tv Bloomberg Markets Middle East Bloomberg May 26, 2016 12:00am-1:01am EDT
♪ manus: oil has broken 50 bucks for the first time since november. america have fallen more than expected. rishaad: the middle east's biggest ever bond sale. energy resources make for international investment. in china anddown simmering territorial disputes top the agenda as g-7 leaders meet. and saudi arabia could
not stop the iran nuclear deal going through, so iran has decided to turn to plan b. 8:00 a.m. across the emirates, 5:00 a.m. in london. i'm manus cranny in divine. he -- in dubai. rishaad: i'm rishaad salamat. oil is grabbing the headlines. manus: it absolutely is, and this time it is a red-hot hairline -- red-hot headline. it has broken $50. this is the chart you want to look at. there are a number of different aspects and play. the dollar is up over 3%, but it is all to do with u.s. production and the road to opec indiana. -- in vienna. we are just under $50 at the moment in terms of printing. you've got dollar at the bottom of your screen.
up, stockpiles are coming and this is what has condom moment for the market, because it is stockpiles versus opec. there are a number of different elements in play. stockpiles have fallen for the second week out of three. we have not seen that since january. that u.s. production is falling for the 11th week, the lowest since 2014. i suppose this is a combination of everything. are you a bit more glass half-full than glass half empty to global growth? this price it dictates what goes on in other sectors. the ring it is strengthening very much. the market is strengthening well. on top of those oils shares, oil related shares doing well. let's level look at what is -- let's have a look at what is going on. we saw advances throw the morning. hang seng at 2/10 of 1%, giving
up some of its earlier, more pronounced gains. just about 20 minutes of training -- of trading. is, just abouts two hours away from the open in the emirates, this is the last close after the end of the wednesday session. we had a gain of 1.5% there. with marginal strength. this is on the way up for a change, i should say. and the israeli market getting a boost, 9/10 of 1%. that's what is going on at the moment. manus: thank you very much. let's get over to the other stories making headlines around the world. qatar has raised $9 billion in the middle east
biggest ever bond sale. bonds were offered across five year, 10 year, and 30 year maturities, and raised almost twice then what they were said to be targeting. attractk to international investors following the plunge in oil prices. chevron and shell are said to be qatar'sany's offering biggest oil fields. decision on a production sharing agreement is expected later this year. one field currently produces around 3000 girls of oil a day. 300,000 barrels of oil a day. the three lenders are said to be iran set up a non-denominated program. it is expected to happen sometime this year. aramco may also consider setting
up a dollar bond program. oil on the top of the agenda when gcc foreign ministers meet in moscow. -- four wayrst 28 meeting. reports from the and a say that nna say they will discuss reintroducing output. news 24 hours a day on bloomberg, power by -- powered by journalists all around the world. looking at sprint and crude breaking through that 50 bucks a barrel level, it looks increasingly likely that vienna officials will not be pushing through -- pushing for an output freeze. angie, what is behind this current spike up in oil? i guess everyone is questioning whether it can last or not. reporter: it looks like it is
the inventories in the u.s. that have come down. they inventories have been an overhang on the oil price that has been keeping a lid on things so far. there is so much inventory and stock to work through that, with -- these information's interruptions we have seen in the market, with outages from various countries, the stockpile is turning the market, but there is still a lot more oil out there. this will be psychological. we will see of people think it has topped out. wti is also flirting with 50, so we will see affect crosses over to today. manus: let's talk about the meeting we have coming up. a freeze is not necessarily on the official agenda. i just get the feeling that opec is moving further away from trying to put a freeze. reporter: that is not a surprise going into this meeting. the failure of the meeting last
month when they tried to get something together, there are countries like iran that say they are not going to take a part in the freeze until they reach their pre-sanctions levels of production. other countries have said, if we are going to freeze, everybody is going to freeze. it is not a surprise that they are not moving to that after that failure, and prices at $50 says, why bother? oil is going up. managing's all about our expectations. we were so ready for a freeze at the last one. let's see what opec actually about it coming about that $50 line. let's switch to politics of oil around the world. iran is facing tough times opening up its economy. saudi arabia may be partly to blame. the kingdom is said to be
mobilizing its gulf allies. story, great story, and what it really does for me, it takes a barrel of oil and takes it into a global weapon that can be wielded politically in the region. what is the latest? on this, wee latest have seen saudi arabia taking a number of actions to try to lessen iran's political and economic influence. for example, we saw last month saudi arabia using oil as a tool used to join a ,lan to cut down its production effectively not allowing iran to get a larger share of the market. that was one of the actions.
we have seen saudi arabia taking a number of isolated actions. for example, we saw saudi arabia an iranian airline would not be allowed to and or its airspace. advice tobeen giving brokers and shipping insurers that ships carrying iranian crude oil would not be allowed to enter saudi waters. with every action, it seems considerate. manus: as you said, it's not all about theust relationship. it's also about political influence with jordan, the kuwaitis, encouraging a dynamic in terms of politics, isn't it? reporter: yes. saudi arabia is the largest
economy and the arab world, the largest producer of oil in the world, so it has had this capacity to influence the region. countries being very cautious in the way they approach the politics with iran to createot competitions with saudi arabia. for example, we have seen areas ofthe region where members the committee and iran have had difficulties carrying their business following this recent conflict. manus: thank you very much. great story, by the way. rishaad, back to you. the $50 a barrel level is being breached for the first time in six months. how will it play out in terms of the opec meeting next week? we have the chief strategist of
gtd energy services. he is in singapore. thank you for joining us. if we are not going to be talking about a production freeze, what are they going to be talking about? is an excellent question. i think in a kind of production or output limits are off the table. agree with your reporter. you have to look at this whole thing against the backdrop of convoluted middle east geopolitics. i cannot come with anything they can discuss other than to validate this market share strategy, the plan to continue to produce and tell your marginalize the other producers their view, created the current problems. rishaad: john, this -- manus: his great debate is that saudi is not the main producer anymore, it is the fractures. back inly, $50 brings supply. did we ever break this with any kind of substance? guest: i mean, you have to look
at the rule -- at the role of opec. it has been sidelined side management production discipline. i would argue in the last five to six years, it has been a cartel with one swing vote, the saudi's -- saudis. what has been noteworthy is, since the failure of the delhomme record, you see a saudi moving more unilaterally outside the context of opec, talking 2030.an ipo and vision number ofw of a analysts, you can see opec playing a very marginal, irrelevant role. this vision of 2030 has been described as an opec obituary. rishaad: we get this all the time, and to quote mark twain,
the death of opec has been greatly exaggerated many times. guest: but what role can they play now? when they sit down in june 2 indiana, i think -- in vienna, i think this will be the first naiming where minister 90 m will not be at the helm. it is unrealistic to think the iranians will agree to any kind of output cut, or that the saudis will curb any market strategy. the last event did not see us break $40. i said that to the kuwaiti oil minister and he said, there you go, and crew did not drop 40 bucks. let's say the iranians don't get on board, where does the price
go? above $50 or below $40? would turn the clock back a little bit and look at the delhomme meeting. widespread accord was that oil prices would drop, but everyone was surprised at the kuwait oil strike. you could argue rather convincingly that a lot of the strength in recent oil markets has been resulted because of these supply disruptions, canadian wildfires and evacuations of nigerians, a loss of output. wildcards, these these headlines which have driven sentiment. -- only thing i feel stock feel confident saying is that i believe the markets will be volatile, but you could make the bear argument by looking at global inventories and the market infrastructure, with the front end of the market depressed. this could move either side, but
i think it was the inventory straws -- inventory draws in the states last night, which had a tremendous effect. veryad: john, thank you much. we are also looking at g-7 leaders arriving for the summit in japan. we will head over to issue shema with a look at what to expect this weekend. ising up next, the oil continuing to dominate headlines. back with john one bloomberg markets: middle east returns. '♪
to oil, let's get back 50 bucks a barrel, first time in six months. we are in singapore with john to scroll, just -- john driscoll. a have had oil at 100 bucks barrel for quite a considerable length of time. i want to get your view here, how much demand destruction did that create? you say this is a supply-driven
oil price currency. maybe it's because the demand is not where it used to be. what is your view? look backean, if we at the last major price correction in the second half of 2008, 2 thousand nine, you saw 2008,f a demand-driven -- 2009, you saw more of a demand-driven correction. at that level, you destroy demand. oil becomes unaffordable. you can't have things like subsidies. the sharpest correction i have from $150 toreer, $40 a barrel. as take this latest price correction in context. this has resulted in excessive non-opec supply, abundant inventories, as well as a very disruptive technology, hydraulic fracturing, horizontal drilling. oil markets have not had to supply-driven
prices. the last time this occurred was in 1986. we saw a severe price correction with excess supply. i would argue that it takes shorter than rebalancing. rice is are less -- prices are less elastic. i think it is going to be more attractive now than in 2009/2010. at $40 or $50 a barrel, and when you have a strategy where you are really going to supply market share, are the incentives to cheat much higher? if so, is there even more supply than we think? argue well, i would there's a lot of supply. if you look at inventories, u.s. came off 4.2 million barrels last night.
but there is still over half a billion barrels long in the states. you have access supplies globally -- excess supplies globally. this evidence is kind of hard to ignore. it is going to put pressure on terroristt the other factor is that you have iran emerging post-sanctions. these guys are not encouraged to cut output. they feel a sense of entitlement to not only recapture market share, but to boost their exports over 2 million barrels a day. the only thing i see that might suggest a market tightening, there is a widespread consensus that markets are going to gradually rebalance moving into the second quarter of the year,
spare you look at the adopted -- spare productive capacity and opec, it has dwindled to about 1.5 billion barrels a day and is controlled by the saudis. rishaad: who would you rather be, an investor in upstream or downstream energy equities right now? being a singapore resident, i can tell you that downstream looks terrible out here. there is overcapacity. refining margins have contracted. downstream, even looking at the states, the u.s. refiners like valero and p 66 effectively price subsidy on crude oil until november of last year, when the oil embargo was lifted. that's why you have seen this convergence between prices.
were to invest, i would most likely look at one of the independent producers, one of the shale producers. one of the more bearish signs that came out of here in the last few days was the leading independent and u.s. pioneer .ational -- national resources it was indicated that if prices moved above $20 a barrel for 2017, there may be more fields on stream and they may start to hedge more of their forward price risk. the only thing i feel confident in saying is that there is going to be volatility. rishaad: thanks, john. john driscoll. coming up, saudi aramco is said to be working with some major banks. a bond sale. all the details to come. ♪
qatar raised $9 billion in a bond issue from the middle east. matthew martin is here to talk us through the offer. probably one of the biggest sovereign issues of late in the region. absolutely. it is a huge issue. $9 billion will go a long way in helping qatar with a large deficit. and in its credit rating downgrades, amidst all oil -- low oil, the investments are still vying -- still buying into the future of qatar. these are not even short-term issues. they are really buying into the long-term future of the country to be all to recover from the low oil price and be able to a sustainable financial fiscal situation going forward. manus: if i was sitting down and
having a conversation with planning, they are offering me 120 basis points over treasury. there must be a great deal of global demand for this. and abu dhabi saw this. reporter: yes, the old book was around $17 billion to the yen. a huge amount of that is coming from outside the region. facinganks are still liquidity pressure because the government deposits are not there. a huge amount of this demand is coming from outside the region, and it is people looking for yield, people saying the rates have been downgraded, but there is still investment credit, credits with sovereign wealth funds sitting there unused in the event of an absolute emergency. investors are very keen on the middle east at the moment. ramadane will go into
and possibly see a slowdown, but do you think saudi arabia will pull forward on the agenda in terms of coming to sovereign markets? reporter: that would be a feasible decision for them to make now. there is excess liquidity still sitting around, left over from -- fromdiab the and copy. b and qatar. and qatar. dhabi the question is, are they ready to come out now? are they in a position to stop when the treaty ends? manus: but they have three big names. aramco is ready to come, aren't they? beenter: yeah, aramco has talking about this for a long time. aramco is pursuing two strategies. first, they want to hit the local market, and secondly, they are considering coming into the international market, which would reportedly be after the
venezuela is struggling to maintain output amid power cuts. canada dealing with being hit by wildflowers. -- wildfires. manus: governments in the middle east are increasingly touting its national investors to plug budget holes left by falling oil and gas revenues. the sale is almost twice the $5 billion that bankers close to the deal were to target. rishaad: the g-7 summit is underway in japan. leaders have been arriving at a shrine in japan's shinto religion to be greeted by prime minister abe. the south china sea is set to dominate the agenda. 12:30 here in hong kong, i'm rishaad salamat. manus: i'm manus cranny. 5:30 here inis
london. we are counting you down to the start of the european equity trading day. manus, let's talk a little bit about what is going on in europe . g7 remains of focus. there was a story on bloomberg this morning of european challenges, i'd leaders being left behind while global leaders talk about these global issues. they are going to be talking about the global economy, climate change, etc. yvonne man has been reporting from the event. back at home in europe, there is a series of challenges facing these european leaders that are on their way to japan. we've got domestic challenges aplenty. ocalan merkel wants -- angela merkel once the flow of syrian refugees to calm down. the italian prime minister issued in october referendum on how italian politics works, so
he's got a lot to deal with. president a lot of france as -- hollande has presidential elections. fuel seems to be in short supply because of blockades. the host of challenges, and we have not even mentioned the eu referendum, which is very high on the agenda for david cameron of the u.k. about allred to talk these global things. do they have the brain space to focus on the global issues when they have challenges back at home? phrase, thee that brain space. cameron is out of the equation. he is the pile driver of this campaign, and he is piledriving the young to get out and vote. that seems to be his message of today. we get almost daily messages. highnts turn outs to be and once the young to register to vote. the young or more likely to vote to remain, according to the
voteng, and less likely to against. eu procurement rules are costing the u.k. 2.5 billion dollars a year. they say it is leading to delays in projects because of the way the eu mandates government procurements. we will be talking a lot about brexit today. we will be joined on countdown to talk about breaks and the telecom market. manus. manus: see you shortly for that conversation. really looking forward to it. rish? is at theavid cameron g-7 summit. in china, regional tensions in this part of the world bondage -- in this part of the world on the agenda. yvonne man is there. it seems like they are just competing for lunch. -- convening for lunch. yvonne: yes, they just got out
there for lunch after visiting the shrine earlier this morning. discussions are expected to ramp up in a couple of hours or so. this is the first g-7 meeting in eight years that has been set in asia. it is the perfect platform for the prime minister shinzo abe to deliver this message on growth. you may remember just last week during the g-7 finance meeting in sendai, it just shows the frustration the japanese have when it comes to finding a consensus on policy, a global policy to revive growth. with any indication of that, we could be seeing more competing views. we did see an exchange between the u.s. as well as japan. jack lew was in favor of fx policy that japan has when it came to interbeing with the yen. on the other side, you have the
u.k. and germany not supporting extra deficit spending. how is japan going to bridge this gap? here is the prime minister talking about what he expects. primus drop a: -- prime minister abe: the biggest theme will be to talk about the global economy. now it is time for the g-7 to deal with these situations, and i hope the summit will contribute a strong message that contributes to strong growth in the world economy. yvonne: and on top of the global economy, leaders will be talking about brexit, terrorism, tax evasion issues in light of the panama papers. and you cannot forget china when it comes to the impact of the slowdown in global recovery, as well as the week ending of the yen, as well as the tensions mounting on the south china sea. manus: you mentioned china, there is no irony lost in the
world that china is not on the guest list. on the yeah, they are agenda, but not having a seat at the table. that is an interesting dynamic, because it raises the question about the relevance of g-7 when you don't have the second largest economy in these discussions, talking about issues such as its own country. for that matter, you could throw in india as well, not in the g-7. that will be an interesting dynamic that we see going forward. we also heard a lot about these tensions that have mounted in the south china sea, particularly during sideline checks. -- checks between shinzo abe and barack obama. is urging at peaceful resolution of disputes. coming from his vietnam trip, he is saying that any tensions between china and vietnam in the philippines are not of our making.
pushing a little bit of the blame there. is he says that china responsible for resolving these issues. china was pretty -- take a listen. >> the g-7 summit should be focused on global economic management and cooperation. however, as a hosting company -- as a hosting country, japan is being selfish and playing petty games will stop -- petty games. this is not in the interest of the g-7. >> we thought we would keep the -- basic simple of is aiple of conduct, which strategic relationship based upon mutual interest. two leaders already committed to this principle. we are seeing gradual improvement in every aspect of relations. so we will keep this going. meetings onr those
friday, that's when president barack obama is going to be toding further left hiroshima. shinzo abe is going to be with him. is inificant moment that the eyes of the japanese. obama will be the first u.s. president to visit the atomic bomb site. rish? rishaad: thanks for that could, yvonne man. -- things for that, yvonne man. manus: chevron and shell are said to be among the companies involved in qatar's oil sale. bloomberg news energy reporter mohammed surry joins us. he is on the line. when can we expect a decision on this? reporter: we can expect a decision on this later this year, probably later this summer. the executive's right now and petroleum are deciding on which is the best fit. isus: why do you think it
that this is attracting such interest? every oil major we spoke to at bloomberg is cutting capital expenditure, trying to predict dividends, but here they are bidding on this qatar outfit. reporter: from what i understand, there are not many 300,000 oil barrel producing sales right now in the world. thereing to my sources, is cooperation in the og any industry. -- oil gas and energy industry. qatar is one of the smaller crude producers in opec at just about 16,000 barrels per day, but it produced those 1.3 billion barrels, making it the
biggest exporter in the world. it makes qatar petroleum, the producer of 5 billion barrels of oil per day. it is actually larger than thann exxon -- larger exxon. manus: one of the questions that will come up clearly is the extension. what changed? to a certain extent, they have been a very close ally in all of the productions with the qatar is. how is that going to play out for them? pretty much everybody i have spoken to in the oil industry said that america has done a good job and what is considered to be a difficult field. the geology is complex, and the instruction at the time -- and the extra action at the time. -- extraction at the time.
a one to 25 year contract, and at the time oil was trading at less than $20 and state low for many years. the field was profitable at that level. it was actually a pretty quiet by the currently are's grandfather. they needed to produce a lot more oil at the time. merck really put it on the map. qatar is very different today. they can be more selective. they can go out to the market and test for new technology, squeeze partners and try to get a better deal than the one they got in 1992. a bettererybody wants deal, that's for sure, and everybody squeezing the petrodollars to petra pennies. giving us the latest. checking in on a few other stories making headlines around the world, we got selena line with us today. good day. fellter: alibaba shares
the most in four months as it is investigated by u.s. regulators. thefec is looking at company's accounting standards and whether it violated any federal laws. they are looking at related party transactions and data from its single day promotion when it made nearly $14 billion in 24 hours. alibaba says it is providing documents and cooperating. egypt at this -- egypt has hired french and italian companies to flightthe black box from 804 as the search for debris continues. says they chairman are perceived to be at a depth of about 3000 meters. dna tests are being conducted on a few small body parts retrieved so far. the plane was carrying 66 passengers and crew when it crashed a week ago in rate from paris to cairo. the soon to the israel defense
minister's party struck a deal with engine that yahoo!. it also strengthened -- with benjamin netanyahu. -- lieberman is known for his incendiary language against arabs. richard branson said talks are underway with potential buyers for a 25% stake in virgin australia. he says the virgin group is watching those instructions and has not decided if it will increase the 10% stake. branson also warned of the negative effect of britain hoped to leave the european union . effected of the negative of britain leaving the european union next month. devastated if they pulled out of europe. i hope that sense prevails, and when push comes to shove, people would realize that it would be enormously damaging both to europe and great britain, if britain was to walk away.
there is speculation that the least onecomprise at interest rate in the coming months. some say it could be two to 3%. a lot of analysts are saying this could just be month-end book squaring. looking at how this plays into our region, we are seeing a lot of these emerging-market currencies strengthen on the back of that dollar weakness, led by malaysia's ring it, up by 6/10 of 1%. this makes it the best performer in the region in terms of emerging market currency. the japanese yen also attempting a bit of a rebound against the dollar. it is holding at 109.72, up by 4/10 of 1%. and the new zealand dollar has been in focus today. we had new zealand's budget being delivered in quite a volatile session for the kiwi. it actually felt one font terra
came through, missing estimates. we had the budget release, and you can see a pickup their, but at the moment, the kiwi is down to 67.18. the aussie dollar is coming back as well. a lot is happening in fx markets in asia. manus. manus: thank you very much. you've got the dollar rising, you've got the chinese involved in the yuan, but i want to show you something in the region. speculation -- the devaluation speculation is back on the agenda. what we've got here is the swap market. the difference between what the international market is telling you is on the red line. this is -- the international a move.is showing the differential between the two bank is -- between the two is the widest since january.
that is when we had that other frenzy with the price of oil. the international differential is by 1.5%. let's have a conversation about the g-7, about saudi rial, and all the issues. cio joining us. welcome to bloomberg markets: middle east. guest: thank you. we heard juliet set up the g-7, but let's focus on the regional aspect. i have heard this speculated a gazillion times. the market could provoke some kind of reaction from the saudis. is a diwali ration and probable or just nonsense? evaluation is an probable or just nonsense? -devaluation probable or just nonsense? guest: it is probable.
i think it is currently a strong force that has been made. it needs to be pursued in order to get back on track in terms of public finance. , when you importantly look at the economy, it does not make sense for saudi arabia to devalue its currency. [indiscernible] devaluing the that mainrency, impact would be a spike in not for the consumers, but the whole region, including the financial system. the question may come up again in a matter of years. evensw that fiscal break are around $70 or $80 per barrel in order to balance the budget for saudi arabia.
further than that, it is petty nonsense. you are saying it would be a bad thing, but let's put it this way. you would still be earning petrodollars. they would be spending within the country itself, and they would bring down the budget breakeven, wouldn't it? and i would concede to you, there would be a sharp inflationary uptick, but only temporarily? depends on how you can manage evaluation -- d valuation. -- devaluation. you have a spike in inflation. but the saudi arabia and exporter is made up of petroleum and petrochemicals. there is no economic aim to obtain from a lower currency.
getting you are back, analysis on currencies. still with us, the strategist for socgen. we were talking about the possibility of it being revalued against the dollar. if that were to happen, other countries faced similar pressures. the thing is, where does that leave this whole idea of a gcc single currency? probably, it has been discussed for four years
itcreate this, but i think has receded across the world. for the timing, i think that any kind of dollar pressure on the realit >> would have an effe have an effect on the neighboring currencies. i think nobody can be immune from any kind of pressure on it. manus: i want to bring your attention to this chart. everybody has got issues with the fed. ng markets are probably relieved. the chinese, where they go next with their strategy? we have a little bit of calm. guest: i think pboc is still targeting the u.s.
u.s.e end of 2015, the dollar drove the strategy of the pboc. for the timing, we know that the chinese yuan needs to get to a lower level. necessary is quite for china to reach the growth of that has been set for 2016. an opportunity to start developing again at a slow pace of currency. in the context, markets of settle down. rishaad: that will be it. thank you for joining us, the economist and the strategist at socgen. that is it for "bloomberg markets: middle east." it -- manus, it is your weekend, so happy friday. ofus: you can't get too much a good thing. i will see you bright and early monday morning at 8:00 a.m.