After playing out the week buffeted by the enormous deluge of data that all markets have endured, oil prices find themselves in the throes of the recent phenomenon of finding bids into the weekend for fear of a more price sensitive occurrence emanating from Gaza/Israel. Winter grade gasoline reflected in the RBOB price has given little lead to technicians but the other 4 main contracts need a mention on the marks they have left on charts for they are important. WTI, Brent, Heating Oil and Gasoil have bounced away from a key technical indicator, namely their 100-day moving averages, and with Brent as the main notable having filled a ‘gap’ in price that it left after the initial incursion into Israel of 6/10/2023. However, oil does not find itself only at the behest of the pencil and ruler brigade, on-the-ground activity is cause for worry. Israeli commanders report that the IDF have surrounded Gaza City on 3 sides and elsewhere Houthi rebels based in Yemen have attacked Israel with drones and rockets, while at the same time clashing yet again with Saudi forces. These do not appear to be trigger enough to convert into conflict spread, but this recent price action suggests that oil participants are of the mind in questioning ‘why take the chance?’

Aiding and abetting the steady, but positive price action in oil is the insistence of the wider suite to view the recent holds in interest rates by central banks as dovish even though there has been a lack of forward projections and even the Bank of England, while keeping rates unchanged ruled out cuts any time soon. Yields continue to drift, marked by the 20-basis points dip on 10-year US Treasuries and the much watched US Dollar Index (DXY) has shrunk from a high of 107 on Wednesday to 106 this morning, giving encouragement to investors and commodities priced in the US marker currency. Oddly, and so far, APAC bourses are ignoring the private Caixin PMI data this morning showing Services at 50.4 versus September’s 50.2. Reuters have that the service sector in China accounts for 48% of all employment which is why PMI variations are keenly eyed. US stock futures are supressed this morning, the S&P and Nasdaq are hemmed by the overnight results from Apple that have caused the tech-giant’s share price to fall 3%, but the true reaction will not be seen until the cash market opens later. The US Non-Farm Payrolls is expected today at 12.30 GMT, but by then markets might just be a little data and indeed, battle-weary.

 

Saudi pushes GDPs lower, including Saudi’s

Gross Domestic Product has been a favourite topic for us of late and offer insights as to what the economic performance might mean for oil demand. Overall, and with the US as the main contrarian, GDPs for the major individual and grouped or geographical economies are hardly offering evidence that their industrials are about to act as sponges for any fossil fuels that might just be passing by. GDPs have been the victim of post-COVID, post-Ukraine inflation, quantitative tightening and Central Bank-prescribed-higher interest rates. The failings of GDPs have been systematic, multi-faceted and have a comprehensible pattern. Their shrinking is a self-inflicted antidote to the largesse of governments’ spending in lockdowns and the disappearance of economic confidence. This preamble is not explanatory enough but lines up to support that there are many reasons why GDPs have flagged, however, in the case of Saudi Arabia there is only one.

The General Authority of Statistics (GASTAT) is responsible for Saudi Arabia’s national data and surveys. 3-days ago it produced the Kingdom’s GDP numbers which are in some ways not surprising. According to the flash estimates, GDP fell by 4.5% in Q3/2023 compared to Q3/2022. This result was due to the decrease in oil activities by 17.3% and in a shorter time frame, GDP by 3.9% in Q3/2023 against Q2/2023 due to the matching cause in decreased oil activities of 8.4%. Saudi Arabia exported an estimated 7.3 million barrels per day of crude in 2022, up 13% from 6.5 million barrels per day in 2021 but because of the OPEC agreed and voluntary cuts that figure is now markedly lower. Crude oil exports in August hit their lowest level in 28-months as they fell for a fifth straight month, according to Reuters, to 5.58 million barrels per day, down 7.1% from 6.01 million in July and the lowest since April 2021. Over 1 million barrels per day is being lost in petrodollar value and it is being expressed in a falling GDP.

Production has had to be shuttered by an equivalent rate and has dropped to around 9 million barrels per day being 1 million below the average for the last 10-years. Saudi Vision 2030, the pet project of Crown Prince Mohammed bin Salman, includes a reduction on the reliance of crude oil through diversification into such areas as banking, IT, tourism and public services’ developments. A noble endeavour indeed, and while the GDP breakdown shows government activities increasing by 1.9% year-on-year, the quarter-on-quarter activity was down 5.3%. In 2022, Saudi cut a swagger with economic growth with readings reaching 8% to contest at the top of the board of the G20. However, and according to Bloomberg Economics, exports were made up of 80% by crude, rising to 93% when oil derivatives are included. Last July the IMF called Saudi Arabia’s economic growth for 2023 to be 1.9%, that has since been revised to 0.8%. It is now difficult to see how this diversification can carry on being so readily funded.

Declaring a pursuit in oil price stability and taking on the role of the ‘FED of the oil market’, Saudi has striven along with its partner in cut, Russia, to control oil by supply. There has been undoubted success, for the voluntary cuts that began in July have seen Brent travel from $75/barrel to over $95 at the end of September. The current morass in Israel/Gaza occludes much, but one wonders if Saudi has now overplayed its wild card. Wherever crude prices are trading, add the equivalent crack or margin value and that is what economies have to deal with and in very large part why inflation rates and their main foil, interest rates, have been stubbornly high. Saudi Arabia’s management by supply has helped to bring lower the GDPs of other nations, it would appear that it is now bringing down its own.
 

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