If oil stabilises below $70, what will it mean for GCC markets?

Arun Leslie John, Imogen Lillywhite Zawya, September 13, 2024

Oil prices could stablise below $70 per barrel in the next couple of months as markets react to interest rate cuts, uncertainty around the US election and the likelihood of OPEC production increases by the end of the year, experts have said. But how are lower oil prices likely to affect GCC stock markets? While analysis after the global market selloff following the unwinding of the yen carry trade last month suggested a rout of GCC stock markets could occur if oil prices fell below $70 per barrel, the alternative view is that markets, particularly in the UAE and Saudi Arabia, do not correlate as closely to the oil price as they once did.

Arun Leslie John, chief market analyst, Century Financial said oil price and stock market correlation is still present to a degree in the GCC due to oil’s role as a major export, but it is not as pronounced as it is made out to be, and not as present as it was five to six years ago. LSEG data shows that Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) and Saudi Arabian Stock Market Tadawul indexes are all trading above July levels as Brent crude trended downwards from its July peak above $84 per barrel. UAE government data puts the non-oil sector’s contribution to the economy at 74.3% by the end of 2023, while the Saudi Ministry of Economy said its non-oil sector reached 50% of GDP. “The UAE has an especially strong non-oil sector, and it is growing at a rapid pace,” John said, adding that diversification means that regional markets may not feel that much of an impact from a falling oil price. Arun Leslie John, Chief Market Analyst, Century Financial, told Zawya

According to Mohamed Hashad, Chief Market Strategist at Noor Capital, concerns around the US’s Hurricane Francine had contributed to a rally in oil prices following Tuesday’s three year low, as well as positive news regarding US demand. Oil prices rose on Friday, extending a rally triggered by output disruptions in the US Gulf of Mexico, where Hurricane Francine forced producers to evacuate platforms. Brent crude futures rose by 34 cents, or 0.5%, to $72.31 per barrel by 0016 GMT. Global stock markets are likely to react positively to interest rate cuts by the UK’s Bank of England and the USA’s federal reserve next week, Hashad said.

Source

Zawya