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While OPEC searches for a floor, UAE concludes Patriot purchase

On Wednesday of this past week, OPEC agreed to slash production of crude by 2.2 million barrels a day in a desperate attempt to find a floor. Its action had little effect as prices tumbled to under $34 on Friday, reflecting declining demand and rising inventories. Current market conditions did not preclude the United Arab Emirates from awarding Raytheon a $3.3 billion contract on Thursday to provide advanced Patriot air and missile defense capability. Indeed, the current price of crude may have accelerated the purchase since Gulf governments could soon move to aggressively cut spending in direct response to the crisis.

The reality of plunging crude

Desperate for an upside in a downside economy, U.S. consumers have found solace in plunging oil prices, which some analysts believe may dip below $25.00 per barrel in the coming year. Crude’s freefall, resulting from a commensurate reduction in global demand, is a direct reflection of shattered markets, shuttered plants and surging unemployment. In the greater Middle East, where the jobless rate averages a reported 15 percent, declining oil revenues among the wealthier Gulf nations wil likely affect development throughout the region, creating conditions that are politically and socially unstable. When OPEC members meet next week to determine output reduction, the severity of the cut may be more than a matter of money, but security.

The epitome of loyalty: Prince Alwaleed - Citi

With his stake in Citigroup (NYSE: C) now self-reported to be less than 4%, Saudi Prince Alwaleed bin Talal bin Abdulaziz Al Saud said Thursday that he will raise it back to 5%, to the same level he purchased back in the early 90’s for around $550M. The decision makes for good conversation in terms of why now, why not earlier, or why at all. But that’s for another time. Let’s not forget that another struggling household name, General Electric (NYSE: GE), which was reported this morning to be looking for SWF funding in Asia, actually has some implicit access to cash from the Gulf, as well.

TradeFlow21 Editorial: Yes, Mr. President, we can build a more prosperous, secure world through Middle East trade

We are traders all. We barter and bargain, agree then rescind, resume and conclude negotiations for goods and services throughout our lives. We trade because we are inclined by nature to do so, regardless of how we earn our daily bread as defined by the color of our collar, blue or white. It is in our blood.

Next January, President-Elect Barack Obama will be severely tested on many fronts:  a two-theater war; dislocation of global markets; and a mounting environmental crisis that threatens to alter the face of the earth and the security of nations. He will be pressed for answers, not just explanations.

For many, the Middle East is the nexus of terror, provoking wars of intervention, and oil, which has created untold wealth for the region and pollution as a by-product of a fuel-addicted world. It is also a land of over 300 million people, where industry, entrepreneurship, and direct foreign investment have fed a development boom of unprecedented scale. Though Gulf states in particular have felt the effects of the current financial crisis, resulting in plummeting home prices in Dubai and the court-ordered closure of the Kuwait stock exchange, the Middle East’s influence in world markets is uncontested.

We urge the President-Elect to seize the moment and let trade flow freely into this intersection of the world, supplanting terror and war by transforming oil-dependent economies into highly diverse, fully integrated drivers of global growth and opportunity.

Let trade also rebalance a troubled region that for the past 60 years has employed a Cold War model with Israel as the sole arbiter of U.S. and Western interests.

Let trade transcend language, culture, and faith as democracies and theocracies find concord through commerce, with prosperity and security the dividends.

‘Era of cheap oil is over’ — IEA

Double whammy: declining oil production, beyond what the IEA had previously thought, combined with the high costs of finding new oil, compel the IEA to double its long-term price expectation ($200 oil by 2030; first things first: $100+ avg per bbl from 2008-2015). Details in the clip below by way of the FT.

clipped from www.ft.com IEA predicts oil price to rebound to $100 Oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030, the International Energy Agency will say in its flagship report to be published next week. “While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the report states.

Abu Dhabi assures as UAE declares no scaling down

A $60 floor for oil prices seems reasonable at this point and is still profitable for the Gulf, although not quite like it was, when nearing $150/bbl. Abu Dhabi’s budget is reportedly based on $40-$50/bbl prices, while Saudi’s is said to be in the range of $55-$60/bbl. Meanwhile, Ahmed Al Mazrouie, Chairman of the UAE Contractors’ Association sees a silver lining: “Construction work in Europe and the United States will be cut back considerably as a result of the crisis and this will result in large supplies of raw materials on the market and a drop in prices. Gulf countries will benefit most from this.” See the images and clips below from Emirates Business 24/7.

clipped from www.business24-7.ae Abu Dhabi ‘will not be affected by oil price slide’  “The Abu Dhabi boom began when oil prices were still relatively low. And the really high prices, ranging around $140 per barrel, were based on speculation. The government knows prices go up and down and based their development plan on lower prices. Thanks to this strategy Abu Dhabi is very stable,” it quoted Abdulla Al Hamed, Chief Executive of Capital Group, as saying.”Indeed, officials used an estimated price of $45-$50 a barrel in the 2008 budget. This means that, with a current account surplus amounting to 25 per cent of the gross domestic product, Abu Dhabi has ample room for manoeuvre and sufficient liquidity reserves to balance its national budget.” clipped from www.business24-7.ae Realty projects will not be scaled down   The demand for housing units is growing in most of the emirates in the UAE. (IMAD ALAEDDIN)

Qatar, Abu Dhabi banking on Barclays

Details below from MarketWatch, of an announcement by Barclays (UK: BARC) (NYSE: BCS) of an US$11.9B capital raising effort via convertible notes from Qatar Holdings, Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and among other existing shareholders. It’s reported that pending conversion rates, Al Nahyan is poised to become Barclay’s top shareholder with a 16.3% stake, followed by Qatar at 12.7%. Those convertibles have coupons ranging from 9.75% to 14%.

Assuming Barclays doesn’t fail, it appears to be quite a deal for Middle East players — in fact, a win-win really, since Barclays gets the capital it so badly needs to boost its Tier One, and avoids heavy FSA hands sans a government injection.

clipped from www.marketwatch.com LONDON (MarketWatch) — Barclays on Friday struck a deal to raise up to 7.3 billion pounds ($11.9 billion) in fresh capital as the U.K. lender signaled its preference for cash from Middle Eastern royal families to the British government. Barclays said it’s issuing 3 billion pounds of notes that carry a 14% coupon to Qatar Holding, a state-backed investment vehicle, and Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family. The notes will carry options for the issue of up to 3 billion pounds at a price of 197.775 pence a share. Barclays also said it’s issuing 2.8 billion pounds of mandatorily convertible notes to Qatar, Qatar Holding’s Chairman Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, and Al Nahyan, as well as up to 1.5 billion pounds to existing institutional shareholders. The convertibles will have a coupon of 9.75% and will convert into equity at a price of 153.276 pence.

Sovereign wealth funds remain interested in US market

As reported in a TradeFlow21 posting on September 29th, it was suggested that sovereign wealth funds  may soon join a list of suitors seeking bargains among Wall Street’s ruins.  In an interview with the Financial Times published today, Deputy US Treasury Secretary, Robert Kimmitt,  indicated that SWFs were “actively looking at US opportunities.”  While Gulf nations struggle to address liquidity issues in banks and stock exchanges at home, many of their sovereign funds may also be waiting for the US market to hit a ‘true bottom’ before increasing such activity.  Patience is the rule of thumb here–buy low, sell high.

BREAKING NEWS: OPEC to slash oil production by 1.5 million barrels per day

In what may be the first round of reductions in production, OPEC ministers agreed on Friday to cut output by 1.5 million barrels per day.  With oil in a virtual free fall, even the Saudis may have finally found the floor since their budget is built on a reported per-barrel price of $55 to $60.  Oil fell to a new low of $64 on Friday.

OPEC to meet in emergency session October 24

In an entry on September 12 concerning OPEC’s greatly exaggerated demise, the editors of TradeFlow21 cautioned against those who interpreted the rapidly declining price of oil, and the decision by the Saudis not to restrict output in direct opposition to other members, as a sign that the cartel was at an end.  Since that posting, oil has continued its precipitous per-barrel slide from a July high of $147.27 to $71.85 as of close Friday, October 17.  We noted then that disagreements within OPEC are less about the organization’s purpose and more about the floor price. Indeed, even the Saudis may have found the floor, which could explain OPEC’s decision to convene an emergency meeting on October 24.  For more, see CNBC/Reuters wire story.