$85 oil opens the chasm be­tween emerg­ing mar­ket win­ners, losers

Gulf Times Business - - BUSINESS -

Oil prices have been creep­ing up­wards for more than a year, qui­etly gain­ing ground as emerg­ing-mar­ket in­vestors fret­ted about trade and the end of cheap money. But now that crude is near the high­est in four years, it’s sud­denly a hot topic.

For en­ergy im­porters, the squeeze in sup­ply is stok­ing in­fla­tion, while climb­ing US rates lure funds from their mar­kets. Coun­tries that con­trol the pumps can use the ex­tra cash to in­oc­u­late their economies against fu­ture fall­out from Wash­ing­ton’s trade war with China and off­set the tight do­mes­tic pol­icy needed to keep in­vestors keen when Trea­sury yields are at a seven-year high. Whether crude hits $91 per bar­rel, as Cit­i­group Inc says it may, or if it breaches $100, as other ma­jor oil traders sug­gest, no na­tion’s re­la­tion­ship to the rally is the same. What the coun­tries all have in com­mon are the trade-war shock waves they face, which have buf­feted the out­look for global growth and pro­vide plenty of scope for mishaps.

Brent crude was lit­tle changed at $80.27 per bar­rel af­ter trad­ing above $85 ear­lier in the week. Af­ter six days of de­clines, de­vel­op­ing-na­tion stocks climbed on Fri­day and cur­ren­cies headed for a weekly ad­vance. Here’s what the view of the high­est crude price in four years looks like from 14 coun­tries across emerg­ing mar­kets:

LOSERS Turkey

The Mid­dle East’s big­gest econ­omy has to im­port al­most all of its oil.

A cur­rency rout and in­fla­tion at a pace of al­most 25% make for an un­en­vi­able mix.

The real pol­icy rate – the bench­mark rate ad­justed for in­fla­tion – fell back be­low zero af­ter a surge in in­fla­tion in Septem­ber; the price of crude has more than dou­bled in lira terms this year.

In­dia

Oil is the weight­i­est im­port item for the world’s sixth-big­gest econ­omy, putting In­dia among the most oil-vul­ner­a­ble emerg­ing mar­kets, ac­cord­ing to Bloomberg Eco­nom­ics data.

The ru­pee’s plunge so far this year has made it the worst per­former among its ma­jor Asian peers with a 13% slump.

The cen­tral bank this month re­moved a $750mn cap on state-run re­fin­ers for bor­row­ing over­seas in a bid to pro­vide some relief for the ru­pee as the com­pa­nies scram­ble for dol­lars to pay for crude.

In­done­sia

South­east Asia’s big­gest econ­omy is a net im­porter of fuel, but five in­ter­e­strate hikes for a to­tal of 150 ba­sis points has kept in­fla­tion within the cen­tral bank’s tar­get range and eased the ru­piah’s re­treat.

The govern­ment has at­tempted to stem the re­liance on for­eign fuel, im­pos­ing im­port curbs and de­lay­ing some in­fra­struc­ture projects.

Still, the cur­rency is down about 11% this year and cen­tral bankers ac­knowl­edge there’s more work to do to pre­vent cap­i­tal flight amid mount­ing global risks.

Philip­pines

Rice short­ages, par­tic­u­larly af­ter the lat­est nat­u­ral dis­as­ters across South­east Asia, are fan­ning in­fla­tion, which has quick­ened ev­ery month this year.

Of South­east Asia’s ma­jor economies, the na­tion has the strong­est cor­re­la­tion be­tween oil and in­fla­tion for the 12 months through Au­gust, ac­cord­ing to cal­cu­la­tions by Bloomberg Eco­nom­ics’ Ta­mara Hen­der­son.

A fourth in­ter­est-rate hike this year put the bench­mark at 4.5%.

Thai­land

A strong cor­re­la­tion be­tween Brent crude and Thai CPI sug­gests this rel­a­tively un­scathed mar­ket could be at risk.

The Bank of Thai­land hasn’t moved rates since 2015 and has pro­duced both hawk­ish and dovish rhetoric this year; now that the baht is weaker in the year against the dol­lar, oil could give a fresh push to­ward tight­en­ing.

Chile

Usu­ally, this Latin Amer­i­can oil im­porter would shrug off ris­ing prices be­cause it’s a ma­jor cop­per ex­porter. The US-China trade war up­set that bal­ance.

Still, fis­cal ac­counts re­main healthy and, so far, in­fla­tion is un­der con­trol.

South Africa

The na­tion im­ports most of its oil and bench­marks ga­so­line prices against Brent crude; the rise in prices to­gether with a weak­en­ing cur­rency may push in­fla­tion above the 6% up­per limit of the cen­tral bank’s tar­get range, Deputy Gov­er­nor Daniel Mminele warned last week.

That would make a rate in­crease as soon Novem­ber al­most in­evitable, even with the econ­omy in re­ces­sion, ac­cord­ing to Rand Mer­chant Bank.

WIN­NERS Rus­sia

The bud­get of the world’s top en­ergy ex­porter is for­ti­fied by higher oil prices, but there’s lit­tle trickle-through to con­sumers, the main eco­nomic-growth driver, who are be­ing hit by shrink­ing in­comes and quick­en­ing in­fla­tion.

Still, of­fi­cials are run­ning a tight ship: the Fi­nance Min­istry saves oil rev­enue above $40 per bar­rel and the cen­tral bank in­creased the key in­ter­est rate for the first time in four years.

While the pos­si­bil­ity of US sanc­tions is lift­ing bor­row­ing costs, Rus­sia’s strong bal­ance sheet means it has no ur­gent need to tap the mar­ket.

Saudi Ara­bia

The world’s largest oil ex­porter has emerged as a haven amid this year’s emerg­ing- mar­ket rout with the cor­re­la­tion be­tween stocks and Brent at the strong­est in 15 months.

The govern­ment an­nounced plans this month to in­crease spend­ing in 2019 more than ini­tially fore­cast.

But Brent is still be­low $88 a bar­rel, the price the big­gest Arab econ­omy needs to bal­ance its bud­get this year and the king­dom is pur­su­ing multi­bil­lion dol­lar plans to wean it­self from oil.

Crude is higher than the so-called breakeven prices for most Gulf coun­tries, but Bahrain, which is get­ting $10bn in aid from its Gulf al­lies, needs crude at $113 a bar­rel this year to bal­ance its bud­get.

Malaysia

The net en­ergy ex­porter is get­ting a boost from higher oil even as econ­o­mists and in­vestors ques­tion the new govern­ment’s bud­get­ing.

The na­tion’s prized palm oil ex­ports are also be­ing helped by the grow­ing price of crude, which in­creases the de­mand for bio­fuel.

Nige­ria

The Opec mem­ber stands to gain from the oil rally af­ter in­ter­na­tional re­serves fell to their low­est in seven months amid the emerg­ing-mar­ket rout.

If cen­tral bank gov­er­nor God­win Eme­fiele’s pre­dic­tion this month is ac­cu­rate and Brent stays above $80 a bar­rel for the rest of the year, it will help keep the naira sta­ble and curb in­fla­tion cur­rently run­ning at about 11%.

Brazil

While the cur­rency of this top-10 oil ex­porter typ­i­cally rises with crude, the real slid this year amid a cor­rup­tion scan­dal and the most po­lar­is­ing pres­i­den­tial election in decades.

In­vestors are hop­ing the cor­re­la­tion will re­turn on pos­i­tive sen­ti­ment af­ter in­vestor favourite Jair Bol­sonaro took a com­mand­ing lead in the first round of the vote.

Ar­gentina

Ar­gentina’s size­able oil and gas re­serves are over­shad­owed these days by stum­bling growth and run­away in­fla­tion.

The coun­try last month an­nounced it’s plan­ning to cut sub­si­dies for some pro­duc­ers of nat­u­ral gas in a bid to bal­ance the bud­get.

Mex­ico

De­spite be­ing an oil pro­ducer, Mex­ico has had to im­port re­fined prod­ucts, and higher prices are hurt­ing ex­ter­nal ac­counts.

Car­los Trevino, CEO of state-owned oil firm Pe­mex, re­cently said a string of pro­duc­tion de­clines show no signs of abat­ing this year and that it will miss tar­gets “con­sid­er­ably”.

For en­ergy im­porters, the squeeze in sup­ply is stok­ing in­fla­tion, while climb­ing US rates lure funds from their mar­kets

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