RIYADH: The global sukuk market linked to environmental, social, and governance principles is expected to exceed $50 billion in the next two years driven by funding diversification goals. 

According to Fitch Ratings, other factors catalyzing the growth of these Shariah-compliant debt products include new ESG mandates, regulatory frameworks, and government-led sustainability initiatives. 

The report highlights that the global ESG sukuk rose by 60.3 percent year-on-year to reach $40 billion outstanding at the end of the first quarter of 2024. 

Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, said: “Almost 99 percent of all Fitch-rated ESG sukuk are investment-grade. The year started with key regulatory initiatives, which could support standardization, ecosystem development, and aid transparency.”  

He added: “There is significant ESG sukuk growth potential, and continuous efforts and increasing confidence will be key to unlocking this.”  

The instrument, also known as green sukuk, is a Shariah-compliant financial tool wherein issuers utilize the proceeds solely to finance investments in renewable energy or other environmental assets. 

The credit rating agency added that sukuk has a significant share of ESG debt in core markets.  

“In the GCC (Gulf Cooperation Council) countries, ESG sukuk reached $15.9 billion outstanding, representing 45 percent of the ESG debt mix, with the balance in bonds,” said Fitch in the report.  

However, it added that the market could face challenges from factors like geopolitical tensions, high oil prices, and new Shariah requirements, which might alter sukuk credit risks. 

In April, another report from Fitch Ratings indicated that the issuance of this debt product would continue to grow in the remaining months of the year, albeit at a slower pace compared to the first quarter. 

The report highlighted that countries in the GCC accounted for 35 percent of the global outstanding sukuk. 

Fitch also revealed that the GCC debt capital market has reached $940 billion in outstanding sukuk and is steadily approaching the $1 trillion mark. 

In February, it projected that ESG sukuk would exceed 7.5 percent of the global outstanding Islamic bonds in the coming years. 

NEW YORK: Oil prices fell in Asian trade on Wednesday as industry data showed a pile-up in crude and fuel inventories in the US, a sign of weak demand, and cautious supply expectations emerged ahead of an OPEC+ policy meeting next month, according to Reuters.

Brent crude oil futures fell 57 cents, or 0.69 percent, to $82.59 a barrel by 9:45 a.m. Saudi time. US West Texas Intermediate crude futures fell 53 cents, or 0.68 percent, to $77.85 a barrel.

Both benchmarks fell marginally in the previous session on signs of easing supply tightness and weaker global oil demand from an Energy Information Administration forecast report on Tuesday.

US crude stocks rose by 509,000 barrels in the week ended May 3, market sources said, citing American Petroleum Institute figures. Gasoline and distillate fuel inventories also rose, they said.

“API numbers released overnight were moderately bearish due to stock builds in both crude and products ... Concern over weaker-than-usual US gasoline demand and this stock-build have weighed on the prompt RBOB gasoline crack,” ING analysts said in a client note.

Official US government data on stockpiles is due at 5:30 p.m. Saudi time. Analysts polled by Reuters expect US crude oil inventories to have fallen by about 1.1 million barrels last week.

Cautious expectations on supply cuts from the Organization of the Petroleum Exporting Countries and its allies ahead of a June 1 policy meeting also weighed on markets.

“Oil prices have come under further pressure as noise around OPEC+ production policy grows,” the ING analysts said. “Expectations are that members will extend their additional voluntary supply cuts beyond the second quarter of this year.”

Meanwhile, hopes of a ceasefire in Gaza have also put pressure on oil prices in recent sessions, with some analysts saying the risk premium on oil declined in tandem.

“The fall in oil prices since Iran and Israel’s back-and-forth attacks suggests that some of the risk premium in prices has now unwound,” said economist Bill Weatherburn from Capital Economics in a client note.

“Prices continue to be supported by OPEC+ production cuts but we suspect that members will gradually unwind these cuts from July, pushing oil prices lower,” he added.

The US believes negotiations on a Gaza ceasefire should be able to close the gaps between Israel and Hamas. US Central Intelligence Agency Director Bill Burns will travel to Israel on Wednesday for talks with the Israeli Prime Minister Benjamin Netanyahu and other top officials, a source familiar with the matter told Reuters.

Some analyst expectations that short-term demand remains well-supported limited overall price declines.

“Much talk of economic run cuts in recent weeks is overblown in our opinion, with margins still healthy enough, which means rather that Asian demand could rather pick up once turnarounds peak and diminish,” said Sparta Commodities analyst Neil Crosby.