The Saudi Spending Phenomenon - Will It Ever Stop?

Ladies & Gentlemen,

All Market eyes have been eyeing up Oil Prices, some are calling a further slump in 2016 and others are a bit more optimistic (seeking the $50 mark). However, with these lower prices, how has the World's biggest Oil player reacted & will it really hurt the Saudi Economy?

You would of actually never of guessed there to be an Oil slump from the shine of the Saudi economy and that is no accident, it is Saudi (well-planned) policies in action. The wealth from the Oil revenues has been shared and the public have firmly supported the Al Saud family, even as turmoil beckons on the horizon.

The IMF predicts that within 5 years, the Kingdom will run out of Financial Assets... But is that really true (raised eyebrow)? In theory, if they continue to spend at the rate they are & Oil prices remain low, then yes! However, they currently stand at a (Positive) 100% net cash : GDP ratio & if you look at a Country like Japan, who's net:GDP is -200%, I begin to differ with the IMF. Saudi literally are operating with no debt.

figure : Bloomberg source

Can this be protected for the Future? What if Oil prices continue to fall? I think you will start to see Saudi Arabia slowly decrease their heavy military contracts & begin opening their Economy up to foreign investment, by way of issuing Government debt or opening investment into Saudi stocks. More recently, the Saudi government to pull in about $70bn from Equity markets to begin adding more liquidity within their own markets -  "Welcome world to the Tadawul".

We could also see (like Qatar) a higher increase in Western Property purchases... Again another indication for potentially more spending.

Saudi issuing Debt? Really? How friendly would that be? Honestly speaking (ok - be careful here Anish #whips...) The country has been caged about opening it's Markets to the World and if done, would be extremely gradual, as they drift away from traditions. Most Governments generally support their Economy, by way of tax receipts.
However, over the past 3-4 decades, Saudi has been funded with Oil receipts.

Reality Check.. Oil still costs $3 to get out of the ground and with current production levels, Saudi are still generating $300-400bn from Oil revenues alone (at least)!

It looks like the Saudi powerhouse is only going to get stronger, especially as Investors from around Asia flock in. The next 5-10 years will be critical for the Kingdom, to really impose its strength as the World's largest Economy, alongside China.

Trade Smarter & Best of Luck for the week ahead.

Best wishes
Anish @ Atom8FX

Crude Oil - A Bargain Hunt?

Dear Traders

As we enter the final quarter in 2015, investors are watching the price of Crude Oil with an eagles eye.   Oil prices have been on a roller-coaster ride over the past few weeks, coming from 6-year lows and with talks of $30 per barrel (being the new normal) a few months ago, we have seen a remarkable comeback as the $50 mark was crossed for the first time since July.

It looks like more short-term players have seen this opportunity above $50 for greater profit-taking and more sizable positions seem to have taken the market back to $47 & if this price is not screaming for a "Pull-Back" before year-end.. I don't know what is!  However, more "conservative" fundamentalists focused on the over-supplied commodity are ignoring the price action and looking at more longer-term consolidations up to year-end & maybe till future rate-hikes - the recent drop in oil-rig counts did not help either! 

Idea

OPEC remain firm that demand should begin to increase in early 2016 and this should naturally reduce the worried over-supply figures, resulting in a more "balanced" market - which if true, should see investors price in a more bullish price action heading up to year-end.  However, warnings persist from the International Energy Agency insisting over-supply is set to stay. Although this view did not stop the Chinese "Bargain Hunters" from buying up more of the market last month.

With Russia now heavily involved in Syria and also stamping its foothold around the Middle-East's perimeter, the geo-political dynamics of the Oil Markets have a new found tension from the prospect of a potential stand-off between the US & Russia, as Russia looks at prioritizing it's hand in the Middle-Eastern Crude supply.

Recent ISIS attacks on production facilities in Norther Iraq have also added to this dynamic and of course, oil nations and businesses are keeping this in mind when attempting to analyse their quarter-end plans.

Overall, it is important to note that there is still an oversupply (surplus of around 1 million barrels per day). However, the "rebalance" force should help calm this supply over the next 12 months, where a turn upwards of $70-75 would really indicate a rebalanced market.

Trade OIL with Atom8

Atom8 are now proud to announce the launch of USOIL as a new CFD on their leading MT4 terminal. Spreads start from 1 pip and if you would like to test the core pricing, please email info@atom8.com

Best of luck with your trading

Anish 

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

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Slamming the brakes on the Gulf's Growth

As the Arab "Boom Years" draw to a close, we now see events over the last 4-5 years (for example, the Arab Spring) form as a catalyst for the recent Oil price decline... Almost 50% from this time last year.

Simultaneous challenges of the threats from ISIS, political transitions &  falling Oil prices have remained extremely prevalent in 2015 and more so impacting the Oil rich states of North Africa over the Middle-East.

Slamming the brakes on the Gulf's Growth 

As Political turmoil spreads, the jihadi threats hover over Syria, Iraq & more recently producing itself in the conflicts around Libya's oil fields, as well as recent violence in Tunisia (post-Arab spring transitions).

The recent weeks headlines have been focused around Yemen and the coalition of Sunni Islamic states prodding their Gold feet over the Pan-Arabian Muslims - attempting to constrain an unwanted addition of rival Iran.

Libya, once Africa's richest nations is now on the verge of Bankruptcy.. being named "The New Somalia", as their new Government warns of an "Oil Production Shutdown" given the ongoing threats from ISIS and their "Black-Market" demands.  No-one could of imagined in Post-Gaddafi Libya that their nations Energy sector would be so badly affected.

Economic Impacts

Since the recent Egyptian revolution in 2011, Egypt's credit rating fell 6 points... Tunisia, since it's revolution has declined 4 points...  Egypt has been under the spotlight since 2011 as Ibrahim Mahlab's party seeks stability & attempts to gain against it's economic shortfalls.

These Gulf states were somewhat supported by years of $100+ oil prices, as well as donations from other powering Arab nations (For example, UAE donating almost $20bn to Egypt + a further $12bn from Saudi & Kuwait... for aid & "investment")

Egypt, in particular is viewed as pivotal in bridging the gap between the Middle-East & the North African states... as the UAE's Minister of State quotes "Egypt is central to the prosperity of the Middle-East" . However, the fall in Oil prices provokes pressures and furthermore, an instant-stimulus for these struggling economies.

Private Investor's eyes 

Most Foreign Investor's are burdened by the risks of domestic unrest and in attempting to control the "social peace", economic reforms to boost investment & reduce subsidies could be expected.. The overall thought is that the plunging Government revenues will surely filter into the real economy and the Growth forecasts become largely cloudy.

Already, real estate prices in the once BOOMING Dubai are now largely reducing and empty skyscrapers now account for 25% of Dubai's population. More-over, core infrastructure projects around the Gulf will be haltered, for example new Transport lines... at least until the Oil market stabilizes... if that.

With $20 Oil on the horizon.... Will these Economies Survive? 

Is Iran about to flood the Oil Market?

Dear Readers

Trust you all had a blessed weekend.

In my post : Oil to $20 by 2016  looks to be supported, perhaps underestimated by the upcoming decision on Iran's nuclear deal & also talks of removing Economic Sanctions for Iranian Crude Exports.


Potentially one of the Middle-East's biggest economies, Iran has been barred out by the West in refusing to give up it's Nuclear regimes.


However, new developments have come from talks between Iranian negotiators & world leaders continued in Lausanne this weekend.





Tehran - A sleeping Oil Giant

Since Economic sanctions had been placed on Iran, Tehran has been frozen out from the International Oil markets & denied access to Investment leading to key developments in the Oil/Gas industries.

With Oil prices pressured by the over-supply - any increase in Iranian output could easily speed up this decline down towards $20 per barrel.

The Iranian Oil minster mentioned that they could easily increase production by 1 million barrels per day, almost immediately after sanctions are lifted.

Trouble with OPEC & Saudi Arabia 

A potential limitation to this "flooding" impact comes from OPEC - the 12 member cartel controlling a 3rd of the World's oil supply. It currently maintains a quota system that Iran would have to negotiate.

It is unlikely that Saudi Arabia will be in favor of any increase to Iranian exports & their ongoing meetings up until June will tell of these tales.... However, oil may reach $20 by then already!

Stay tuned in for more....

Trading Oil with Atom8... Coming soon for April 2015.

- Peace & Love

Anish

If Yemen only produces 0.2% of the World's Oil, why is the price of Oil rising?

Dear Readers

As the advancements began yesterday on the Houthi controlled Yemen, we saw the price of oil jump almost 5%.

In this post, I attempt to break down the Economic reasons for this geo-political market shock & question the continuation of this rise or (as per my previous posting) a fall lower to $20 - possibly $10.

Fact

Yemen produces 0.2% of the World's oil!

Why did it have such a shock on the market? 

Albeit an insignificant Oil producer, the geographic location of Yemen is extremely relevant.

The nation shares it's main border with Saudi Arabia - the world's biggest Crude exporter and sits on one side of the oil shipping point used by crude tankers heading West from the Persian Gulf (transiting nearly 7 million barrels of oil a day).

Yemen is also located on Bab el-Mandeb, the 4th biggest shipping chokepoint in the wold by volume! It's closure may keep tankers from the Persian Gulf and reaching the Suez Canal & SUMED Pipeline.

Will Oil continue to rise?

"As the regional conflict intensifies, the price of oil will continue to rise" Kleinmen, Citibank Analyst. 

Even though prices are still down 40% from last year, a rally from $50 would be significant for the markets... adding an extra spice into the current EU Crisis and perhaps a catalyst for a USD reversal. 

However, other analysts & even the Foreign Minister of Yemen says that this attack is a "Necessary, short lived attack" to suppress the Rebel forces.. Which would imply this rally being concluded as a shock and the coming week(s), the markets could return below $50 per barrel. 

The fact is that the Oil market is still heavily over-supplied & storage levels are running at almost full capacity. Although, some more bullish investors are seeing this as a market-bottom - hinting at a reversal. 

I personally think, it just reminds people how sensitive the price of oil is - especially in relation to geo-political shocks & impacts on supply lines. 

Trading Oil with Atom8... Coming soon for April 2015 

Thank you for reading & as always... 

- Peace & Love

Anish