Oil price rally boosts construction confidence

09 February 2015

Outlook for 2015 has improved following January slowdown

The rally in oil prices over the past two weeks has boosted the confidence of contractors and consultants working in the region.

Since 13 January prices have increased by more than 25 per cent from $46 a barrel to reach $58 a barrel on 9 February, and although analysts say the rebound may be short lived, the rise has improved sentiment.

We experienced a slowdown this year, awards are not being made and in mid-January our outlook for the year was becoming more negative,” says a US-based consultant. “The oil price has strengthened the past two weeks and that making the outlook for the year more optimistic.”

The consultant adds that an oil price of about $85 a barrel should give clients the confidence to move ahead with new projects. At the moment governments have committed to continuing with projects that are already under construction on site, while delayed decisions on new capital expenditure.

Contractors also say that there has been a slowdown in awards in 2015, although there are few explicit examples of delays due to oil prices. Instead the delays have resulted from budget concerns and other bureaucratic hurdles that need to be resolved.

“We are waiting for an award on a major project in Abu Dhabi,” says an Asian contractor. “We are ready to sign, but now we have been told we have to wait for a new environmental impact study to be completed. We are asking ourselves if this is just a delaying tactic.”

Another factor that has slowed down the market is the change in leadership of many of the ministries and other government authorities in Saudi Arabia after King Salman bin bin Abdulaziz al-Saud took to the throne in late January and appointed a range new minsters and governors.

Construction contract awards were delayed in Saudi Arabia following ministry changes after the deaths of Crown Prince Sultan bin Abdulaziz al-Saud in 2011 and Crown Prince Nayef bin Abdulaziz al-Saud in 2012.

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