofcommercial sensitivities.

Contractors who have beenawarded jobs on the field were asked

to wait to finalise their contracts, sug-gesting start-up could be pushedbeyond 2018, another source said.

Saudi Aramco did not respond toan emailed query for comment.

The Khurais expansion project isdue to increase the field’s output by300,000 barrels per day (bpd) to 1.5million bpd, and allow it to produce143 million standard cubic feet perday of associated gas and 34,000bpd of natural gas liquids. (RTRS)

Khurais expansion delayed, start-up date unclear

Iraq disruption cited Bad loans likely to edge higher by end of year

Oil price slump to start affecting Saudi banks: S&PDUBAI, Sept 2, (Agencies): Theimpact of lower oil prices will soonstart to weigh on Saudi Arabia’sbanks, which are likely to see badloans edge higher by the end of theyear, according to Standard & Poor’s.

Lenders in the kingdom have so farmanaged to defy many analysts’expectations by posting generallyhealthy results, despite the roughly 60percent slide in oil prices since Juneof last year.

The ratings agency said it usuallytook a few quarters for asset qualityissues to surface in a less resilienteconomy.

“Over the past few years, we haveseen a stabilisation in asset qualityand it has been a story of decliningcredit losses. But we now believe thatthrough the end of this year we will

begin to see credit losses picking up,”said Timucin Engin, a banking analystat S&P.

The ratio of banks’ non-performingloans to total loans stood at 1.2 per-cent in the first quarter, up from 1.1percent in 2014, according to datafrom the Saudi Arabian MonetaryAgency, the central bank. That isdown from its peak of 3.3 percent inmid-2010 when the kingdom’s finan-cial sector suffered some fallout fromthe global financial crisis.

S&P said historical data suggestedthere was a clear link between non-performing loans and oil prices. Afteroil prices sunk to a low of around $30per barrel in late 2008, the ratio of badloans more than doubled in the sub-sequent months, its data indicated.

The link is likely to be reinforced if,

as expected, the government beginsto slow spending, pumping lessmoney into the economy.

Still, analysts are not overly wor-ried about the health of the bankingsector as the regulator requireslenders to keep coverage ratios wellabove the requirements proposed byBasel III and requires banks to makeprovisions for loans before theysour.

“Banks are cognizant of this [risingcredit losses] and we would expect agradual pickup in provisions,” saidSuha Urgan, another banking analystat S&P.

Standard & Poor’s RatingsServices today published a CreditFAQ, “Assessing The Effects Of TheSaudi Government’s Debt IssuanceProgram On The Domestic Banking

System Debt Issuance Program OnThe Domestic Banking System.”

In early August 2015, the SaudiArabian government issued SaudiArabian riyal (SAR) 20 billion inlocal currency debt subscribed bypublic institutions and local banks.The bonds were issued acrossthree tranches with five-year (1.92percent yield), seven-year (2.34percent yield), and 10-year (2.65percent yield) maturities. Theissuance followed a SAR15 billionprivate placement with non-bankSaudi Arabian financial institutionsin July. Looking ahead, we under-stand that the government is likelyto continue issuing debt on amonthly basis under this local cur-rency program to finance its bur-geoning fiscal deficit.

the rise in OPEC output this year.Exports from southern Iraq edged

about 40,000 bpd lower to just above 3million bpd, according to Iraqi officialsand shipping data seen by Reuters.

Shipments from Iraq’s north viaCeyhan in Turkey by Iraq’s State OilMarketing Organisation and theKurdistan Regional Government post-

ed a larger fall because of halts in theflow along the pipeline from Iraq, ship-ping data showed.

Top exporter Saudi Arabia kept out-put largely stable in August, sources inthe survey said, following a decline inJuly. There was no significant changein the other major Gulf producers,Kuwait and the United Arab Emirates.

Nigerian exports rose in Augustaccording to loading schedules,although Royal Dutch Shell said onAug. 27 it shut two pipelines anddeclared force majeure on Bonny crudeexports, which could have a largerimpact in September.

Algeria posted a small increase afterstarting production at two fields and

output in Iran, eager to reclaim its tra-ditional spot as OPEC’s second-largestproducer if and when sanctions are lift-ed, also edged up slightly.

Libyan production declined inAugust. Supply remains disrupted byunrest and negotiations to reopenclosed oil facilities have yet to suc-ceed.

Meeting reflects ‘eagerness’ to fortify banking sector

GCC cbank govs meet kicks off in DohaDOHA, Sept 2, (KUNA): The 62ndmeeting of the governors of theGulf Cooperation Council (GCC)monetary agencies and centralbanks reflects eagerness on fortify-ing the banking sector in the mem-ber states, Governor of the CentralBank of Kuwait (CBK) Dr.Mohammad Al-Hashel said onWednesday.

This is likely to help guaranteethe sector will carry on with itsleading role to promote economiesin the member states, boostinggrowth and development, Al-Hashel told KUNA after the meet-ing held today in Doha.

He pointed to the challengespertaining to the sagging worldeconomy, the sharp fall in oilprices, and the back-to-backgeopolitical developments in theregion.

Today, governors of GCC mone-tary agencies and central banks dis-cussed, and exchanged views onmonetary and financial develop-ments in the six-member bloc.

They also reviewed recommen-dations of affiliate committees andteams, concerned with supervisionand monitoring of the banking

apparatus.Participants focused on a

mechanism for exchanging infor-mation among the GCC creditdata centers and the payment sys-tems related to work progress in aproposed study for connectingpayment systems in memberstates.

The senior banking and finan-cial officials were also acquainted

with the latest efforts to combatmoney laundering and financingof terrorism in the GCC states aswell as arrangements for the 12thbanking conference to be held inOman during the second half of2016.

Other major issues discussedtoday included developmentsrelated to the Gulf MonetaryCouncil.

Spending, govt investment to support 1.7% growth in Kuwait

GCC urged to prioritise efficient energy useMiddle East Q3 2015 is produced byCebr, ICAEW’s partner and economicforecaster. Commissioned by ICAEW,the report provides a snapshot of theregion’s economic performance. Thereport undertakes a quarterly reviewof the Middle East, focusing on theGulf Cooperation Council (GCC)member countries (United ArabEmirates, Bahrain, Saudi Arabia,Oman, Qatar and Kuwait), as well asEgypt, Iran, Iraq, Jordan and Lebanon(abbreviated to GCC+5).

❑ ❑ ❑

Report by ICAEW

The GCC has grown to no longer be justa major energy supplier, but also a sub-

stantial demand hub with requirements’growth unmatched by anywhere but Chinaand India. This has motivated governmentsand businesses to invest in alternative ener-gy sources. However, despite recentimprovements and initiatives, the GCC’senergy efficiency remains low compared toglobal benchmarks.

According to the GCC EnergyIntensity Project, which began in late2011, the low prices of fuel, electricityand water are a substantial barrier tomore efficient energy use in the region. Inthe context of sustained lower oil prices,this is likely to remain the case, especial-ly given expanding energy demand andgrowing population across the region.

In 2011 none of the GCC countries’energy was from alternative sources. Thislooks set to change following a surge in

innovative research and target-setting onbehalf of governments in the region. TheUAE, for example, has committed to spe-cific alternative energy targets withDubai striving to generate at least 5% ofits total energy consumption from renew-ables by 2030, and Abu Dhabi setting a7% target for 2020. The Mohammed binRashid Al Maktoum Solar Park in theDubai, scheduled to open in 2017, will beable to power 30,000 average UAEhomes. The solar park aims to achieve atotal capacity of 3,000 megawatts in 2030

once it is completed.Nina Skero,

ICAEW EconomicAdviser andEconomist at Cebr,said: “Minimisingenergy intensityshould remain a pri-ority. More large-scale alternative andrenewable energyprojects, whichreduce the per-unit

cost of alternative energy, will be neces-sary to encourage households and busi-nesses to lessen their use of conventionalpower sources. However, given thetremendous investment these projectsrequire, and the fact that GCC govern-ments are seeing state revenues decline,investment will probably have to comefrom the private sector.”

With car ownership and usage in the GCCwell above the world average, governmentsare continuing to invest in public transportinfrastructure to help reduce levels of energy

consumption - and ease traffic congestion.The ambitious $200bn GCC-wide railwaynetwork is due for completion in 2018, andcontracts worth billions of dollars have beenawarded for metro line construction in AbuDhabi, Kuwait, Jeddah, Mecca and Medina.However, such infrastructure will onlyimprove energy efficiency if the rate of pub-lic pick-up is substantial. The private sectorcan help encourage this public usage, forexample by building facilities around majorrailway stations. The regional move towardslimiting or eliminating fuel subsidies willalso play a part in minimising car use.

Shifting to alternative sources of ener-gy in the water desalination sector willalso help curb energy demand in the GCC.Desalination - the process of convertingseawater into freshwater - is both energy-and cost-intensive, and the UAE, Kuwaitand Qatar are among the world’s topnations in terms of desalination capacity.With water consumption rates in theregion continuing to swell, many of theGCC countries are considering how tomake the desalination process more sus-tainable. Saudi Arabia’s King AbdullahCity for Atomic and Renewable Energy isone such example of the steps being takenby the GCC countries on the road toensuring long term freshwater supply.

Michael Armstrong, FCA and ICAEWRegional Director for the Middle East,Africa and South Asia (MEASA), said:“Although the GCC countries have beenprogressively getting more energy-effi-cient, a lot of work still needs to be done

Continued on Page 31

Market correction continues

Sales total KD 247mn, down 7.8% in JulyFollowing a slight recovery in

June, real estate sector’s salescontinued to drop in July.The realestate market seems to be goingthrough a correction.Sales acrossthe market’s three main sectors(residential, investment, commer-cial) totalled KD 247 million, down7.8% year-on-year(y/y) and 23%for the first seven months of theyear compared to the same periodlast year. Some softness has beenexpected due to the Eid and sum-mer holidays; but the marketappeared to worsen as oil pricestumbled further in July.

Sales in the residential sector fellbelow the KD 100 million mark forthe first time in almost threeyears.Sales totalled KD 98 millionin July, down 28% y/y. Reminiscentof 2010’s performances, the sectorrecorded only 251 transactions,dropping 41.5% y/y. Activity washeaviest in the Ahmadi gover-norate,which accountedfor 38% ofall residential transactions.MubarakAl-Kabeer governorate came in sec-ond, accounting for 15% of transac-tions. Vacant plots constituted 41%of all transactions in the residentialsector.

Sales in theinvestment sector alsodeclined in July.Total sales reachedKD 120million, a 9% y/y decrease.However, the number of transac-tionsincreasedby 16% compared tolast year. Apartments accounted for53% of all transactions while wholebuildingsconstituted 44% of alltransactions. The Ahmadi gover-norate once again witnessed thebulk of activity, with 55% of alltransactions; Hawalli came in sec-ond with a 31% share. The largesttransaction took place in Jahra for aplot sold at KD 4.2 million.The sec-

tor recorded a 26% decreasefor thefirst seven months of the year com-pared to the same period last year.

The commercial sector was theonly one to show y/y gains. Totalsales in the sector reached KD 31million, significantly higher than itsperformance in July 2014. The sec-tor recorded nine transactions withthe highest being for two complex-es in Salmiya worth KD 7 millioneach. Sales in the commercial sec-tor, known for its volatile perform-ance, remains down 19% for thefirst seven months of the year com-pared to the same period last year,but has performed better than the

others so far this year.Kuwait Credit Bank (KCB)

approved KD 13.7million in loansin July.The value of approved loansduring the month was down 20%y/y, while disbursed loans wereupby 41% y/y totalling KD 14.5million. The Public Authority forHousing Welfare (PAHW) beganawarding plots in South MutlaaCity; the 29,000 unitproject is theauthority’s largest to date. PAHWaims to distribute 12,000 units onpaper by the end of the fiscal year;however physical distribution isexpected in 2018, once the city’sinfrastructure is complete.

KUNA photoGovernor of the Central Bank of Kuwait Dr Mohammad Al-Hashel

Armstrong