Archive for May, 2009

Early last week, oil briefly traded above $60 for the first time since November. Hard to believe that last summer oil peaked at nearly $150/bbl, and subsequently collapsed to a multi-year low of $32/bbl in February. So while we’re way off last summer’s levels, we have witnessed a practical doubling in price in just a few months time. It goes without saying that consumers and producers are all impacted in some way by price, and even though comparatively lower prices are welcomed, the volatility and recent upside are sources of uncertainty.

The message from oil analysts and capital market participants is mixed. On one side, the picture is bleak, as unemployment and economic contraction loom, while so-called oil “fundamentals” are weak (weak demand and strong supply). These all suggest that the oil rally may have run its course for the time being. However, the bullish camp points to the now rhetorical “green shoots of recovery” theory, reports of stockpiling by China, short (seller) covering in futures markets,  and higher risk appetite among investors and traders — with all the aforementioned accompanied by a weakening dollar, which has an inverse relationship with oil and many other commodities.

Therefore, it truly is a mixed bag. For consumers and domestic U.S. manufacturers, an economic recovery at home and more broadly around the world has huge implications, but higher oil nibbles away at the purse and at margins, respectively. At the same time, as a weak dollar typically suggests a more favorable climate for U.S. exports, there is pressure on the input (or materials) side from rising commodities. Nevertheless, at current price levels, higher growth for higher oil is a bargain! For oil producers, higher oil is almost always welcome, although refining operations can cap the upside. Also, higher oil means more likelihood for investment and exploration, which eventually may lead to more revenues, and supply, but ultimately, perhaps somewhat of a damper on prices.

That being said, TradeFlow21 remains enthusiastic about the sustained growth prospects in the Middle East. In some cases, oil now accounts for a lower portion of GDP than in years past as Gulf economies seek economic diversification, but in terms of a source of foreign reserves, oil overwhelmingly remains the source of liquidity. In our opinion, the higher oil prices of late are not necessarily worrisome from the U.S. viewpoint. Reason being is that OPEC, and the Gulf producers in general, are sensitive. A recent guest on Bloomberg Radio made the point that the Gulf producers don’t want to be blamed for a prolonged global recession, and therefore, are willing to sacrifice near-term profits and even some budgetary shortfalls. Oil producing companies have a relatively low break-even price, perhaps as low as $30 or less, but oil producing nations that went on a spending spree in recent years tend to have budgets based on break-even oil in the $40-$60 range, with outliers such as Abu Dhabi in the low $30s and Bahrain in the $70s (Fitch Ratings). No doubt sovereign budgets have been, and will be further adjusted, but in order to sustain growth, significant amounts of money will continue to be spent within the region. For Connecticut manufacturers and exporters, the Gulf represents real opportunity (from everyday consumer products to building materials and beyond), and TradeFlow21 is here to help make the region more accessible to you.

[Connecticut Lieutenant Governor Michael Fedele delivers opening remarks to summit
participants at the Graduate Club in New Haven on April 24th. Former United States
Ambassador, Shaun Donnelly, is seated at left.]

On April 24, Connecticut business and industry leaders gathered in New Haven to hear former United States Ambassador and trade negotiator, Shaun Donnelly, reveal his 12-step program for successfully exporting to lucrative Middle East markets. (Ambassador Donnelly currently serves as Senior Director of International Business Policy at the National Association of Manufacturers in Washington, D.C.)

Spanning northern Africa in the west to southern Asia in the east, the greater Middle East represents a tremendous opportunity for Connecticut companies seeking access to a dynamic and emerging market of over 500 million consumers.

The Honorable Michael Fedele, Lieutenant Governor of Connecticut, opened the summit citing the state’s strong position as a leading exporter in key sectors such as transportation and machinery. The challenge, according to the Lieutenant Governor, is for Connecticut to continue expanding its export base, which grew by 11 percent last year.

Mr. Peter Gioia, vice president and economist at the Connecticut Business and Industry Association (CBIA), also released his 2009 Connecticut International Trade Survey at the summit.

In addition to providing value-added analysis and commentary on the Middle East market, TradeFlow21 is excited to announce the launch this June of Trade & Transactions—a monthly e-letter for business insiders and leaders who recognize that when exports rise, we all win.

See news coverage of the summit by the Hartford Courant.