Thursday, January 12, 2017

Saudis Need $60 Oil, External Investment--BAML

Brent $56.10 up 1.00; WTI $53.10 up 0.85
From Barron's Emerging Markets Daily:

Saudis Look To $60 Oil, External Investment
Saudi Arabia’s balance of payments data suggest financial outflows are continuing.

So says Jean-Michel Saliba, an economist and strategist at Bank of America/Merrill Lynch focused on fixed income, who thinks the latest Saudi outflows likely reflect “private sector hedging and official outward flows,” even if the data is difficult to confirm. Saudi flows are under scrutiny as the government restructures its domestically focused public investment fund and expands its sovereign investments abroad. Some data from November may show an accelerating pace of diversified global investments. Saliba writes:
“Within the official sector, the outward investment mandate of the Public Investment Fund (PIF) needs to be carefully managed in order not to pressure reserves. Ongoing fiscal reforms and higher oil prices could bring the current account deficit nearer to balance over the coming years as the external break-even oil price hovers around $60 per barrel. The drop in the Saudi Arabian riyal (SAR) forward points reflects this, but capital outflows and fiscal slippage remain risks. If outflows persist, authorities may consider resorting to administrative measures as the commitment to an open capital account is central to attracting foreign investment under the economic reform program …