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Discuss this article (6 Comments)If you want to know which direction the GCC economy is heading, always check the oil price.
The global economy is more interconnected than ever, and so is the GCC economy. And no other sector of the global and local economy is a more reliable indicator of future trends than the oil price.
Statisticians could play all day with different numbers, and they would struggle to find an example that disproves the theory that when the oil price is strong, the GCC economy is strong. When the oil price is weak, so is the rest of the GCC economy.
Being a journalist, I could only be bothered to compare three variables: Brent Crude oil price, the GCC All Share Index and Dubai land sales.
The graph above begins in May, 2008, which was the peak month for Dubai land sales (which is affected by volume and the price of the land (I have calculated May 2009 by multiplying the first 10 days by three)). It was also just about the peak of the GCC All Share Index, and two months before the peak oil price in July.
The relationship between the oil price and GCC shares is almost perfect. Dubai land sales have underperformed - not surprising when you consider the massive bubble that was created in the run up to summer last year.
So, which way now for the GCC economy? Well I’m no expert in commodity trading, but I know an organisation that is. PMV Oil Associates predicts that oil will approach $63 dollars per barrel in the coming weeks and will rally to $78 within the next six months. (http://www.arabianbusiness.com/555058-crude-oil-price-to-hit-78-within-6-months).
Petro-dollars, that were invested in Dubai, will go elsewhere. Dubai has to re-structure its economic model. The existing one does not work anymore: speculation will not be at its side, anymore. Also, high oil prices, in times of recession, will do more harm to the countries that are fueling the real estate market in the uae, or elsewhere. Third, a hard lesson has been learned: if you want to buy a house, let it be in the village you were born.
Given the build up of oil inventory due to the unprecedented global economic slump the hope of higher oil prices looks a bit wishful.
It could be we have had a small rally in the oil price before another down leg, perhaps down to the long term average of $26? It is normal for corrections to pass beyond the long term mean before making a bottom. Sadly as you graphically illustrate this bodes badly for stocks and house prices.
But then only a very optimistic bull would believe that a bounce out of the worst recession since the 1930s is possible in such a short period of time. Think years not months!
The oil price is highly dependent on world economic activity, and it is rising now on the back of a recovery in US/world stocks. But this stock recovery won’t last, it is the suckers’ rally. The 29 crash had exactly the same - a 6 month recovery followed by another crash and long drawn out decline in share values.
It is sad that the GCC countries seem doomed to repeat their mistakes. Instead of pocketing the cash in proper investments and ensuring the locals are properly skilled and motivated to work, they go on a massive spending/borrowing bender on tree-shaped islands and mega-airports, convinced that this time will be different and the oil price has reached a permanently high plateau.
Surely they must learn the lesson now? Get your people’s heads out of the clouds, start learning how to get oil out of the ground yourselves, how to fly planes, how to design buildings and start doing for yourself what you can no longer afford to sit around relaxing watching other people do.
Dubai will never be Singapore because the people will never work as hard or be as smart.
I agree it’s all about the price of oil and money being plucked out of thin air. This is the fantasy of it all. The world we live in today. Speculation and disillusionment abound in great quantities these days.
comment for:
Sunday, May 10, 2009
It’s the oil price, stupid by Rob Coder
Dear mr Coder,
yes we always know that on bases of the oil price it will be possible to see when goes economy not only of one country but economy of the world.
Take note that if all world have a economic crises and that mean that there is no monney, that means that also the price of the oil will be goes down.
I don’t need statistics to understand a logic way of thinking….
It’s like tzunami…..because we are all connected….
[...] It’s the oil price, stupid If you want to know which direction the GCC economy is heading, always check the oil price. The global economy is more interconnected than ever, and so is the GCC economy. And no other sector of the global and local economy is a more reliable indicator of future trends than the oil price. [...]