The recent oil price rally is sure to boost petrodollar inflows into the government coffers and sovereign wealth funds of oil producing nations.
A part of those petrodollars could flow back into the global markets if oil producing countries boost investments in various asset classes, according to some large investment banks.
These potential new petrodollar inflows could be a shot in the arm for global markets at a time when central banks around the world are starting to normalize their monetary policies.
Yet, as oil producers struggle to patch up budget deficits caused by the oil price rout of 2014-2016, it shouldn’t be taken for granted that the increased petrodollar incomes at sovereign wealth funds and forex reserves of the oil nations will necessarily translate into a huge ‘recycling’ of the newly earned dollars into the global markets.
That’s because many of the oil exporters—especially those in the Middle East—still need to plug budget gaps and finance increasingly investment-intensive projects at home. Case in point—OPEC’s largest exporter and de facto leader Saudi Arabia, which plans hundreds of billions of U.S. dollars-worth of mega projects while it continues to run budget deficits and its net foreign assets struggle to post any significant gains.
Between 2014 and 2016, the combined oil revenues of the world’s oil producing nations plunged from US$1.6 trillion in 2014 to less than US$800 billion in 2016, according to JPMorgan Chase & Co. analysts led by Nikolaos Panigirtzoglou. The plummeting revenues from oil in that period limited the ability of the sovereign wealth funds and central banks of the oil exporters to buy foreign assets. According to JPMorgan, the oil countries’ funds and FX reserve bodies may have spent US$160 billion less on equities and US$80 billion less on bonds in 2015-2016.
Now, “The increase in oil prices is generating a shift in flows and incomes across the world, effectively reversing the previous big shift seen between 2014 and 2016,” JPMorgan said in a note earlier this week, cited by Bloomberg.
According to JPMorgan and other analysts, the higher oil prices would benefit equity markets more than the bond markets, and in FX, the euro more than the U.S. dollar.
“The rise in oil prices should create a positive flow in equity markets this year,” JPMorgan reckons. “Where the rise in oil prices poses more risk is in bond markets as the squeeze in oil consumers is reversing their previous saving impulse of 2015/2016, creating a bearish flow for bond markets this year.”
According to Michael Hewson, chief market analyst at CMC Markets, the rise in oil prices coupled with rising yields are helping to underpin equity markets for now.
“It’s this move higher in crude oil prices, along with the rise in demand, that is helping fuel the recent rise in yields as well as the positive tone for equity markets. However, if it continues too far, we could start to see it act as a drag on equity markets, if prices along with yields start to move even higher,” Hewson said in a commentary on Tuesday.
In FX, with oil prices possibly rising further, to say $80 a barrel, the wealth funds of oil exporters could diversify their FX reserves, potentially pressuring the U.S. dollar, Mansoor Mohi-uddin, head of currency strategy at NatWest Markets in Singapore, told Bloomberg.
If oil prices continue to increase, the Brent price—which has typically had a positive correlation with the euro in the past decade but not in the past year—could again start having a positive correlation with the European currency. In this case, “all the Middle East’s largest energy producers are likely to build excess FX reserves increasing the risk of renewed dollar diversification out of the region,” Mohi-uddin said, adding that the U.S. dollar could struggle to appreciate versus the euro.
Higher oil prices are boosting oil producers’ coffers now, but it’s not clear yet if the petrodollars will be heavily reinvested in global asset classes as countries may need to address budgetary and monetary issues and policies at home first.
By Tsvetana Paraskova for Oilprice.com
dave thompson on Thu, 26th Apr 2018 6:47 pm
“Will Higher Oil Prices Boost The Global Economy?” YES! By sending the economy into a stratospheric tailspin of destruction.
makati1 on Thu, 26th Apr 2018 6:56 pm
“One thing that could destroy the temporary high could be the destruction of the financial system due to loss of the reserve currency status and the replacement of the petrodollar system….
As the system collapses the banks will likely try to re-inflate assets by massive money printing which will only cause hyperinflation at some point….
One thing is for certain. People today believe anything but reality and that will catch up to them all very soon in a very painful way. Things work until they don’t. Our economy has been rolling along for decades on the stored wealth of previous generations but that is about to run out of steam very soon. When it does it will be a shock to all but a few.”
https://www.zerohedge.com/news/2018-04-25/things-work-until-they-dont
“You can ignore reality but you cannot ignore the consequences of ignoring reality.: AMEN!
Davy on Thu, 26th Apr 2018 7:00 pm
3rd world, greggie says you are spreading ZH disinformation. I thought you were friends. He hates the hedge quit being mean to greggie. He is going to freak out.
MASTERMIND on Thu, 26th Apr 2018 7:00 pm
Dave
Well put…What a fucking moronic article. High oil prices cause inflation in 95 percent of all industrial products, and food. And decrease consumer confidence, and consumer spending.
MASTERMIND on Thu, 26th Apr 2018 7:02 pm
Madkat
People have been saying the petro dollars is history since it was first started. They even made a whole movie about it in 1982 called “Rollover”…
MASTERMIND on Thu, 26th Apr 2018 7:10 pm
The IMF Is Freaking Out. Should You?
https://seekingalpha.com/article/4166065-imf-freaking
Christine Lagarde: “clutches pearls”
makati1 on Thu, 26th Apr 2018 7:42 pm
MM this is not 1982. This is today when the two other super powers are working to take it down. Not to mention a number of smaller countries. Both Russia and China have that ability. They are slowly eroding away its power and influence. There will be a tipping point and then it is game over for the USD.
GregT on Thu, 26th Apr 2018 7:43 pm
“3rd world, greggie says you are spreading ZH disinformation.”
I didn’t say that at all Davy. You just did.
“I thought you were friends.”
Never met makati1, and he lives half ways around the world from me, besides, you have far more in common with makati1 than I do Davy. You guys are both US Americans. Although admittedly, makati1 actually served his country.
makati1 on Thu, 26th Apr 2018 7:47 pm
Davy, I would be happy to be Greg’s neighbor, but not yours. I detest closed minds.
Davy on Thu, 26th Apr 2018 7:53 pm
Stop the lying greggie. You know how you feel about the Hedge. Please don’t do your double standard BS. What’s good for me is good for your best friend 3rd world.
GregT on Thu, 26th Apr 2018 7:54 pm
And Davy,
Why is it that when you constantly link to ‘The Hedge™’ it’s the gospel truth, but when makati1 links there, it’s disinformation?
Which is it Davy? You can’t have it both ways buddy.
MASTERMIND on Thu, 26th Apr 2018 7:56 pm
Madkat
Here is a chart of the IMF’s reserves. The only challenger to the dollar is the Euro. But with the Brexit and all the right wing populist like Clog rising. I doubt it will ever be any completion. China’s currency makes up only 1.2%..Totally pathetic. And you think its going to upend the dollar? You are so uneducated and easily fooled.
https://imgur.com/a/pMHP2dE
Davy on Thu, 26th Apr 2018 7:58 pm
3rd world, I think you want more from greggie but he is married. He hit on me back in November. I think he was drunk. You guys should be friends on Facebook then meet in Hawaii for a bro trip.
Davy on Thu, 26th Apr 2018 8:00 pm
Greggie, I am not afraid of the Hedge but you are. Your little mind can’t handle some of the articles there
GregT on Thu, 26th Apr 2018 8:01 pm
“You guys should be friends on Facebook then meet in Hawaii for a bro trip.”
That’s quite the fantastic little fantasy world that you’ve created for yourself Davy. You obviously need to get out more, but it’s also blatantly obvious as to why you can’t.
GregT on Thu, 26th Apr 2018 8:04 pm
“I am not afraid of the Hedge but you are.”
Tell everyone Davy, why someone should be afraid of a website, or not.
makati1 on Thu, 26th Apr 2018 8:06 pm
MM, your financial/current events education is lacking. Maybe in a few years when you get some “peer reviewed studies” that tell you what I am telling you now, you will believe, but it will be too late. Old news. LMAO
MASTERMIND on Thu, 26th Apr 2018 8:47 pm
Madkat
That chart was from an article written a month ago? And I doubt there will be any peer reviewed studies that confirm your paranoid dollar collapse zerohedge conspricy theories.
makati1 on Thu, 26th Apr 2018 9:05 pm
MM, that chart has no date. The most recent IMF report is over a year old. March 2917.
https://tradingeconomics.com/united-states/foreign-exchange-reserves
Not too long ago, the USD share was over 80%. What does that tell you?
MASTERMIND on Thu, 26th Apr 2018 9:10 pm
Madkat
Is the “Petro-Yuan” a Credible Challenge to Dollar Supremacy?
https://wolfstreet.com/2018/04/15/is-the-petro-yuan-a-credible-challenge-to-dollar-supremacy/
Dated: April 15
MASTERMIND on Thu, 26th Apr 2018 9:15 pm
Madkat
Chinese smartphone sales suffer biggest decline ever
http://money.cnn.com/2018/04/26/technology/china-smartphone-market-decline/index.html
First quarter 2018 down 21% compared to first quarter 2017!
Trouble in Slave land! LOL
makati1 on Thu, 26th Apr 2018 9:26 pm
MM, ALWAYS consider the source of your “info”.
ALL websites are selling something, not to be taken at face value. Perspective. Always perspective. Especially anything originating in the Us.
BTW: Smartphones have hit peak ownership in most countries. Old news. Fewer and fewer are going to have the money to waste on buying the newest casing color or screen size. They have other priorities, like marriage, home ownership, etc. Perspective, MM.
https://www.barrons.com/articles/apple-falls-7-cowen-cuts-to-hold-on-peaking-iphone-sales-bull-see-long-term-value-1437571427 (2015)
https://www.cnbc.com/video/2016/11/21/opco-iphone-sales-peaking.html (2017)
I wouldn’t want one if it was free. I use a perfectly good cell phone 8 years old and am typing on a 10 year old Apple pc. If it ain’t broke, don’t replace it. LOL
MASTERMIND on Thu, 26th Apr 2018 9:41 pm
Madkat
Always consider the source? Says the guy who post fro Zerohedge, Organic prepper, burningplatform.,,etc…and ridicules peer reviewed scientific studies. LOL You live in Disney land dude! Totally deluded.
makati1 on Thu, 26th Apr 2018 10:20 pm
MM, I real a lot more sources than you do. I look at the situation from many viewpoints, then form my own opinion. I understand that most sites are spin/ads and take that into account. You just parrot the Us MSM bullshit.
Jeff on Fri, 27th Apr 2018 5:50 am
“Will Higher Oil Prices Boost The Global Economy?”
Absolutely, just like it did back in 2008. But this time, it will be much, much more!
Kat C on Fri, 27th Apr 2018 9:30 am
https://www.npr.org/sections/thetwo-way/2017/02/21/516512439/record-number-of-miles-driven-in-u-s-last-year “Drivers in cars, trucks, minivans and SUVs put a record 3.22 trillion miles on the nation’s roads last year, up 2.8 percent from 3.1 trillion miles in 2015.”
So lets take an average of 20 mpg so that is about 150 billion gallons of gasoline per year. So each increase of ten cents per gallon is $15 billion per year Americans can’t spend on other stuff. It is $15 billion to do the same things they are doing now.
Similar calculations here https://www.theatlantic.com/business/archive/2012/03/the-110-effect-what-higher-gas-prices-could-really-do-to-the-economy/254386/ “Consumer demand for gasoline is the biggest end-use category. American consumers purchased 172.2 billion gallons of gasoline in 2011, spending just over $400 billion, excluding federal and state taxes. Each 50 cent increase in the price of gasoline adds almost $60 billion to annual consumer bills”
How much of that driving is essential (get to work, grocery store) and non-essential is hard to find. But either people buy less of other stuff, save less, or drive less.
However for the countries with large net exports it will boost their economies until it busts the world economy. Think KSA and Russia. For countries with large net imports it will be a whole different story.
Higher oil prices will increase the cost of growing food so food will cost more without increasing the profits of the farmers, but will further reduce the buying power of those who eat food (and increase starvation).
Antius on Fri, 27th Apr 2018 9:55 am
“Drivers in cars, trucks, minivans and SUVs put a record 3.22 trillion miles on the nation’s roads last year, up 2.8 percent from 3.1 trillion miles in 2015.”
Daft Yanks. I have never understood why Americans drive such ridiculous vehicles. Why does anyone living in a city need a truck or SUV? Why would you even want a vehicle that does 20mpg and is such a bother to park?
The US budget deficit would be a lot smaller if they gradually raised tax on gasoline. Here in the UK, a gallon of diesel costs nearly £6/gallon – about $8.50/gallon. I drive a car (a ford as it happens) that gets 60mpg on a standard drive and I have pushed it to 70mpg on long motorway trips. I do not feel deprived for this. It does exactly the same job as the SUV, using about one third of the fuel.
Duncan Idaho on Fri, 27th Apr 2018 10:06 am
“I have never understood why Americans drive such ridiculous vehicles. Why does anyone living in a city need a truck or SUV? ”
Generally it is a small penis problem—
That, and massive ignorance.
Davy on Fri, 27th Apr 2018 10:20 am
“I have never understood why Americans drive such ridiculous vehicles. Why does anyone living in a city need a truck or SUV?”
Not everyone lives in the city. I might add when and or if down the road shit hits the fan these trucks will have a second life and these sedans bragged about above will long ago be junk. These trucks can carry 20 people. They can carry lots of cargo. So as you see there is more to the story than anti-Americans or anti-flyover liberals want to acknowledge.
Usually people that talk about a small penis have one.
Antius on Fri, 27th Apr 2018 10:35 am
Looks like the global recession isn’t far off:
https://www.zerohedge.com/news/2018-04-27/pound-crashes-after-uk-reports-worst-gdp-2012-rate-hike-odds-tumble
A classic stagflation problem. To keep inflation low in the face of a falling currency, you have to raise rates so people buy your currency. But BoE cannot do that at present, for fear of pushing up borrowing costs and sending the economy into flat out depression, rather than the endless growth recession that we are already in. Rising oil prices could easily be the straw that breaks the camel’s back, since the UK North Sea is now caput.
Britain has long suffered from a ruling class that is obsessed with political ideology and control of the masses, without really having much of an idea of where wealth really comes from. They are hopelessly impractical people; obsessed with PR and wordsmithing and legal due process.
Whereas the Germans have a manufacturing economy that pumps out enough excess wealth to fund their stupid political fantasies; all the British government have is stupid political fantasies. Even Merkel’s inane government has not managed to sink the German economy (although they do keep trying).
We British have only ourselves to blame for this. The British media loves to celebrate the great British tradition of tolerance, whenever an immigrant does something evil to us. Apathy would be a better description of it. One of the reasons the British government is so contemptible for human freedom, is that the British public never really exercised that freedom in the first place. Whatever happens, they just sit on their hands whilst their daughters are being raped, their property stolen and their money fleeced. Ultimately, the government takes that freedom away, knowing that the public are too apathetic to actually be bothered to defend themselves.
There is nothing more contemptible than a slave that accepts slavery because he is too lazy to revolt.
Cloggie on Fri, 27th Apr 2018 10:36 am
Not everyone lives in the city. I might add when and or if down the road shit hits the fan these trucks will have a second life and these sedans bragged about above will long ago be junk. These trucks can carry 20 people. They can carry lots of cargo
Yeah, very handy, especially in case of a civil war shtf:
https://www.themanufacturer.com/wp-content/uploads/2015/10/Toyota-vehicles-feature-prominantly-in-ISIS-propaganda.-e1444420627612.jpg
In what other situation would you want to transport 20 people and “cargo”? Visiting granny with the whole family?
Antius on Fri, 27th Apr 2018 10:44 am
“Not everyone lives in the city. I might add when and or if down the road shit hits the fan these trucks will have a second life and these sedans bragged about above will long ago be junk. These trucks can carry 20 people. They can carry lots of cargo. So as you see there is more to the story than anti-Americans or anti-flyover liberals want to acknowledge.”
Come off it Davy. How many people buy these things and actually use them in this way? In the UK, 4-wheel drive SUVs are nicknamed ‘Chelsea tractors’. Few of the idiots the buy these things ever use them for anything more strenuous than getting the weekly shopping.
GregT on Fri, 27th Apr 2018 11:54 am
“Come off it Davy. How many people buy these things and actually use them in this way? In the UK, 4-wheel drive SUVs are nicknamed ‘Chelsea tractors’. Few of the idiots the buy these things ever use them for anything more strenuous than getting the weekly shopping.”
Correct again Antius, and the truck culture is also prevalent in Canadian cities as well. Guys even like to hang testicles from their trailer hitches and bumpers.I kid you not:
http://www.banality.com/images/things/cars/13.jpg
While I can’t speak for the USA, out here in rural Canada it is very rare to see a pickup truck being used for anything other than work. When we go into town, the vast majority of vehicles are small fuel efficient cars.
And try your best to take Davy with a grain of salt. His are mostly emotional reactions, rather than intelligent responses.
Hello on Fri, 27th Apr 2018 12:17 pm
>> I have never understood why Americans drive such ridiculous vehicles
same way an american doesn’t understand how europeans buy Smart and Fiat 500. It’s cultural taste.
BTW, did you know that the biggest growth in car sales in europe are SUV?
You leave it to europeans to bitch and moan about silly americans yet they follow 2 steps behind in every way.
BTW I have several european friend with the same anti-truck attitude. But they went on vacation to the US and had a chance to drive truck for a few weeks. That pretty much changes their minds. Crazy europeans. Always thinking their smarter and better yet….
Hello on Fri, 27th Apr 2018 12:18 pm
>>> Guys even like to hang testicles from their trailer hitches
that’s mexican imports do that.
MASTERMIND on Fri, 27th Apr 2018 12:20 pm
US economy slowed in first quarter after Trump’s $1.5tn tax cuts
https://www.theguardian.com/business/2018/apr/27/us-economy-slowed-in-first-quarter-after-trumps-15tn-tax-cuts
Americans were duped again by RepubiCons Voodoo economics.
GregT on Fri, 27th Apr 2018 12:24 pm
“that’s mexican imports do that.”
Mexican imports are almost non-existent in Canada. The vast majority of jacked up 3/4 ton 4X4 trucks with balls hanging off the rear in Vancouver B.C., are driven by 20 something year old white guys.
Davy on Fri, 27th Apr 2018 12:25 pm
“Come off it Davy. How many people buy these things and actually use them in this way?”
Come off it greggie and read the comment again. I didn’t say the whole story I said part of the story. You extremist are all about making comments that are the whole story when it is not. Around here and all over rural America with contractors and so forth these trucks are used extensively. Stop the stereotypical anti-American bashing.
MASTERMIND on Fri, 27th Apr 2018 12:25 pm
Clogg
I found a new book you might like to read.
https://i.imgur.com/uZLAs5t.jpg
GregT on Fri, 27th Apr 2018 12:27 pm
Try to get your emotions under control Davy. I didn’t say that, Antius did.
Davy on Fri, 27th Apr 2018 12:29 pm
“And try your best to take Davy with a grain of salt. His are mostly emotional reactions, rather than intelligent responses.”
Translation: Davy is a thorn in the side of us hardcore anti-Americans. I can’t stand him but there is nothing I can do he always makes me eat crow. I stalk and prick him daily but is always backfires.
Davy on Fri, 27th Apr 2018 12:33 pm
“Correct again Antius”
you referenced what antius said then second it you emotionally needy child. It is just part of your stalk and prick effort so own it.
Hello on Fri, 27th Apr 2018 12:34 pm
>>>> Mexican imports are almost non-existent in Canada.
Are you sure?
Last time I visited Montreal there were whole neighborhoods mexican (or latino). Of course you also have your healthy choice of arabs and asians.
I haven’t been in Vancouver in maybe 15 years, so I can’t comment on that. But I heard it’s now practically a chineese town.
GregT on Fri, 27th Apr 2018 12:40 pm
“you referenced what antius said then second it you emotionally needy child. It is just part of your stalk and prick effort so own it.”
If you were capable of responding intelligently, as opposed to reacting emotionally, you would have read and understood my comment.
“While I can’t speak for the USA, out here in rural Canada it is very rare to see a pickup truck being used for anything other than work.”
GregT on Fri, 27th Apr 2018 12:43 pm
“I haven’t been in Vancouver in maybe 15 years, so I can’t comment on that. But I heard it’s now practically a chineese town.”
The city of Vancouver proper, became less than 50% white, back around 2001. White people are now in the minority, and Mexicans are almost non-existent.
Davy on Fri, 27th Apr 2018 12:46 pm
“If you were capable of responding intelligently, as opposed to reacting emotionally, you would have read and understood my comment.”
greggie you are telling on yourself but can’t even see it. Your emotions are in every one of your comments and they are full of hate and vindictive. please spare me your one liner on hate you recite like a morning prayer.
GregT on Fri, 27th Apr 2018 12:52 pm
Give it a rest Davy. Enough of your name calling, childish rhetoric, and delusional accusations. Grow up child.
GregT on Fri, 27th Apr 2018 12:56 pm
“Mexican Canadians (Spanish: Mexicano-canadiense, French: Mexicain canadien) are Canadian citizens of Mexican ancestry or a Mexican-born person who resides in Canada. According to the National Household Survey in 2011, 96,055 Canadians indicated that they were of full or partial Mexican ancestry (0.3% of the country’s population).”
https://en.wikipedia.org/wiki/Mexican_Canadians
MASTERMIND on Fri, 27th Apr 2018 1:16 pm
Depletion of Fossil Fuels and Anthropogenic Climate Change—a Review (Hook 2013)
https://www.scribd.com/document/377586256/Depletion-of-Fossil-Fuels-and-Anthropogenic-Climate-Change-a-Review-Hook-2013
Davy on Fri, 27th Apr 2018 1:25 pm
Give it a rest Greggie, already. Enough of your name calling, childish rhetoric, and delusional accusations. Grow up already greggie.