1 Gulf markets hit as
US crude drops to $38 (Siddesh Suresh Mayenkar in Gulf News) Post the Opec
indecision on output ceiling, oil prices continued its southward journey with
WTI falling below the keenly-watched $40 per barrel mark, and the sell-off
spread to equity markets in the Gulf, with Dubai leading the losses.
The Dow Jones
industrial average gave up 154 points, or 0.9 percent, to 17,694 on Monday. The
S&P 500 index slipped 19 points, or 0.9 percent, to 2,072 while the Nasdaq
composite fell 38 points, or 0.7 percent, to 5,105.
Oil dropped 5 percent
to $38 a barrel, near its low for the year. Brent crude prices, the globally traded
benchmark, traded down $1 to below $42 a barrel, the lowest since March 12,
2009.
“It is the aftermath of
Opec’s decision, the fear is that we will have a lot more supply in the market
and there is no one on the other side to pick this one up and hence the price
will continue its downward path,” said Naeem Aslam, Chief Market Analyst,
Global Head of Analysis at Ava Trade.
Equity markets in the
Gulf, which is considered as a proxy for oil, came under intense selling
pressure with the exception of the Abu Dhabi index. Dubai index led the losses.
The Dubai Financial Market General Index closed 2.21 per cent lower at
3,104.17, after hitting a low of 3,102.25, the lowest level in 2015.
2 Japan avoids
technical recession (BBC) Japan's economy avoided a technical recession in the
three months to September, according to revised official numbers released on
Tuesday. Preliminary numbers released last month showed the economy had
contracted an annualised 0.8% during the period.
The preliminary figures
meant it was Japan's second consecutive quarterly contraction, which
constitutes a technical recession. However, the revised figures show the
economy expanded at an annualised 1%. Japan, which is the world's third-biggest
economy, has been in recession four times since the global financial crisis.
On a quarterly basis,
the latest economic numbers show gross domestic product (GDP) for the three
months to September grew 0.3% - instead of initial report which showed a
contraction of 0.2%.
Economist Marcel
Thieliant of Capital Economics said one reason for the revision was stronger
business investment, which edged up by 0.6% instead of the preliminary reported
1.3% quarter on quarter fall.
3 When to turn off the
taps is Saudia Arabia’s $640bn question (Nils Pratley in The Guardian) So much
for the idea that the US shale industry would be killed by Saudi Arabia’s
high-risk strategy, adopted a year ago, of keeping Opec’s taps open and
flooding the market with supplies. After 12 months of this experiment, it is
Opec that is in chaos.
Meanwhile, US oil
production has barely been dented. Volumes have fallen 5% in the past six
months, but the backdrop was a shale-driven 50% increase in production between
mid-2012 and mid-2015. In short, the Saudis have gained next to nothing.
No wonder the price of
Brent crude now stands at a near seven-year low of $41 a barrel. And no wonder
last week’s meeting of the Opec cartel ended in chaos. The Saudis don’t trust
the Iranians to cut production, and thus the outcome was stalemate.
The Saudis seem to have
made the oldest mistake in the book. The theory that an intense period of low
oil prices, say $50, would drive US shale and some conventional oil producers
out of business was plausible on paper. But it overlooked the practical
evidence of many decades that, in oversupplied commodity markets, producers try
to stay in business to the bitter end.
The low oil price is
great news (at least for the time being) for oil-consuming countries. But when,
like the Saudis, you require $100-a-barrel oil to balance your budget, you have
a serious problem. Even foreign-exchange reserves of $640bn don’t last forever.
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