Monday, 18 January 2016

Economic collapse continues apace

Gulf shares in free fall after oil rout, Iran deal
Kuwait City (AFP) - Share prices in the energy-rich Gulf states nosedived Sunday following the sharp decline in oil prices as Iran prepares to resume crude exports after the lifting of sanctions
Gulf stocks nosedive on low oil prices, made worse by Iranian exports after the lifting of sanctions
17 January, 2016

The plunge in the first day of trading in the Muslim week also follows heavy losses in global bourses on Friday, when Gulf exchanges were closed for the weekend.

The price of oil, which contributes more than 80 percent to Gulf states' revenues, shed more than 20 percent this year to drop below $30 a barrel. This follows a plunge of 65 percent in the past two years.

The expected return of Iran to the oil market, following the implementation Saturday of its historic nuclear deal with world powers, will only worsen the production glut that has been the main reason for the oil price dive.

All seven Gulf bourses saw a wave of panick selling, sending indices to multi-year lows.

Big investors joined small dealers in dumping shares in fear of a further slump.

"The majority of Gulf firms depend on their governments, which depend on oil revenues. No one knows the bottom of oil prices," Kuwaiti analyst Ali al-Nemish said.

"The Iranian impact on the markets appears to be somewhat inflated because Iranian crude exports will not be huge initially," Nemish told AFP.

- Negative territory -

The bourses of Saudi Arabia, Qatar and Abu Dhabi have already lost in the past two weeks more than they dropped in the whole of 2015.

The Saudi Tadawul All-Shares Index, the largest Arab market, fell by over 7.2 during trading but recovered slightly to finish down 5.44 percent on 5,520.41 points, close to a five-year low.

The leading petrochemicals sector dipped 5.1 percent, while banks lost 3.7 percent.

Since the start of 2016, the TASI has dropped 20.1 percent, more than all of its losses last year.

The Qatar Exchange, the second largest in the Gulf after Saudi Arabia's, plunged 7.2 percent to close trading just above the 8,500-point mark, last seen in April 2013.

All the listed firms were in the red and the bourse has so far dipped 18 percent this year, more than the 15 percent it lost in 2015.

The Dubai Financial Market dropped 6.0 percent at the opening but recovered slightly to close the day down 4.64 percent on 2,684.9 points, a three-year low.

Blue chip properties giant Emaar shed 4.0 percent and the leading construction firm Arabtec sank the maximum allowed 10 percent.

Since the beginning of this year, Dubai has dropped 15 percent.

The Abu Dhabi Securities Exchange also slumped 4.24 percent but remained above the 3,700-point mark. All sectors were down with banks and real estate shedding above 5.0 percent.

Dubai and Abu Dhabi bourses are the lowest since September 2013.

The Kuwait Stock Exchange dropped 3.2 percent to just above the 5,000-point mark, levels only seen in May 2004.

The small market of Oman dropped 3.2 percent to below the 5,000-point mark for the first time since mid-2009. Bahrain dropped 0.4 percent.

Since the beginning of 2016, the seven stock markets have shed more than $130 billion of their market capitalisation, which now stands at about $800 billion.

All Gulf stock exchanges ended 2015 in negative territory, led by Saudi Arabia, after the sharp decline in oil prices.

Mid-East Massacre: Qatar Crashes, Saudi Stocks Plunge Most Since Black Monday

17 January, 2016

Broad middle-east and african stock markets crashed over 5%, erasing any gains back to November 2008 as the carnage from last week continues. From Kuwait (-4.3%) to Qatar (-8%) it was a bloodbath as Saudi Arabia Tadawul Index plunged 5.4% - the most since Black Monday (now down over 50% from their 2014 highs). These losses are far in excess of US 'catch-up' moves and suggest a dark cloud over Asia this evening.

It's been a bloodbath in the Middle-East since the year began...

Africa/Middle-East Stocks crashed 5%...

Saudi Arabia's Tadawul Index is down 5.4% on the day - the worst since August's collapse and has lost over 50% since its exuberant peak in 2014...

Kuwait down over 4% to 2009 lows...

But Qatar was carnaged... (down over 8%)

Makes you wonder where all that hot-money from The Fed flowed eh?

Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016

17 January, 2016

On Saturday, Iran marked what President Hassan Rouhani called a “golden page” in the country’s history when the IAEA ruled that Tehran had stuck to its commitments under last year’s nuclear accord.

Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion.

"Everybody is happy except the Zionists, the warmongers who are fuelling sectarian war among the Islamic nation, and the hardliners in the U.S. congress,” Rouhani said, referring directly to Israel, the Saudis, and GOP lawmakers in the US.

In addition to the never-ending feud with the Israelis, Tehran is embroiled in a worsening conflict with Riyadh triggered by Saudi Arabia’s execution of prominent Shiite cleric Nimr al-Nimr and subsequent attacks on the Saudi embassy and consulate in Iran. The argument has raised the specter of an all-out conflict between the Sunni and Shiite powers and stoked sectarian discord across the region.

With sanctions lifted, Iran will now have access to some $100 billion in frozen funds and will be able to increase its oil revenue exponentially even as prices remain suppressed.

It’s easy to see why the Saudis and other Gulf Sunni monarchies are nervous. Iran plans to immediately boost output by 500,000 b/d with an additional 500,000 b/d coming online by year end. “The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs.

Iran could haul in more than five times as much cash from oil sales by year-end as the lifting of economic sanctions frees the OPEC member to boost crude exports and attract foreign investment needed to rebuild its energy industry,”Bloomberg reports, adding that “the lifting of sanctions means Iran can immediately boost oil revenue to about $2.35 billion a month, based on the country’s estimated current output of 2.7 million barrels a day and oil at $29 a barrel.”

Even if oil hovers between $30 and $35 a barrel, Iran will be pulling in some $3 billion a month by summer and nearly $4 billion a month by December.
"Iran's aging oil fields may present some challenges to the pace at
which it can physically raise production," Deutsche Bank wrote last year, as prior to the signing of the accord. Here's a bit more color:

Changes to Iran's sustainable production capacity in the medium term will likely depend partly on the speed and extent to which international oil companies (IOCs) invest in the development of Iran’s oil resources. Currently, 38% of Iran's oil production originates from three large fields and associated areas which began production decades ago (Gachsaran 1934, Ahwaz 1959, Marun 1965). Of the original resource contained in these three "super-giant" fields, only 23% remains now.
Further development drilling will likely be required in order to maintain production, and secondary techniques such as CO2 or associated gas injection may be required to improve the recovery rate and counteract falling reservoir pressure. Prospects for higher production would be improved by IOC participation. However, foreign investment has lagged not only because of sanctions, but also because of the government's buyback agreements which are considered unattractive.

On Sunday, Rouhani said the country needs between $30 and $50 billion in foreign investment in order for the country to hit its 8% growth target for the year. "Untapped potential in many industries indicates that domestic demand cannot solely push the economy toward eight per cent growth," he said. "Attracting foreign investment will be the best way of using the opportunity of sanctions relief to boost the economy and security." 

But according to Israel, it's all a charade. On Saturday, The Times of Israel said that according to an unnamed "source in Jerusalem", the first thing Iran will do is send money to Hezbollah. "The implementation of the agreement would have a direct impact on the region, as terror groups Hezbollah and Hamas — both recipients of Iranian largesse — found themselves in possession of new and modern weaponry," The Times wrote. A statement from PM Netanyahu's office reads: "Even after the signing of the nuclear agreement, Iran has not abandoned its aspirations to acquire nuclear weapons, and continues to act to destabilize the Middle East and spread terrorism throughout the world while violating its international commitments."

We wonder whether Netanyahu would say the same thing about the Riyadh, where "acting to destabilize the Mid-East and spread terror throughout the world" is an explicit foreign policy aim. 

In any event, Iran just got a $100 billion windfall and will be around $2 billion richer each month by the end of the year. The return of Iranian supply "will have an immediate impact in the spot market” Robin Mills, CEO of consultant Qamar Energy, told Bloomberg by phone. “Putting oil in the market is going to push it down." "Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as $25 a barrel,” Nomura's Gordon Kwan added on Sunday.

As for what effect a richer, more prosperous Iran will have on regional stability, we'd suggest that anything that serves to counter Saudi influence is probably conducive to a more secure environment. Besides, things can't get much worse in the Mid-East, so it's hard to see the downside.

Implementing not a detriment to any country. Our friends are happy & our rivals need not worry. We're no threat to any nation/state.

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