Where’s the Oil Money Going?
December 11th, 2006 by Justin
China dominates headlines when it comes to foreign exchange reserves and global trade imbalances. Every day a new article is posted on one of the major financial news outlets decrying China’s continuing buildup of foreign reserves, and their increasingly large trade surplus with the US. When their reserves moved past the $1 trillion mark in recent weeks, those cries understandably became louder. Likewise, US Treasury Secretary Hank Paulson’s upcoming visit to China has reignited calls for increased flexibility from China regarding their exchange rate. In all of the hubbub about China, traders and media seem to have forgotten that, collectively, the trade surpluses of the world’s emerging market oil producers are more than twice as large as China’s.
For 2006, it is expected that emerging market oil exporters will generate roughly $500 billion in surpluses with their trading partners. China’s equivalent figure will likely be around the $200 billion figure. As oil prices have pulled back from above $75/barrel to below $60 in recent weeks, the focus has shifted away from oil and back to China. Nevertheless, oil more than tripled in recent years, meaning that countries like Kuwait, Saudi Arabia, Russia, Iran, and the UAE have built up these surpluses without grabbing too many headlines. In percentage terms, their surpluses are often much larger than China’s as well.
Saudi Arabia has a surplus of nearly 30% of its GDP, and Kuwait’s stands above 50%. The UAE and Russia are between 10 and 20%, while China’s surplus is a rather meager 8%. Savvy traders can now begin thinking about where all of these assets will be invested, and–for the moment at least–turn their attention away from the China issue. For clues about what this might mean for the USD, EUR, and GBP, Financial Times subscribers can look here:
http://www.ft.com/cms/s/277471c2-8889-11db-b485-0000779e2340.html
