Once upon a time, talk of an emergency OPEC meeting would have rippled through oil markets, likely triggering at least a brief rally in prices. Until now, the Saudi government preferred to boost the rate at which it sells oil to combat low prices, but this strategy will only deplete its resources faster and leave its long-term future in a gray area.
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But a fresh fall in oil prices in recent days, China’s decision to devalue the yuan this month and concern about the health of its economy, and general turmoil in emerging markets have increased concern about Saudi Arabia.
Saudi Arabia’s Tadawul is now down 24 per cent since hitting its 2015 peak in April, marking its second bear market in less than a year. Saudi Arabia’s benchmark lost 6.9 percent to 7,463 points, nearing support on its December low of 7,226 points. “There was no discrimination in the selling – it was across markets, across sectors, across names”, said Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.
The recent Gulf stocks selloff, however, has created buying opportunities, some analysts say.
Dubai’s stock market has closed almost seven percent lower in its first day of trading for the week after a further slide in oil prices. “Over the past 10 years, expert advice has been ignored”.
Oil revenues in lots of OPEC-member states, reminiscent of Qatar, Saudi Arabia and the United Arab Emirates, traditionally have been an essential supply of funding for the federal government, and authorities worry the sinking worth of oil will impression authorities budgets negatively.
The resilience of non-OPEC output despite slumping prices, coupled with a continued battle for market share within OPEC itself, contributed to the “lost decade” in oil markets after 1986. Margin financing, or money borrowed for stock purchases, is often used by small investors in the region because of the relatively easy access to credit here. “Regional economies could slow significantly if these prices are sustained”.
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“This is a response to the lower oil prices, but also to the face that capital spending has been growing strongly over the past years“, Fahad al-Turki, chief economist of Jawda Investment Co, told Bloomberg. “[Regional] governments need to make serious reforms, particularly to taxation and subsidies, to put growth on a surer footing-progress on this would help markets”, he added.
