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Oil revenues spent on US bond market { January 11 2006 } Original Source Link: (May no longer be active)
http://news.ft.com/cms/s/e35bb7ae-82d3-11da-ac1f-0000779e2340.htmlhttp://news.ft.com/cms/s/e35bb7ae-82d3-11da-ac1f-0000779e2340.html
Opec nations ‘set for record oil revenues’
By Carola Hoyos
Published: January 11 2006 19:13 | Last updated: January 11 2006 19:13
The oil revenues of the Organisation of the Petroleum Exporting Countries, the cartel that controls 40 per cent of the world’s oil supplies, will increase by 10 per cent to a record $522bn this year, the US Department of Energy forecasts.
Opec’s increased wealth, driven by continuing high oil prices and an increase this year in the group’s production, should help keep interest rates low if members of the group continue to spend their increasing wealth in the US bond market, economists said. The yield of the 10-year bond has remained nearly flat since mid-2004 in spite of the Federal Reserve increasing official interest rates by 3.25 percentage points during that period.
Everything from mergers and acquisitions to the energy sector and art market are expected to benefit.
Opec’s 2006 revenue would be the largest in real terms in 25 years. The group’s wealth, when adjusted for inflation, peaked at $572bn in 1980 when oil prices spiked after the Iranian revolution.
But the recent growth in Opec’s wealth, which began in 2000, will reverse course next year, with the group’s wealth falling back to $495bn as the oil price eases, the Energy Information Administration (EIA), the US Department of Energy’s statistical arm, forecasts.
As the oil price boom continues into 2006 Opec countries are becoming less and less cautious about their spending. “This is reflected in the fact that some Opec countries are undertaking ambitious projects, like weapons purchases by Saudi Arabia,” said Manouchehr Takin, senior analyst at the Centre for Global Energy Studies. “These kinds of projects would be impossible with lower revenues.” Saudi Arabia, the world’s biggest oil producer, is expected to earn $162bn in 2006.
“It’s just been a phenomenal transfer of wealth from consuming to producing nations,” said Francisco Blanch, analyst at Merrill Lynch.
Forecasts for the average price of New York benchmark crude oil futures in 2006 range between $45 and $75 a barrel, a similar level to that the EIA used to calculate total revenue Opec may expect in 2006. Although prices are notoriously difficult to estimate, the range is given credence by Opec’s hints that it will aim to defend prices of at least $50-$55 a barrel.
The central bankers of the world’s largest developed and emerging nations on Monday lent further support to the strong oil price thesis when they forecast global growth would continue at a “dynamic” pace in 2006. The optimistic prognosis has prompted analysts to expect demand for oil to increase at least 1.7m barrels a day to more than 85m b/d in 2006.
The factor that keeps many of those who forecast high oil prices for 2006 up at night, however, is that oil demand data may prove less robust than assumed.
The wildcards are factors such as hurricanes and political unrest.
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