Fears of an oil price collapse are overdone as OPEC will use all the levers and controls to ensure it defends the USD 100 per barrel rate, according to a research firm, which spoke to a number of major state-owned oil companies in the oil-exporting group. CONTINUE READING

Asia Pacific’s net oil imports by 2035 are equivalent to the combined production of major OPEC producers such as Saudi Arabia, Iran, Iraq, Kuwait and the UAE, according to the Asian Development Bank. CONTINUE READING

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Chinese oil and gas giant Sinopec’s recent USD 3.1 billion bet on Egyptian natural gas highlights the country’s huge energy prospects, despite the major political challenges facing the country. CONTINUE READING

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The latest report from the US Energy Department’s statistical arm validates what OPEC members have been saying all along: the North American shale gale will blow away, and OPEC will weather that storm to emerge stronger than ever. CONTINUE READING

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A new report on global oil investments puts a cork in the debate about North American shale production putting OPEC out of business. CONTINUE READING

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Last month, the International Energy Agency’s (IEA) executive director Maria van der Hoeven, had some unsolicited advice for OPEC: When they meet next, think long-term strategy. CONTINUE READING

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In a major move, the International Energy Agency (IEA) has slashed OPEC production growth forecast, citing a number of factors ranging from instability in the region and regulatory constraints. CONTINUE READING

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While OPEC may not take action at its meeting on December 12, most analysts expect the group to cut production in the new year or face depressed crude prices.

The Organization of Petroleum Exporting Countries may choose to hold fire at their latest meeting in Vienna on December 12, but it may be forced to cut production in the New Year, analysts say. CONTINUE READING

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OPEC finally acknowledged the very clear and present danger of North American shale oil and gas production. CONTINUE READING

By Fehmy Saddy, PhD, President, FS Partners SA

Food security has emerged as a global concern in the context of world population growth. World population is projected to increase from its current level of 7 billion to 9 billion by 2050. A recent article by Lester R. Brown on the “New Geopolitics of Food” reveals the prospect of future wars over food resources.

Lubna Al Qasimi, UAE’s Minister of Trade reported recently that food imports of the GCC region could more than double over the present decade. They would grow from $25.8 billions in 2010 to $53.1 billions in 2020. Projections were based on the expected population growth of the GCC region, which could reach 50 millions by the end of the decade. The Minister concluded: “for a region such as the Gulf, there is the added urgency to secure food sources that are safe and sustainable”

Brazil is the largest producer and exporter of commodities. However, four Western companies, namely, ADM, Bunge, Cargill and Dreyfus, better known by their acronym ABCD, control 70%-80% of the world food market due to their large-scale farming and financial strength. They are referred to by Brazilians as the “Four Mothers”, a designation reminiscent of the “Seven Sisters,” the infamous oil cartel that controlled oil production and pricing until the creation of OPEC in 1960.

MENA countries depend on these Western multinational companies for their food. In GCC countries, the situation is even more acute as imports amount to over 90% of their needs. Therefore, there is a growing concern that dependence on the food multinationals has far reaching ramifications on their social, political and economic development.

Islamic Finance of Agriculture

The prohibitive interest rates charged by Brazilian banks make Islamic financial instruments ideal financing tools. There are two areas where Islamic financial institutions can use Islamic financial instruments in Brazil: agriculture production and trade. They could finance acquisitions of farms and agro-industries, and support corporate borrowers. Consider the following:

1. Buy and Lease back farmlands

Brazilian farms are typically large with thousands of hectares cultivating diverse crops: corn, soybeans, sugarcane, coffee, sorghum, cotton, etc. These farms fall regularly behind on their payment of high-interest loans, and file for judicial protection from creditors, or bankruptcy. Islamic financial institutions could use the sukuk instrument to replace conventional bank loans, with a mortgage on the farm.

In most cases, it is attractive to purchase the farm and lease it back to the owner or to agricultural funds, with fixed lease payments. The lease contract would provide an exit option to sell back the farm at maturity at market value. Historically, Brazilian farmlands have increased in value by 10-12% per annum. In most cases, an acquirer with ready cash can negotiate a reduction of existing loans by at least 50% of their face values.

2. Acquisition of agricultural industries

Some agro-industries face the same problem of high interest loans and fall back on their payment. Islamic financial institutions could use the above mechanisms to replace conventional loans with a sukuk instrument, or acquire the company under a buy and lease back contract. There are several opportunities to purchase sugar refineries, for example, with their proper agricultural farmlands for a nominal price, and defer payment of loans over a period of 5-8 years, and even more for obligations due to government entities.

3. Contracting Farmers for a percentage of the crops

One of the oldest forms of Islamic finance is Muzara’a, a profit-sharing scheme that is widely used in the MENA region and much of the Muslim world, whereby an investor advances a certain sum to the farmer for a percentage of the crops. The low cost of production and higher productivity of Brazilian farms, provides higher returns. Islamic banks could use this mechanism for the account of clients. In any case, they have no difficulty selling the commodities in their home markets.

4. Contracting Farmers for the production of commodities

Another from of agricultural financing is to advance certain sums to farmers to enable them to pay for seeds, fertilizers and other plantation expenses, in exchange for certain crops at pre-determined prices. The sums advanced would be secured by a mortgage on the farm. Indeed, the food multinationals referred to above, use this ancient Islamic financing method to control production and markets.

5. Islamic Commodities Trading

A controversial issue in Islamic finance today is the synthetic commodity contracts used by Islamic banks to support their Treasuries. In its basic form, an Islamic bank (in fact, a borrower) purchases the commodity contract at certain price, with a delayed payment date, and sells it back immediately to the same seller (or a sister company) at a lower price for cash, without ever taking delivery of the underlying commodity or asset. The difference in price is, of course, the time cost of money, essentially an interest payment. Most Islamic scholars consider this method as a legal “Hyla” (“Trick” in English), which does not qualify as genuine form of Murabaha.

Islamic financial institutions could undertake genuine Murabaha transactions by financing actual commodities sale contracts to actual buyers in the MENA or GCC regions. Islamic financial institutions dealing with such contracts may develop an inter-banking Murabaha platform among themselves to generate liquidity for their own treasuries. Under this platform, Islamic financial institutions would buy and sell commodities contracts at prices that reflect different maturity dates and delivery schedules.

In conclusion, there are numerous opportunities in Brazil suitable for Islamic financing of agriculture, as well as in other sectors. Islamic financial institutions could use Sukuk to support corporate borrowers in other vibrant sectors and benefit from high returns secured by real assets. However, two issues are always on the minds of financial institutions: exit strategy, and currency risk. With respect of the former, the Islamic methods of financing discussed above would include exit options in a highly liquid market. With respect of currency risk, lease payments are adjusted annually to the Brazilian Government deposit rate, currently around 10%, and inflation, estimated at 6.5% for 2012.

JaulaDeArdilla / Foter

Members of the Organization of the Petroleum Exporting Countries (OPEC) could earn an estimated USD1,171 billion of net oil export revenues in 2012 and USD1,133-billion in 2013, according to the U.S. Department of Energy data unit, the EIA. READ MORE HERE

Chatham House says OPEC may be heading for a Shia-Sunni split, but it appears to have discounted the group’s enduring powers and its resilience despite wars and severe disputes between member states. READ MORE HERE

Opec countries will rake in $900-billion this year. But these outstanding figures mask great turmoil facing group members in the next few
years.

With Brent crude comfortably over $100 a barrel, oil exports of OPEC countries this year will amount to nearly $900 billion, a 38%
increase over 2010, according to the Centre for Global Energy Studies. READ MORE HERE

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Read the ten major forecasts from Opec’s latest World Oil Outlook, ranging from the challenges and prospects for oil developers to the intense competition they will face over the next 25 years. READ MORE HERE

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Even as hopes arise of a quick resumption of Libyan oil, a whole host of new supply-side worries will ensure that crude production remains tight. The resumption of Libyan oil will not dent oil prices as supply constraints continue to add up. READ MORE HERE

With a string of impressive economic policies, Iran has ensured that it remains a major energy supplier, despite various restrictions imposed by the western international community.

But while Iran has benefited from high oil prices, lack of major investments in the country’s energy sector could hamper growth and continue to handicap the country’s economic prosperity. Add to this dynamic, is Tehran’s controversial nuclear programme and its divisive role in regional politics, which makes it a target for many countries around the region that are eager to hurt Iran’s economy. READ MORE HERE
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Opec’s annual bulletin reveals the changing dynamics of the energy industry and the key challenges facing both the producers and the consumers.

Click through the charts to find out more:

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The price of oil is not the only ‘greaser’ for expansion of Islamic finance. Lately, a number of countries seem to be pre-empting social-movement-cum-change of regime as today’s ‘oil price’ facilitator for welcoming Islamic finance.

But what happens to Islamic finance when alternative energy, solar, bio-mass, wind, ocean, etc., becomes a viable replacement for oil or oil has simply ‘run dry,’ or ‘Arab street democracy’ arrives in the Muslim OPEC countries, or even the anti-Shariah movements in selected western countries finds another ‘boogeyman?”
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Even if Saudi Arabia was aware of the IEA’s move to draw from its oil reserves, all parties appear to have lost face, without really upsetting the trend of stubbornly high oil prices. Goldman says buy the oil dip.
The International Energy Agency (IEA) followed through on its threat of releasing oil supplies into the global markets, after OPEC had failed to raise output in its last meeting in early June. READ MORE HERE

With Opec seemingly irrelevant, the GCC is trying to find a balance between responsible crude suppliers and their own domestic needs. But, as Deutsche Bank warns, their own high breakeven prices are making them even more vulnerable to oil price shocks than before. READ MORE HERE

Donald Trump’s recent hysterical comments on the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia and Kuwait are set to put more pressure on President Obama. Expect more pressures on Mideast states as the race for the White House heats up. Read More Here

Goldmans Sachs one of the most accurate forecasters of oil prices, expects a correction soon. On the flip side, Morgan Stanley says high oil prices means $1-trillion of oil profits will be looking to buy assets next year. Read More Here