$,gold & crude oil_econ indicators &

7/31/2019 $,Gold & Crude Oil_econ Indicators &..

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Understanding the connection

between $, Gold & Crude Oil

Bilal IlahiICAP

jan. 2011


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Economic Indicators and Global

Markets

Bilal IlahiICAP

jan. 2011


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BILAL ILAHI

Educational Qualification:1977: Masters in Business Administration

.(U.S.A).

1973: B Com. Punjab University (HaileyCollege).


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Work Experience:

2006-Present: Business Consultant, Trainerand University Teacher.

1991-2005: Self-Employed. CEO, Granada

Textile Mills (19, 000 spindles ).1988-1991: Self-Employed. CEO,

METROCON (Construction Firm).

1980-1988: Self-Employed. Owned andmanaged motels/hotels in U.S.A.

1978-1980: Officer, BCCI.


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Teaching Experience:

2002- Present: Taught MBA, EMBA , BBA ,

classes at LUMS, Beacon house Business

School / Curtin University Lahore,Government College University Lahore, ICBS,

& UCP Lahore, as part of their visiting faculty.

Also on the visiting faculty of The Civil

Services Academy, Lahore and NIPA.


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Corporate Training Experience:

2007-Present:

Conducted Seminars and Workshops for

Institute of Chartered Accountants ofPakistan, MCB, Bank of Punjab, UBL, Bank

Alfalah, ABL, NBP, HBL, NIBAF (SBP) and

PSO.


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Other:

Global Markets Analyst for CNBC Pakistan,Business Plus TV and Dawn TV.

Contributed articles to The Business

Recorder and Dawn.

Editor mbazonepakistan.com

(e-magazine)

************


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GDP GROWTH. Country's annual output of

good & services. Same as economicgrowth.

UNEMPLOYMENT. The number of peopleof working age without a job as apercentage of the workforce.

INFLATION. Rising prices across theboard.


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GDP. = C + G + I + ( X - M ) .

Consumption

Governmentspending

Exports

Business

Investment

Imports.

GDP can be calculated by adding the total valueof a

countrys annual OUTPUT of goods & services.

(Consumer)


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GDP UNEMPLOYMENT

purchasing power INFLATIONThere is a trade off betweenINFLATION and UNEMPLOYMENT.

The lower the UNEMPLOYMENTRATE the higher is the INFLATION

RATE.

Governments have to choose betweenthe two evils.


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MACRO-ECONOMIC POLICY

=

FISCAL POLICY

+

MONETARY POLICY.


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MONETARY POLICY

The objective of MACRO - ECONOMICpolicy is to have sustainable GDPGROWTH while containing INFLATION

and achieving an acceptable rate ofUNEMPLOYMENT.

The fact that GDP rises or falls shows

that BUSINESSCYCLESare unavoidableand MACRO-ECONOMIC policy can neverreally conquer them.


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GDP growth Inflation

Interest Rates Inflation


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The function of a Central Bank is tocontrol INFLATION andUNEPLOYMENT while managingsustainable GDP GROWTH.


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For inflation to fall the economy has

to grow below its TREND RATE OF(GDP) GROWTH

Higher TREND RATE possible ifproductivity( US under Clinton)

and / or labor supply e.g. China

was adding 10 million workers ayear to its workforce.


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Monetary Policy is the process bywhich the Central Bank manages the

money supply to achieve specificgoals e.g. Controlling inflationmaintaining an exchange rateachieving full employment & GDPgrowth .


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Foreign exchange reserves (also called Forex

reserves) in a strict sense are only the foreign

currency deposits held by central banks.However, the term foreign exchange reserves

commonly includes foreign exchange, gold, SDRs

and IMF reserve position. Same as official reserves.These are assets of the central banks which are held

in different reserve currencies such as the dollar,

euro, yen and pound, and which are used to back its

liabilities, e.g. the local currency issued.

Before the end of the gold standard, gold was the

preferred reserve.


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Reserve Currencies:

U.S $

EUROPOUND STERLING

YEN

SWISS FRANC


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Global Central Bank Reserves.

24% of total reserves of majorcentral banks are in gold.63% of currency reserves are $.

27% // // Euros.

Is it now in the interest of foreign

governments ( e.g. China ) thatthe U.S. economy should bevulnerable or be at risk ? ?

$


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U.S. $

The pre-eminent global currency.

The IMF counts 13 countries using$ as their currency eg. Ecuador.

$ 350 bn. are held outside of USA.

Half of all notes in circulation.

$ is 86% of one side of all currency

deals.


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Worldwide currency markets arefocused on the meeting of FOMC( every 1 month).

-Is the INTEREST RATE (shortterm) going up or not ?

-What will the beige book say?


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Interest Rates affect the US$ Eg.U.S. GDP

Unemployment

InflationInterest Rates

U.S.$.


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$ remains the medium of exchange

for most commodities eg Oil, Wheat,Cotton, Gold etc

Currency most used to set prices forcommodities eg. Wheat, copper etc .

Most exports worldwide are invoicedin US $.


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Central banks difficulty in reducing

the US $ in their RESERVES :

Majority of the countries export to

US therefore regular flow of $.80% of Pakistan's exports are

invoiced in $ but only 25% exportsare for the US.


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In this period, compare Gold price tounemployment in US and value of $.

CRUDE OIL


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CRUDE OIL
http://upload.wikimedia.org/wikipedia/commons/b/ba/Gulf_Offshore_Platform.jpg


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World Energy Consumption

Country% of Energy

Consumed

% of World

Population

U.S.A 25.0 4.6

China 9.9 21.2

Russia 7.0 2.5Japan 5.8 2.1

Germany 3.9 1.3

India 3.1 16.6

France 2.9 0.9

U.K 2.6 1

Canada 2.5 0.5

Korea 1.9 0.7


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The share of CRUDE OIL in

Pakistans total imports is 23 %.Weimport 82 % of our needs.

Pakistans CRUDE OIL import is the

prime cause of our TRADE DEFICIT

and CURRENT ACCOUNT

DEFICIT.


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Types of Oil

There are 161 differentinternationally traded crude

oils. They have differentcharacteristics quality and

market penetration


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Cont

West Texas Intermediate (USA)...Underlying oil for NY Light Sweet.

API gravity (density) 39.6 (light crude)

Sulphur contents 0.24% (sweet)

A very high quality oil. Excellent forrefining, a larger portion of gasoline

Brent (UK-North Sea)

API gravity 38.3 degrees (light crude) Sulphur contents 0.37% (sweet)

Less sweet than WTI ideal for making

gasoline and middle distillates.


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Cont

Brent and New York Light Sweetare benchmark oils. Theunderlying commodity for N.Y.

Light Sweet is WTI.

Prices for other crude oils are set atdifferential to them.


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Other oils are Saharan blend (Algeria),

Minas (Indonesia), Bonny Light

(Nigeria) Arab light (Saudi-Arabia),

Fatah (Dubai).

Classified as light medium or heavy

according to API gravity.


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Reserves


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Reserves(now a broader definition of technically recoverable oil is also

used )

Total Endowment 2 trillion barrels approx.

Drilled to date 850 billion barrels

Reserves (proven)+ 950 billion barrels

Located and found=1,800 billion barrels


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Production.

Arrival of worlds PRODUCTIONPEAK..88 mn. bpd. Beginning of

the final energy crisis ?

Slackin production capacityprovided by mostly Saudi Arabia.


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Demand Factors

Oil demand is dependent on:

1.Global economic growth.

2. Falling $. Makes oil more attractivefor holders of appreciating currencieslike Euro. Hence demand goes up.

3. Speculators. Also Hedge Funds andPension Funds.


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USA.

US summer driving season.

Extra volumes are made for summer

driving season. Prices go up by 20cents ( Jan-May) even when crude oil is

stable.US Northeast winter season.


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Speculators.

Hedge funds & Pension Funds.

Investment Banks for diversification.

Drove up oil prices beyond $100 in

2008. July 08 oil touched $147 perbarrel


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S l F t


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Supply Factors

Supply interruption of more than 5%for over 6 months creates a crisis in the

oil markets.


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CHOKE POINTS


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Oil consumption occurs mainly in the

industrialized west

0il production takes place largely in

the middle east.

Huge oil volume traded internationallyBy pipe line 40%.By tankers 60%. (3500 tankers)


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Supply Factors

Saudia Arabia. Iraq , Iran, Nigeria.

OPEC

Venezuela

Choke points

Hurricane season Tanker capacity & Refinery capacity

Strategic reserves of USA, Japan & India
http://upload.wikimedia.org/wikipedia/commons/b/ba/Gulf_Offshore_Platform.jpg


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http://en.wikipedia.org/wiki/Image:Hurricane_Katrina_LA_landfall_radar.gif


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I t t H i
http://en.wikipedia.org/wiki/Image:Hurricane_Katrina_LA_landfall_radar.gif


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Important Hurricanes

U.S. Hurricane Season from30th June to 30th November.

Katrina in August 2005.

Katrinas impact on U.S. gasoline

markets; initially reducing 25% of

U.S. crude oil production 15% ofU.S. refinery capacity.


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T k C i


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Tanker Capacity

There are 3500 oil tankers in the world ULCC ultra large crude carriers VLCC very large crude carriers

(2 million barrels of oil) ULCCs cannot cross Suez canal A tanker journey from middle east to

USA takes 20 to 30 days


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