Oil lifts Saudi; petchems part of dollar hedge

08/12/2010 00:00 AST

Oil prices hit a 26-month high yesterday, boosting Saudi petrochemicals stocks as the kingdom's index rose for a first session in three. Saudi Basic Industries Corp (SABIC) climbed 2.2 percent and Rabigh Refining and Petrochemical Co rose 2.3 percent. The index climbed 0.6 percent to a four-week peak. "Saudi investors prefer petrochemicals because they want to get exposure to a commodity price recovery that's driven by hedges against a dollar decline," said Hesham Tuffaha, Bakheet Investment Group head of research.

This play has pushed petrochemical prices up by an average of 7 to 8 percent in October and November, Tuffaha said, boosting producers' earnings in the fourth quarter. Saudi Arabia's banking index sank to a six-month low. "Bank stocks have been a disaster-it could be that people are switching from banks to petrochemicals, while bank volumes are really low so when investors sell, stock prices tend to fall sharply," said a Riyadh-based trader who asked not to be identified. "But people are also worried the central bank will again ask banks to take more provisions in Q4, like it did in Q3.

Oil rose above $90 a barrel for the first time in 26 months as the dollar fell and a freeze in Europe and the United States stoked fuel demand. Qatar's index rose 1.1 percent to a new 26-month high as a World Cup rally extended into a third day. It is up 5.4 percent since the country was chosen to host the 2022 event.

Dubai's Arabtec climbed 4.4 percent to a month-high and Drake & Scull rose 2.9 percent to a 13-month peak. Traders have bet this pair will win contracts from Qatar's expected World Cup infrastructure spending. These two firms accounted for more than half of all shares traded on Dubai's index, while Arabtec has gained 14 percent in two sessions this week.

People are very optimistic that companies like Arabtec and Drake & Scull will win new contracts in Qatar and that's why they're seeing so much volume," said Mohamed Khaled, Prime Emirates relationship manager. "Oil prices remain near two-year highs and that's also giving bullish sentiment to investors across the Gulf." Markets in Egypt, Kuwait, Oman and Bahrain were closed for the Islamic New Year.

Reuters