oil related 291007

GCC economies no longer oil reliant

10/29/2007 8:12:13

Dr Nasser Saidi

DOHA • Economies of GCC states, such as Qatar, should now be considered as asset-based ones rather than oil-based, Dr Nasser Saidi, Chief Economist of the Dubai International Financial Centre (DIFC), said yesterday.

Saidi was making the regulatory keynote address at the “Sovereign Reserve Management, Pension and Institutional Funds Congress 2007' held at the Ritz-Carlton Hotel here.

He said that for the UAE for example, "asset revenue (is) more important than resources". Among the areas GCC states, as well as other emerging markets, should invest in is financial sector management. "They need capacity to manage and control their own wealth," said Saidi.

The economist discussed at length sovereign wealth funds. These funds are foreign currency assets held by states over and above the reserves of their central banks.

"We have seen the emergence of GCC countries going into acquisitions. With oil prices up, government spending has gone up. This resulted in the emergence of bureaucracies in GCC countries and as welfare states."

Though sovereign wealth funds are fully-capitalised and have low leverage, accounting for $3.1trillion globally, hedge funds account for $1.4 trillion but are highly-leveraged. However, both these funds are dwarfed by the size of insurance funds which amount to $16-17 trillion and pension funds, which total $18 trillion globally.

"It is highly unlikely that sovereign funds will act in a cohesive way. Growth is driven by high commodity prices, not just oil. This has led to high current account surpluses," said Saidi.

Current account surpluses on average for the GCC states come to 15-20 per cent of Gross Domestic Product (GDP). "Over time, the current account surplus will decrease,"' he said.

Saidi said if a country has an extra $20bn on hand, questions would arise on how the money should be invested. "The money should not be put into the central bank's reserves but placed where the money would get high returns. Emerging economies have now turned from being net capital importers to net capital exporters. The money is mainly going to other emerging markets."

It is matter of time, anything between five to 10 years, for China to start investing in oil-producing states. "This will be because of China's need for energy resources and the need to diversify its assets," said Saidi.

Source: The peninsulaqatar

Oil hits new high

Angela Balakrishnan, economics reporter

Oil surged to another record high today, breaking through the $93 a barrel level after Mexico briefly halted one-fifth of its production and the US dollar spiralled to new lows.

Analysts are expecting oil to hit $100 in the near future if the prices rises continue as strongly as they have in recent days.

US crude hit a high of $93.20, almost a dollar higher than the peak reached on Friday. It later edged down to trade at $92.71.

London Brent also leapt to a record high of $90, before settling at $89.40.

Adjusting for inflation, however, crude oil is still below the $101.70 peak hit in April 1980 after the Iranian revolution, the International Energy Agency said.

Oil prices have soared by more than a third since mid-August on the back of rising tensions in the Middle East, dollar weakness and winter supply fears ahead of the winter months .

Today's gains come on the back of an announcement by Pemex, Mexico's state-owned oil company, that it was shutting in about 600,000 barrels a day of oil output due to bad weather in the Gulf of Mexico.

A spokesman said Pemex should be able to resume output immediately once the bad weather passes in two days.

Meanwhile, the dollar hit another record low against a basket of currencies on expectations that the US Federal Reserve will trim interest rates on Wednesday and possibly again this year to soften the impact of a deteriorating housing market and slowing economy. The pound was trading at $2.0608, which is within sight of July's 26-year peak of $2.0655.

This has raised speculative buying of oil by investors trying to hedge losses. Analysts say that another cut in US interest rates could send the dollar lower, therefore pushing the price of oil even higher. Experts believe only a slump in the US economy could weigh on the increase in oil prices.

Volatility in financial markets has also increased demand for oil. Much of the money poured into markets by central banks to ease the liquidity crisis has found its way into energy and commodity markets.

Strong demand comes as concerns are high over lack of supply after a report last week from America's Energy Information Administration showed oil stocks in the US are much lower than expected. Hopes that Opec would increase production levels were dashed after Abdalla el-Badri, Opec's secretary, said oil markets were well supplied and that oil prices rises were related to geopolitical factors.

Fears are high that last week's announcement by Washington that it was imposing economic sanction on Iran may trigger a confrontation between the US, the world's largest oil consumer and Iran the world's fourth largest oil producer.

The tensions add to other fears that military action between Turkey and Kurdish rebels in northern Iraq could disrupt supplies from the world's third largest oil reserves. Conflict between Israel and Lebanon has also sparked worries that hostilities in the Middle East may affect oil producers such as Saudi Arabia.

Soaring oil prices will bring further gloom for motorists and households as petrol prices and utility bills are likely to increase. The price of diesel in the UK is already just over £1 a litre, while petrol is at 98.39p, in touching distance of the 98.54p peak in August 2006.

Paul Watters at the AA said that this week could see a new all-time high for petrol prices. At the moment competition between supermarkets is helping to hold back price rises, but this is unlikely to last.

Petrol prices have increased by more than 10p a litre this year, meaning that UK drivers are spending nearly £7m more each day on petrol than at the start of the year. The average UK driver spends £13.29 more a month on petrol than last year.

Analysts say higher oil costs may translate into price rises on the high street, which would come as a blow to households already feeling the pinch from higher interest rates and modest growth in earnings.

Source: Guardian Unlimited