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Thu 24 Feb 2011 12:36 PM

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Middle East rallies to persist, driving oil volatility, GIC says

Risk premium in oil prices and volatility in oil markets could continue to be high, Singapore official says

Middle East rallies to persist, driving oil volatility, GIC says
OIL PRICES: Crude oil futures for April delivery rose on the New York Mercantile Exchange on Thursday (AFP/Getty Images)
Middle East rallies to persist, driving oil volatility, GIC says
offshore oil rig

Government of Singapore Investment Corp, manager of more than $100bn of the city’s reserves, said the “momentum” of popular uprising in the Middle East and North Africa could drive volatility in oil markets.

Egyptian president Hosni Mubarak stepped down earlier this month after protesters crowded central Cairo for three weeks demanding his ouster, while loyalists of Libyan leader Muammar Qaddafi sought to crush dissent in the capital of Tripoli as his opponents tightened control of eastern cities.

“Geopolitical and global policy risk is higher, and perhaps more unpredictable, than it has been for some time,” Tony Tan, GIC’s deputy chairman, said in a speech at the Foreign Policy Association in New York on Wednesday. “The risk premium in oil prices and volatility in oil markets could thus continue to be high.”

The risk of political disruption may increase in oil-rich states and countries that control key shipping routes like Algeria, Bahrain, Libya and Yemen, Tan said. GIC is ranked the world’s seventh-largest state investment company by Sovereign Wealth Fund Institute, which estimates it manages $247.5bn.

The fighting in Libya, which holds Africa’s largest oil reserves, is the most violent yet seen in six weeks of popular uprisings across the Middle East and North Africa, which have already unseated longtime rulers in Tunisia and Egypt.

Bahrain’s King Hamad Bin Isa Al Khalifa, who met with the monarch of neighbouring Saudi Arabia in Riyadh, freed as many as 308 prisoners yesterday in a concession after more than a week of Shiite-led protests. In Yemen, nine lawmakers quit the ruling party over the government’s crackdown on pro-democracy demonstrations that left at least seven people dead.

Crude oil futures for April delivery rose on the New York Mercantile Exchange on Thursday by as much as $1.39, or 1.4 percent, to $99.49 and traded at $98.66 at 1:13pm, Singapore time. on Wednesday, it touched $100, the highest level since October 2, 2008. Futures are up 25 percent from a year ago.

Nomura Holdings said oil may jump to $220 a barrel if exports in Libya and neighbouring Algeria are shut down.

Other risks Tan raised include accelerating inflation and asset bubbles in China and India, two economies he said could expand 7 percent to 9 percent. China also needs to deal with an expected rise in non-performing loans with increasing credit in the world’s fastest-growing major economy, he said.

Emerging markets, especially the four biggest developing nations that also include Brazil and Russia, gained importance following the 2008 financial crisis, he said.

“Some rebalancing in economic power will happen, and indeed is a good thing,” he said, adding that as the US economy recovers, “America is likely to remain the single-most important source of global prosperity for many years to come.”

The company, which has a third of its investments in the US, said the country remains a “prime destination” for the fund. Tan’s biggest worry about the US is that the country is “becoming increasing insular” because of concerns over jobs or reactions to terrorism, he said.

 

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