- Saudis Seek Deals With South African Arms Firms
Saudi Arabia is in talks with South Africa’s major arms manufacturers and is considering taking an equity stake in the struggling state-owned defence firm Denel, the head of the Saudi state defence company told Reuters.
Saudi Arabian Military Industries’ (SAMI) chief executive Andreas Schwer said he expected to conclude the first partnership deals with South African companies by the end of the year, though he would not identify those initial partners.
South Africa’s Department of Public Enterprises, which oversees Denel, acknowledged the talks with SAMI but said it was too early to give details of any potential partnership arrangement.
The Paramount Group, a privately held South African company, has already said it is in talks with Saudi authorities.
“To make it clear, we are in discussions with all major South African companies, not only Paramount, not only Denel,” Schwer said in a telephone interview.
South Africa’s defence industry once played a major role in the country’s economy, but more recently it has suffered from the impact of a squeeze on defence spending globally and a weak home market.
Saudi Arabia is the world’s third largest defence spender behind the United States and China with an estimated military budget last year of nearly $70 billion.
Since 2015, the Gulf state has been fighting a war against the armed Houthi movement in Yemen in support of the internationally recognised government there.
With little local manufacturing capacity, however, it has long been forced to import the bulk of its military hardware.
The Saudi government is now seeking to develop its own domestic defence industry with the goal of localising half of its military spending by 2030. Schwer said SAMI aimed to have all its foreign partnerships in place by the end of next year.
“We are in discussions with the South African government in order to identify opportunities to set up strategic partnerships which could include an equity investment from our side into Denel. It’s not decided yet, but it’s one option,” Schwer said.
Over 60 percent of Denel’s revenues come from exports. But the company has been grappling with a liquidity crunch after becoming embroiled in corruption scandals during the presidency of Jacob Zuma.
“We hope to get access to their technology. They have to commit to transfer their technology to Saudi Arabia and to build up together with us local capabilities, not only manufacturing but also engineering,” Schwer said.
He said those same conditions would apply to all of SAMI’s partners, and in return Saudi Arabia would offer preferred or exclusive market access to companies.
Denel did not pay senior staff their salaries in full this month. Labour unions say it is critical that Denel receives financial support – either via additional government guarantees or a capital injection.
A Denel spokeswoman said she was not aware of the discussions with SAMI and the Saudi government.
“Denel would welcome any country that looks at South Africa for procurement of defence material,” the spokeswoman Vuyelwa Qinga, wrote in an emailed response to Reuters’ questions.
President Cyril Ramaphosa visited Saudi Arabia in July and subsequently announced that the Saudi government pledged to invest at least $10 billion in South Africa.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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