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Page added on September 13, 2015
Saudi copes with oil drop by selling FX
Look out world—China’s not the only central bank in town selling its currency reserves to cope with a tumultuous global economy.
With crude prices having shed more than half their value over the past year, oil producing economies are feeling the sting of cheaper oil. More importantly, Saudi Arabia—OPEC’s largest member and the world’s top oil producer—bears watching as oil stays below $50 and a global glut depresses oil prices, analysts say.
Even before China surprised markets by announcing a record drawdown of its foreign currency denominated assets, Saudi Arabia had already begun selling its reserves to plug a hole in its budget and support its flagging currency, the riyal. In February and March, the world’s largest oil exporter saw net foreign assets drop by more than $30 billion, the biggest two- month drop on record.
These asset sales are important because Saudi holds one of the world’s largest reserve caches—and such sales put downward pressure on the U.S. dollar and upward pressure on Treasury bond rates.
“The drop in oil prices, more so than volatility per se, have contributed to a decline in oil exporters’ reserves globally,” said Rachel Ziemba, senior director of emerging markets research at Roubini Global Economics, including members of the Gulf Cooperation Council (GCC) and other Middle East economies.
“Across the 11 oil exporters I track, reserves fell by over $200 billion over the last year,” she added, even adjusting for changes in other FX holdings such as euros. According to Ziemba, Libya, Algeria and Iraq are also likely to eventually sell some FX assets, as are Bahrain and Oman. Wealthier Gulf nations have sizable FX assets, thus allowing them more time.
Oil’s continued slide and China’s cloudy growth prospects have added even more downside risks to the outlook of Middle East oil producers, many of which are already reeling from conflict and terrorism. In particular, Saudi Arabia and China have forged closer bilateral ties in recent years, shaped by China’s voracious energy needs. Within the last few years, the Saudis have become the biggest supplier of crude for the world’s second largest economy.
According to analysts, Riyadh has sold off about $60 billion in the last 10 months alone, mainly to finance new spending and to support the peg. Still, the kingdom still maintains more than $650 billion in reserves, according to International Monetary Fund data.
Ziemba says Saudi asset sales have been devoted to propping up the riyal and public spending, but she added that Riyadh has repatriated some of its foreign currency deposits and placed them as deposits in local banks. That encourages those institutions to continue to lend and to shore up domestic liquidity.
The use of FX reserves, however, has been no panacea for Saudi Arabia’s macroeconomic woes. In August, ratings agency Fitch revised the outlook for the kingdom to “negative” citing Saudi Arabia’s “absence of an effective fiscal policy response to the lower oil price environment.”
The country is still coping with growing deficits, which analysts say may lead to a currency devaluation. For now, Saudi Arabia has said it’s committed to keeping the 3-decade-old currency peg in place, but that may not last if oil’s slide deepens below $40 per barrel, as a few market watchers warn could happen.
“We think [riyal] devaluation is not imminent, though further delays to fiscal reforms could heighten perceptions of risk around the sustainability of the fiscal path, the credibility of the peg as well as undermine sovereign creditworthiness in the medium term as debt build-up accelerates,” Barclays wrote in a recent research note.
However, “without adjustment to the current fiscal path, and if oil prices persist at $50 per barrel, Saudi Arabia could use up its financial buffers by 2019,” the bank added.
Meanwhile, lower oil prices mean that sovereign funds have less capital to invest but for the moment, only a few countries such as Qatar and Kuwait are still receiving new capital, according to Roubini research data.
Even with oil’s swoon creating ripple effects, few analysts expect Saudi Arabia to cut production.
“Macroeconomic factors should not be construed as a short-term determinant for Saudi oil policies,” Barclays wrote, adding that it does not “expect the Kingdom to reduce output much below 10 mb/d in 2015 and 2016.”
17 Comments on "Saudi copes with oil drop by selling FX"
Makati1 on Sun, 13th Sep 2015 7:30 pm
As America’s debts to the rest of the world* fly home, the economy is being pushed over the cliff. Financial manipulation is soon going to hit the steel wall of reality. Buckle up!
*~$6,000,000,000,000.00 (Six Trillion) as of Sept. 2014)
http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm
zoidberg on Sun, 13th Sep 2015 10:24 pm
Who buys the treasuries? I’d bet the market for them out weighs saudi and Chinese supply. Buckle up for losing money betting against the USD. Lots of people have so far…
You won’t find any stories like this when it becomes a good deal to bet against it. On cnbc. Oh gawd don’t be naive and gullible.
Makati1 on Sun, 13th Sep 2015 10:29 pm
zoid, the US is buying back it’s own debt by printing dollars. Fools outside the US are becoming as scarce as new oil.
If you are an American, you should be more concerned about the trillions owed to you that are currently in paper/digital USTs & USBs in your retirement accounts. Foreigners will be paid off first. You last, if ever.
marko on Sun, 13th Sep 2015 11:56 pm
Sell it all before it is to late.
Print baby print business is coming home
Davy on Mon, 14th Sep 2015 6:10 am
I love how the anti-Americans have had their trousers dropped. They have bent over and given a good ass slap while they take it with a squeal. FUNNY. Especially the Asiaphile. Lately he has been hard at it with multiple evil empire comments. Desperation? Yeap!
The US is a dead man walking for sure but it appears the rest of the world Brics, Canada, and Europe are falling over quicker. That was not how it was supposed to happen right guys. The evil empire was supposed to die just like in Hollywood and everything would be peachy. You wanted an Avatar style movie to give you hope and purpose. Now you all are just failed agendas that continue to puke the bile without the mojo.
It was looking like a race for a time. Boy the Brics were standing up tall and united before the news cameras. Short guy Putin was there chest pushed out snickering like a don. Where is the Bric Bank in the news now? How about that hot new Chinese reserve currency that was going to blow the dollar out of the water? Currently China is in a nose dive selling dollar denominated assets but not for spite but because of desperation. I bet they are begging the Fed not to raise rates. Putin’s dream bogged down in a new Assad style Afghanistan.
Nature could give a shit about your emotion driven agendas that operate under with the same tools of deception and distortions the US establishment propagandist uses. Russia and China are even better than the US establishments veiled efforts with tightly controlled systems the DC bandits could only wet dream over.
US criticism is vital because of the US size and proportion of world problems. Yet, making the US out as something more than it is makes you no better than those you despise. You have become your enemy and you stink just like them.
Get a life and move on to more normal activity like trying to find the truth of things. The truth does not take sides. The truth is not driven by emotions. The truth is the truth and all else submits to it including dumbass.
zoidberg on Mon, 14th Sep 2015 8:06 am
Its the pegs the rial and yuan are set to the dollar. The fools outside the US have somewhere between 7 and 9 trillion USD borrowed and Cant find usd to pay it back. Their attempts to buy USD to do so is driving the price up for USD which pressures the pegs in sa and China forcing them to sell dollars to maintain the pegs. China devalued to save reserves. Russia abandoned any attempt to maintain currency value and Sa is only a matter of time befoe they surrender.
Bet against the USD after the emerging markets default on their USD debts en masse. That’s as far as free advice goes. anything more and I’ll make you rich ;).
zoidberg on Mon, 14th Sep 2015 8:09 am
And QE is over. They aren’t buying treasuries with printed money.
Try harder.
Makati1 on Mon, 14th Sep 2015 8:33 am
zoidberg, prove your statement. I bet you cannot because they bought those $400+ billion the Chinese sold recently for something and it wasn’t gold. The US has none. All it has is a ‘printing press’ and the biggest debt in human history.
When the ‘fools’ start bailing out of the dollar,it will be slow at first and it will be soon. The tide has turned. If you ever watched the tide turn, you would know that it happens slowly with each wave coming in a bit less far. The dollars will come in, but each time, they will come in in smaller amounts until…
I would not want to be holding dollar paper when it happens. I don’t hold dollars a day longer than necessary.
If you were so financially intelligent, you would be a billionaire and not wasting your time on here…lol. I always ask anyone who sells or gives their advice on investing money why they are not fabulously wealthy. It shuts them up every time. LOL
Davy on Mon, 14th Sep 2015 8:59 am
Zoid someone is in an agenda trap. He is trying to explain something away with faulty logic to support his agenda that the U.S. Is bad and China is doing fine. He has little understanding of global finance. If he did he would understand the interconnectedness of it all and how one cannot do well and the other bad at least longer term. Just sit back and watch the dumbass eat crow.
BobInget on Mon, 14th Sep 2015 9:15 am
By Saudi Gazette | Jeddah
Monday, 14 September 2015
Salaries across Saudi Arabia have increased by an average of 4.5 percent in 2015 – slightly below the rate of 5 percent which had been forecast last year, according to a report by consultancy Hay Group.
Wages grew despite the slump in oil prices, which are down almost 50 percent since June last year, the report said.
Hay Group’s regional manager for Services Wendell D’Cunha said: “With inflation at 2.6 percent, the increase represents a growth of 1.9 percent in employees’ real spending power.”
The highest increases have been seen by lower level employees with an average of 5.7 percent.
“The difference between salaries of senior executives and entry level workers has grown more slowly than in other parts of the Middle East,” said D’Cunha.
“However with the average head of department earning 7.3 times more than the average entry level staff member, Saudi Arabia is still well above the regional average in this regard,” he added.
Overall, the report also found that employees in the banking sector fared better than their peers with an average 7.1 percent increase.
As a percentage of basic salary, companies in the banking and retail sectors also paid the highest bonuses.
“The banking and retail sectors are both very performance driven and as such, we expect to see a large portion of total pay being paid as a variable bonus,” said D’Cunha.
zoidberg on Mon, 14th Sep 2015 11:52 am
My internet comments must always be nothing more than unverified opinion. Proving things…not my job. Also if I had proof about the top level shenanigans I’d be stupid blather about them online people who kept their mouths shut end up suicided, blabber mouths get it worse.
So take it as food for thought or believe what you will.
rockman on Mon, 14th Sep 2015 1:38 pm
Not an internation monetary expert…not even close. So explain to me what “bailing out” from the US $ means. IOW are you talking about exchanging $’s for another country’s currency? If so what country or countries? And how many folks who see this future have exchanged their $’s for some other currency?
zoidberg on Mon, 14th Sep 2015 2:02 pm
It doesn’t mean anything, yet. Possibly if the US loses the next big war, or if there’s a second civil war. Until then outflows are increasing from China. Seems to be selling Chinese assets to buy USD denominated assets to preserve their wealth including those recently sold treasuries which last I saw was 90 some bullion, with capital outflows of 109 billion. That’s money leaving China. I think the treasuries are going from the government to individuals in China and then landing in New York and California.
Other problem is if you have hundreds of billions you need massive and liquid markets to park it. The eu lacks a uniform debt market Japan is broken and China is opaque and illiquid. Only the US treasury market suffices and its good for spending world wide.
Makati1 on Mon, 14th Sep 2015 9:44 pm
rockman, I don’t know who you were directing your question to, but I exchange my S.S. income for Philippine Pesos the day it hits my bank. I would rather be holding the local currency than paper from a failed country that may start a war in my neighborhood at any time.
I then use those Pesos to prep for the day that the SHTF. Some I hold in cash. Mostly Pesos. Some Yuan, Yen, Bhat, HK dollars, Rupiah, Ringgit, and a bit of USD (<$500).
The rest goes to build the 'farm'. Also, to stock up on necessities and medical items and to build up my inventory of trade goods and hand tools. I also constantly increase my library of "How To" and educational books, etc. My living expenses are less then 800USD/mo. I live quite comfortably, thank you.
Makati1 on Mon, 14th Sep 2015 9:52 pm
zoidberg, those Chinese and other ‘rich’ don’t know that they are jumping from the frying pan into the fire. Let them come to the Us. Those million dollar condos and homes will soon be worthless just like all of the American bank owned ones.
What happens if the US does go to war with the Chinese? Internment camps or street deaths for the obvious Chinese in America. That happened to the Japanese in the last world war. To the Jews in Germany. To the Germans in England, etc. So, let them come. They will soon see behind the curtain and maybe choose to go back to China…except for those who stole their wealth and are wanted in China.
There are some thirty thousand plus Chinese in the US that the Chinese do not want back and are refusing to process the papers to have them extradited. Seems to me the Chinese are allowing their scum to escape to the country overrun by similar types. Smart if them.
marko on Tue, 15th Sep 2015 12:12 am
Get a life and move on to more normal activity like trying to find the truth of things
And truth is ,in my opinion of course. Human race doesn’t deserve to exist anymore. We had our chances.And now , I have to make some money to survive this day until the dance last. Unfortunately I cant print as much as I need. I promise I will cut my deficit by couple of trillions by the year 2192, I swear hahahahahahahah
Davy on Tue, 15th Sep 2015 4:21 am
“Chinese and other ‘rich’ don’t know that they are jumping from the frying pan into the fire.”
Some people just don’t want to accept the reality of the situation in Asia and China. People that make the kind of Change like the rich Chinese are smart and have done their research. They see Asia and China for what it is. They understand the implications of a totalitarian regime with a thin veil of tolerance and openness. They know what the Chinese government is capable of. They know how polluted and overcrowded China has become. They understand the economy is nose diving. I think the best example of what is occurring in Asia and China is the rich walking and I might add with their money. The walk says volumes over the talk.