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Saudis Seek Deals With South African Arms Firms

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  • 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.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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