Current affairs

Oil takes a drop after the breakdown in Qatar’s relations with Saudi Arabia, Egypt, United Arab Emirates and Bahrain

Where is the confrontation really?

Monday, 26 de June, 2017

By Samer Ajour, a lecturer on the Master in Financial Management, financial and Stock Markets, the International MBA and the MIB at EAE Business School.

Countries such as China, India, South Korea and the Philippines have increased the global imports of oil since 2003 to surpass the United States and Europe, which, at the time, accounted for more than half of the all of the world’s imports. Japan needs more oil from Saudi Arabia than gas from Qatar. India and China depend on Iran for both gas and oil, and maintain an indifferent stance with respect to the USA. Meanwhile, the USA and France are against Qatar, resulting in a very blurred panorama.

As we can see in Graph 1, crude oil prices have fallen in recent months. This is due to the trade dependence between Qatar and neighbouring countries and this justifies the reduction in supplies in Qatar.

Graph 1 - Oil Prices 

Fuente: nasdaq.com

After the breakdown in relations between Qatar and other Arabic countries, raw material importers cannot make many changes in this scenario because they are not any other options. Investors do not have much room for manoeuvre either in terms of choosing between one asset and another. The raw material market is extremely volatile and speculation is massive. Another important factor is Russia’s influence, as it has power within OPEC.

The situation gives cause for concern, as the fall in oil prices seems evident. The effectiveness of the supply agreement is increasingly in question and the stance of the director factors is not well-defined in the short term.

An investor in the raw material market has two possible approaches: wait and risk their investment or liquidate their investment and change it for another asset. If they take the first approach, they should buy derivative products as a hedging item in order to minimize the risk of losses. If the take the second approach, the aggregate effect is a reduction in oil prices on the market. In both cases, the raw material market is vulnerable for the majority of investors. That is not a good sign. 

1 Comment

Adnan

Tue, 06/27/2017 - 09:35.

Artículo muy interesante con datos actualizados

Add new comment: