By Daniel Canty
Tadawul shows energy outstrips all other investments.
As we approach half-way this year, I see that the index for energy & utilities companies on Saudi's Tadawul stock exchange has seen a greater rise than that of any other sector so far this year in the Kingdom. Energy & utilities has risen by 14.76%, clearly outstripping the petrochemical company index, which has risen 3.68%. (The two other big risers that come close to E&U, incidentally, are retail - 10.37% - and agriculture & food - 9.67%) At the very end of 2009 the index sat at 4,210.69, and three days ago reached its highest level for the year, at 4,915.92.
Whilst it should come as no surprise that upstream companies are doing well in the Kingdom, the scale of the rise in performance is a good indicator of upstream health for the Middle East as a whole. Even in a frosty market in the year after the collapse of Lehmen Brothers, energy projects in the major energy hubs of the Middle East, namely Saudi Arabia, the UAE and Qatar pushed on ahead, and the project pipeline looking ahead remains extremely strong.
There is talk of Saudi Aramco deploying over 100 exploration drilling rigs by the end of the first quarter next year, and major project awards have been forthcoming from Abu Dhabi. Companies which have ridden out a period in which collections, or rather payment for work done, has been a major problem should take some respite from the fact that, on the whole, energy has now normalised, and those payment strains should begin easing from the top down.
It is also worth noting that despite the calamities surrounding Greece's debt burden and default position, and suspicions building that other countries in the Eurozone, such as Portugal could be in hot water too, the oil price has remained safely in the $75-plus territory.
This time around, a stable market price has been delivered not because of speculators, but rather real supply and demand fundamentals. The truth is energy demand has stayed stronger in this recession than was feared, and OPEC's stewardship of output has kept its Middle Eastern member's coffers full of cash.
Daniel Canty is the editor of Oil & Gas Middle East.