DECLINE IN COMMODITY PRICES GCC OUTLOOK NOVEMBER 22 ND, 2015

Transcription

1 DECLINE IN COMMODITY PRICES GCC OUTLOOK NOVEMBER 22 ND,

2 EVERYONE HAS A PLAN UNTIL THEY GET PUNCHED IN THE FACE 2

3 HE WHO IS NOT COURAGEOUS ENOUGH TO TAKE RISKS WILL ACCOMPLISH NOTHING IN LIFE 3

4 IT ISN T THE MOUNTAINS AHEAD TO CLIMB THAT WEAR YOU OUT; IT S THE PEBBLE IN YOUR SHOE 4

5 MIDDLE EAST NORTH AFRICA (MENA) SUB SAHARAN AFRICA (SSA) 5

6 ADVANCED NATIONS (G7) 6

7 OIL PRODUCING & EXPORTING COUNTRIES (OPEC) 7

8 GULF COOPERATION COUNCIL (GCC) Dubai Abu Dhabi 8

9 GROSS DOMESTIC PRODUCT (GDP) & GROWTH Why is GDP a very important economic indicator? It helps to measure the size of a country s economy relative to other countries. GDP can be expressed on a per capita (person basis) to further assist our understanding of global differences between nations & regions. Countries can be classified into different income groups based on GDP figures. High income, middle income, and low income countries. A country s growth rate is determined by the percentage increase or decrease in GDP. 9

10 RICHEST COUNTRY IN THE WORLD? 10

11 RICHEST COUNTRY IN THE WORLD? 1980 % World Share 1 United States 25.94% 2 Japan 9.85% 3 Germany 7.49% 4 France 6.38% 5 United Kingdom 4.92% 6 Italy 4.26% 7 China 2.80% 8 Canada 2.49% 9 Argentina 2.26% 10 Mexico 2.13% 38 United Arab Emirates 0.37% 1990 % World Share 1 United States 27.74% 2 Japan 14.40% 3 Germany 7.18% 4 France 5.93% 5 Italy 5.29% 6 United Kingdom 4.75% 7 Canada 2.76% 8 Spain 2.41% 9 Brazil 2.16% 10 China 1.88% 40 United Arab Emirates 0.23% 2000 % World Share 1 United States 31.26% 2 Japan 14.38% 3 Germany 5.75% 4 United Kingdom 4.55% 5 France 4.17% 6 China 3.63% 7 Italy 3.37% 8 Canada 2.25% 9 Mexico 2.08% 10 Brazil 1.96% 37 United Arab Emirates 0.32% 2010 % World Share 1 United States 23.19% 2 China 9.22% 3 Japan 8.52% 4 Germany 5.13% 5 France 4.11% 6 United Kingdom 3.56% 7 Brazil 3.32% 8 Italy 3.19% 9 India 2.65% 10 Canada 2.50% 35 United Arab Emirates 0.44% 2014 % World Share 1 United States 22.51% 2 China 13.39% 3 Japan 6.17% 4 Germany 4.94% 5 France 3.75% 6 United Kingdom 3.68% 7 Brazil 2.90% 8 Italy 2.75% 9 Russia 2.66% 10 India 2.65% 29 United Arab Emirates 0.54% 2020 % World Share 1 United States 21.92% 2 China 15.36% 3 Japan 5.38% 4 Germany 4.51% 5 United Kingdom 3.67% 6 France 3.36% 7 India 3.15% 8 Brazil 2.86% 9 Russia 2.57% 10 Italy 2.43% 28 United Arab Emirates 0.56% 11

12 GDP GROWTH BY REGIONS Sub Saharan Africa MENA Advanced (G7) Real GDP Growth (% y-o-y) Sub Saharan Africa MENA Advanced (G7) Real GDP Growth

13 COMMODITY PRICE INDICES The ( ) & ( ) the commodity price declines were primarily driven by supply-related factors. The recent ( ) energy price collapse was caused by global financial crisis. There are several similarities between the two periods supply related price declines. In 1984, energy output surged in Alaska, the North Sea, and Mexico. Similarly, in 2014 production surged from the U.S. & Canada oil sands. Both these supply shocks also were answered by the same response by OPEC: in both episodes they focused on market share preservation. Following the most recent commodity price decline during , oil prices recovered within a couple of years. Prices stayed low for almost two decades following the decline. The actual period of price stability was 18 years, During this period, there was over-supply and restrained demand. OPEC invested heavily to increase spare capacity. The Soviet Union collapsed (1991). Commodity demand weakened due to the Asian financial crisis in 1998 and the U.S. recession in Technological advances in extraction methods have been instrumental in reducing operating costs in the shale oil/gas, and mining industries. Because of slowing economic growth in advanced/mature countries, demand for commodities has weakened. These dynamics could lead to another prolonged period of low commodity prices. Depreciation of many emerging market currencies has boosted revenues in local price terms vs what they would have been, thus perpetuating over-supply 13

14 COMMODITY PRICE INDICES (NOMINAL) (WORLD BANK) US$ nominal, 2010= Energy Metals Agriculture 50 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 14

15 COMMODITY PRICE INDICES (REAL) (WORLD BANK) US$ real, 2010= Forecast Energy 40 Metals Agriculture

16 COAL & NATURAL GAS PRICES (WORLD BANK) US$/mmbtu 20 Coal Natural Gas (US) Natural Gas Europe 15 Natural Gas (Japan) Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 16

17 PRECIOUS METAL PRICES (WORLD BANK) US$/toz 2,100 US$/toz 45 1,800 Gold (LHS) Platinum (LHS) Silver (RHS) 35 1, , Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 17

18 OIL PRICES (REAL & NOMINAL) Nominal Price Real Price MENA Spring Iran-Iraq War GulfWar 1 40 Oil Embargo 1973 Global Financial Crisis

19 LIQUID FUELS PRODUCTION & CONSUMPTION Forecast Implied stock change and balance (right axis) World production (left axis) World consumption (left axis) Q Q Q Q Q Q Q Q Q Q4 19

20 OIL & GAS RESERVES Rank Country Global Oil Reserves By Country (2014) Reserves Billion Barrels % Total Rank Global Gas Reserves By Country (2014) Country Reserves Trillion Cubic Feet % Total World 1, % 1 Venezuela % 2 Saudi Arabia % 3 Canada % 4 Iran % 5 Iraq % 6 Africa % 7 Eurasia % 8 Kuwait % 9 UAE % 10 Russia % 11 Libya % 12 Nigeria % 13 USA % 14 Kazakhstan % 15 Qatar % 16 China % 17 Brazil % 18 Europe % 19 Algeria % 20 Mexico % Rest of world % World 6, % 1 Russia 1, % 2 Iran 1, % 3 Qatar % 4 Africa % 5 USA % 6 Saudi Arabia % 7 Turkmenistan % 8 UAE % 9 Venezuela % 10 Nigeria % 11 Algeria % 12 China % 13 Iraq % 14 Indonesia % 15 Mozambique % 16 Kazakhstan % 17 Malaysia % 18 Egypt % 19 Norway % 20 Canada % Rest of world % Source: EIA Source: EIA 20

21 OIL PRICE COST OF PRODUCTION Brent US$ 45/pb Nov 19th 21

22 WHAT THE EXPERTS (IMF) ARE SAYING GCC countries: oil price drop affects fiscal positions Fiscal Breakeven Oil Price, 2015 (U.S. dollars per barrel) $ A projected oil price of USD 73 per barrel for 2015 will barely exceed the break-even price for the UAE budget HaraldFinger-IMF-Presentation entitled The Global and Regional Economy in 2015: Prospects, Challenges, and Implications for the UAE December 16,

23 UAE BANKING SECTOR _1 18% Deposits (AED billion) 16% % change y-o-y (LHS) 14% 12% 10% 8% 6% 4% 2% 1, % 1,500 1,400 1,300 1,200 1,100 1,000 12% 10% 8% 6% 4% Net Loans (AED Bilion) % change y-o-y (RHS) ` 1, % 1,400 1,350 1,300 1,250 1,200 1,150 1,100 0% -2% 900 2% 1,050-4% May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan Sep-15 0% Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 1,000 Aug-15 Gross LTD Net LTD 115% 110% 70% 60% 50% CB FX Assets (AED Billion) % change y-o-y (LHS) % 105% 100% 40% 30% 20% % 95% 90% 10% 0% -10% ` % 85% -20% -30% 150 Aug-09 May-10 Feb-11 Nov-11 Aug-12 May-13 Feb-14 Nov-14 80% Aug-15-40% Sep-11 May-12 Jan-13 Sep-13 May-14 Jan Sep-15 23

24 UAE BANKING SECTOR_2 60% Government & Public Sector Deposits (AED Billion) 50% % change y-o-y (RHS) 40% 30% 20% 10% ` 0% -10% -20% % % 30% 20% 10% 0% -10% -20% -30% -40% May-10 Government Deposits (excl. public sector) % change y-o-y (RHS) ` Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan % Sep-15-30% Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec Aug-15 Monetary Aggregates (% change y-o-y) M1 M2 M3 30% 25% 20% M1 = Currency held by the Public + Cash at Banks + Monetary Deposits M2 = M1 + Quasi-monetary Deposits M3 = M2 + Government Deposits at banks operating in the UAE as well as at the Central Bank. 15% 10% 5.22% 5% 3.55% 0% Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec % -5% Sep-15 24

25 SAUDI ARABIA 30% 25% SAMA FX Assets (US$bn) RHS % change y-o-y (LHS) % Loan To Deposit Ratio 20% 15% % 10% 5% % 81.1% 0% -5% % -10% % Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep Sep-15 70% Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 35% Monetary Aggregates (% change y-o-y) 30% M1 M2 25% M3 20% 12.8% 15% 10% 5% 9.7% 8.5% 0% Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep Budget Surp/Def(SAR) LHS % of GDP (RHS) f 25

26 OIL PRICES (REAL & NOMINAL) Nominal Price Real Price MENA Spring Iran-Iraq War GulfWar 1 40 Oil Embargo 1973 Global Financial Crisis

27 GCC OIL PRICE IMPACT US$ 55 (2015) Net Foreign Assets: Gross Foreign Assets Total External Debt Gross Foreign Assets : Reserves + Gold + Monetary System Foreign Assets + Sovereign Wealth Funds(SWF) Total External Debt: Government + Financial Institutions Report to BIS+ Public&Private Entities 27

28 GCC OIL PRICE IMPACT US$ 55 (2016) Net Foreign Assets: Gross Foreign Assets Total External Debt Gross Foreign Assets : Reserves + Gold + Monetary System Foreign Assets + Sovereign Wealth Funds(SWF) Total External Debt: Government + Financial Institutions Report to BIS+ Public&Private Entities 28

29 WHAT THE GOVERNMENT OFFICIALS & EXPERTS WERE SAYING OIL PRICES WILL GET BACK TO WHERE THEY SHOULD BE. US$100 29

30 WHAT THE OFFICIALS & EXPERTS ARE SAYING RECENTLY 30

31 BUDGET DEFICIT? ENERGY SUBSIDIES Estimated Energy Subsidies in GCC countries 2014 (% of GDP) Gasoline Prices US$/Per Litre (November 16 th, 2015) Venezuela 0.02 Bahrain 12.5% Libya Saudi Arabia Saudi Arabia 9.9% Kuwait Algeria Kuwait 7.0% Qatar Bahrain Oman 6.2% Turkmenistan Oman UAE 5.7% Iran Brunei Qatar 3.5% 0% 2% 4% 6% 8% 10% 12% 14% Ecuador UAE Nigeria Malaysia Kazakhstan 0.49 Bolivia 0.52 Russia 0.55 Puerto Rico 0.62 Kyrgyzstan 0.63 USA 0.64 Earlier this year the IMF urged Gulf governments to reduce subsidies and other current spending (e.g. public sector wages) rather than cut capital expenditure and use assets. 31

32 BUDGET DEFICIT? MILITARY SPENDING 32

33 BUDGET DEFICIT? GCC MILITARY SPENDING 2014 (%GDP) Military Spending(%GDP) Bahrain Kuwait Oman Qatar KSA KSA UAE Iran

34 RUMBLE IN THE JUNGLE 34

35 MUHAMMED ALI S PREVIOUS STRATEGY 35

36 FACED WITH A STRONGER, YOUNGER & FASTER OPPONENT DEFENSIVE BOXER ASSUMES A PROTECTED STANCE, LYING AGAINST THE ROPES WHICH ALLOWS MUCH OF THE ENERGY TO BE ABSORBED BY THE ROPES RATHER THAN THE BODY, WHILE LETTING OPPONENT EVENTUALLY WEAR OUT. AT THE SAME TIME LOOK FOR AN OPPORTUNITY, WAIT PATIENTLY FOR A FINAL COUNTER ATTACK 36

37 ROPE A DOPE FOR 8 ROUNDS 37

38 ROUND 8; LAST 20 SECONDS 38

39 EVERYONE HAS A PLAN UNTIL THEY GET PUNCHED IN THE FACE HE WHO IS NOT COURAGEOUS ENOUGH TO TAKE RISKS WILL ACCOMPLISH NOTHING IN LIFE IT ISN T THE MOUNTAINS AHEAD TO CLIMB THAT WEAR YOU OUT; IT S THE PEBBLE IN YOUR SHOE 3 9

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