Oil Below $80 Yet to Upset Bond Market Seeing Arab Wealth

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The 29 percent plunge in oil prices this year has yet to unnerve bond investors in some of the world’s biggest crude-producing nations in the Middle East.

The yield on Abu Dhabi’s April 2019 dollar-denominated security fell six basis points since Brent crude reached its year-to-date high on June 19, with the yield 48 points lower in 2014, according to data compiled by Bloomberg. The rate on Qatar’s January 2022 bond has also declined since oil peaked.

Persian Gulf producers are better prepared this time than when crude tumbled amid the financial crisis in 2008. The benchmark Brent grade has averaged $109 a barrel since January 2011, enabling the region’s wealthiest producers to amass cash. Saudi Arabia has boosted foreign-exchange reserves 68 percent to $739 billion since 2008, while Kuwait, Qatar and the United Arab Emirates have grown at faster rates, data compiled by Bloomberg show.

These countries “can withstand the current low price levels,” Deepti S M, a credit analyst at SJ Seymour in Bangalore, India, said in an e-mail yesterday. “While the impact depends on how long prices remain low, these countries have strong accumulated reserves and assets in sovereign wealth funds to maintain their currency pegs as well as finances.”

Cash Reserves

Brent has dropped 31 percent since June 19 and sells now for about $79 a barrel.

The Gulf states’ fiscal surpluses should support them for at least the next two years, Trevor Cullinan, director of sovereign ratings at Standard & Poor’s, said yesterday by phone from Dubai. S&P’s credit outlook is “positive” for Saudi Arabia and “stable” for Abu Dhabi, Qatar, Kuwait, Oman and Bahrain. The agency doesn’t provide a separate sovereign rating for the U.A.E.

Qatar’s foreign-exchange reserves have more than tripled to $43 billion since 2008, while Kuwait’s holdings have grown by 83 percent to $30 billion and the U.A.E.’s by 146 percent to $78 billion.

“There are sizable fiscal surpluses in these economies,” with investments at home and abroad, Cullinan said. “These are assets available to support the economies in a downturn.”

Saudi Power

The yield on Abu Dhabi’s 2019 bond has slumped 48 basis points to 1.9 percent in 2014, according to data compiled by Bloomberg. The bond traded at a five-year low of 1.8 percent in January 2013.

Saudi Electricity Co.’s 2022 bond dropped 97 basis points this year to 3.2 percent today, the data show.

Even so, Gulf producers have expressed concern about the slide in oil prices. Kuwait’s cabinet and Supreme Petroleum Council held an extraordinary meeting on Nov. 16 to discuss the impact on government revenue, state-run Kuwait News Agency reported.

Iran’s Oil Minister Bijan Zanganeh planned to visit the U.A.E. today to meet with his counterpart to discuss ways of propping up prices, the oil ministry’s news website Shana reported Nov. 16.

‘Positive Role’

Saudi Arabia, the world’s biggest oil exporter, will continue its “balanced and positive role” to support stability in crude markets, Crown Prince Salman bin Abdulaziz Al Saud said Nov. 15 at the G-20 Summit in Brisbane, according to state-run Saudi Press Agency.

Tumbling oil prices may lead Gulf governments to cut fuel subsidies to shore up their budgets, Robin Mills, an analyst at Dubai-based Manaar Energy Consulting, said Nov. 6.

The U.A.E. is among countries in the region considering its subsidy policies, according to Harald Finger, who led an IMF consultation team in talks with the government.

“We discussed the area of subsidies and this is something Abu Dhabi is beginning to look into,” Finger said in a Nov. 5 interview in Dubai. “Reducing these subsidies, while putting in place targeted measures for those in need, would be good policy.”

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