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Saudi Arabia Rating Cut by Fitch on Worsening Public Finances

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  • Saudi Arabia Rating Cut by Fitch on Worsening Public Finances

Saudi Arabia’s credit worthiness was cut one level by Fitch Ratings, which said low oil prices were worsening public and external finances.

Fitch reduced Saudi Arabia’s rating to A+, the fifth-highest investment grade, and changed the outlook to stable from negative, the agency said in a statement on Wednesday. The downgrade “reflects the continued deterioration of public and external balance sheets, the significantly wider than expected fiscal deficit in 2016 and continued doubts about the extent to which the government’s ambitious reform program can be implemented,” Fitch said.

The downgrade by Fitch “was anticipated,” the Finance Ministry said in an emailed statement. Saudi Arabia’s economic fundamentals are strong, it said. Fitch’s cut puts its Saudi rating on par with Moody’s Investors Service. Both classify the kingdom two levels above S&P Global Ratings.

Saudi Arabia, where more than 60 percent of government revenue last year came from oil, reported a 15 percent rise in the federal government budget deficit to 17.3 percent of economic output in 2016, Fitch said. Net foreign assets of the central bank, or the Saudi Arabian Monetary Authority, fell by $49.5 billion, or 7.7 percent of gross domestic product, between June 2016 and January 2017.

“This is a surprise,” said Joice Mathew, head of equity research at United Securities in Muscat. Unless oil prices climb, Saudis stocks will likely drop on Thursday, he said. The benchmark Tadawul All Share Index retreated 1.2 percent at the close in Riyadh before Fitch’s announcement.

The figure Fitch used for the 2016 budget deficit is higher than the level the government considers official because it includes payments owed to contractors from previous years.

Economic Overhaul

Deputy Crown Prince Mohammed bin Salman, the 31-year-old son of King Salman bin Abdulaziz Al Saud, has begun a program to overhaul the economy and repair public finances by cutting subsidies and state spending. The kingdom also plans to to sell as much as 5 percent of oil giant Saudi Aramco in an IPO as part of a plan to set up the world’s biggest sovereign wealth fund.

“It’s very hard to argue that Saudi economic policy is worse now than it was two years ago,” Crispin Hawes, London-based managing director for Teneo Intelligence. “If anything it’s slightly better, and it’s in the process of breaking through some absolutely essential taboos in terms of the ability to raise revenue from sources other than crude oil.”

Fitch said the Saudi measures will help to contain further balance sheet erosion, but it is unlikely that they will all be achieved. The scale of the reform agenda risks overwhelming the government’s administrative capacity, while the economy may not be able to absorb rises in domestic fuel prices or the planned levies on expatriates, the agency said.

“The fundamentals of the Saudi economy remain strong,” Finance Minister Mohammed Al-Jadaan said in the Saudi statement. General government assets are equivalent to more than 100 percent of economic output, and the government has rolled out “concrete structural reforms” to reduce dependence on oil, diversify the economy and rein in overspending, he said.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns

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Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.

Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.

The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.

This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.

While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.

Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.

Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.

Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.

Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.

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Crude Oil

Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm

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Dangote Refinery

The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.

Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.

The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.

However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.

Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.

He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.

Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.

The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.

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Energy

NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade

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Mele Kyari - Investors King

The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.

Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.

Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.

In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.

Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.

He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.

Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.

In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.

Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.

The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.

As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.

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