The New Petrodollar Flows

Transcription

1 1 The New Petrodollar Flows 20 June 2006 Brad Bourland, CFA Chief Economist

2 Oil Price Trends 2 Oil Prices, Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

3 Capital Flows 3 If remaining proved oil reserves sell for $50/barrel, then: $13 trillion for Saudi Arabia $24 trillion for GCC $38.5 trillion for OPEC Middle East

4 Global Oil Resource Base 4 Produced Proved Reserves Undiscovered Enhanced Oil Recovery Extra Heavy & Bitumen Shale Oil Years of Supply at 2005 Production 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Sources: ChevronTexaco, USGS, BP, IEA Billion Barrels Recoverable

5 Exploiting the Resource Base 5 Oil Price Needed for Extraction ($/Barrel) Historic 20 OPEC Middle East 14 Other conventional oil 25 Deep water 35 Artic 60 Super deep 40 Enhanced oil recovery 50 Heavy oil Bitumen 40 Oil shales Source: IEA

6 Comparing Booms 6 Then ( ): Oil Prices: Crisis-driven and short-lived highs Capital Flows: Limited local absorptive capacity. Contracts go to foreign firms Government: Dominates the economy, especially utilities Wealth Distribution: Limited channels for distributing oil wealth. No stock market Institutional Depth: Limited institutional infrastructure to handle windfall Infrastructure: None, oil wealth devoted to basic infrastructure Now: Demand-driven and sustained high prices Inward Bias. Contracts go to domestic companies. FDI inflows. Central bank foreign asset growth More balanced, private sector in telecoms, power, petchems Stock market major channel for wealth creation Enlarged gov t institutional base, especially regulatory, to manage growth Qualitative upgrade

7 Comparing Booms--Security 7 Reminder of regional security : Iranian revolution ( ) Soviet invasion of Afghanistan (1979) Extremist takeover of Grand Mosque in Mecca (1979) Iran-Iraq War (begins 1980) Lebanon Civil War (begins about 1976) Israeli invasion of Lebanon (1982)

8 Oil and Global Trade Balances 8 Current Account Balance--United States P e r c e n t o f G D P 4% 2% 0% -2% -4% -6% -8% Source: IMF Current AC Balance Oil Trade Balance

9 Oil and Global Trade Balances 9 Current Account Balance--Developing Economies 2% P e r c e n t o f G D P 0% -2% -4% -6% Source: IMF Current AC Balance Oil Trade Balance

10 Global Current Account Balances 10 $ billion Current Account Balances (2005e) US Opec Japan Asia EM China Euroland Canada Source: IMF

11 Comparing Booms: Petrodollar Flows Then 11 Middle East Oil $$$ ROW $$$ Banks $$$ LDCs Debt Crises

12 Comparing Booms: Petrodollar Flows Now 12 Middle East $$$ Lending $$$ Oil $$$ Oil $$ China and ROW $$$ Goods U.S. Lending $$$ US running large c/a deficit, while rest of world runs c/a surpluses Emerging market oil deficits offset by exports to US World central banks lending to the US by buying US Treasuries

13 Foreign Holders of Treasury Securities ($ billion) Mar 2006 Japan China UK Oil Exporters 98.0 Korea 72.4 Taiwan 68.9 Carib Banking Centers 61.7 Hong Kong 46.6 Germany 46.5 Mexico 40.1 Luxembourg 36.8 France 34.9 Canada 34.7 Singapore 33.1 Switzerland 32.0 Brazil 31.4 Turkey 21.0 Ireland 19.6 Sweden 17.9 Thailand 17.5 Belgium 17.1 Netherlands 15.3 Italy 13.7 Israel 12.3 Poland 12.2 India 11.2 All Other Total Source: US Treasury Data Issues What s Wrong With This Picture? SAMA Investment in Foreign Securities March 2006: $166 billion (Source: SAMA) 13

14 What a Boom Looks Like 14 Government budget surpluses: 50 percent of budget, 15 percent of GDP Cash at Central Bank: 60 percent of GDP, enough to fuel 20 percent spending growth for many years Economic growth: 23 percent No inflation Trade surplus: 30 percent of GDP No end in sight

15 The GCC s High Growth 15 GCC Nominal GDP Growth and Inflation (2005) % Change Bahrain Kuwait Oman Qatar Saudi Arabia UAE Sources: Central Banks, MEED, Samba GDP Growth Inflation

16 Aramco Spending 16 Aramco Expenditures ($ billion) Projects 46 Material 20 Services 23 Manifa/Shaybah II* 11 Petro-Rabigh 10 Gas Initiative 11 Export Refineries 12 Total 133 * In proposal phase Source: Saudi Aramco, May 2006

17 2006 Megaproject News Flow 17 King Abdullah Economic City announced ($26 billion) Petro-Rabigh financing complete ($10 billion project) Total-Aramco joint venture refinery ($6 billion) ConocoPhilips-Aramco joint venture refinery ($6 billion) Aramco + partners Ra s Tanura petchem complex ($8 billion)

18 Exchange Rates and Oil Prices 18 Riyal-Dollar Exchange Rate and Oil Prices (Brent) U S $ p e r B a r r e l First oil boom: Oil prices and SR rise Early-mid 80s: Oil prices and SR decline : Oil prices avg. $18 and SR pegged to the dollar 2003-current: Sharply rising oil prices putting pressure on the SR to revalue upward? U S $ p e r S a u d i R i y a l : devaluation concern Brent Exchange Rate

19 Summary 19 Hard to envision magnitude of capital flows to the Middle East with oil > $50 Current oil boom very different from past For global imbalances, US is the major borrower this time (more sustainable?), developing countries were last time (led to debt crises) Oil boom = economic boom for the region