Page 51 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

36 PART I Background and Context

LONG-TERM OIL PRICE DYNAMICS

No discussion of the outlook for Gulf prosperity and investment
flows would be complete without some consideration of future oil
prices. The fact that the Gulf has substantial investable wealth today
is undeniable. Whether new wealth will be added or its coffers will be
drained to fund local needs will depend largely on what happens in
global energy markets. Over the course of 2008 and 2009, oil prices
have been extremely volatile, peaking at above $147 per barrel in July
2008, then plummeting to the $42 level in February 2009, and return-
ing to around $60 by late May. Oil’s volatility has been greater than
that of the Dow Jones Industrial Average, which has traded in a band
around 45 percent of its summer 2008 values, as opposed to oil, which
has seen dips of around 70 percent. 28
Though these markets are impossible to predict with certainty,
observers of the Gulf are well advised to take note of the forces that
are likely to shape them in the years ahead. Figure 1.5 illustrates
some of the key forces influencing oil markets in the medium to long
term.

FIGURE 1.5
Oil Prices May Face both Downward and Upward Pressures

Downward Pressures
• Prolonged global recession
• Increased production and
discovery
• Spread of viable substitutes
• Reduced confidence of
commodity investors

Medium–Long Term Oil Price

Upward Pressures

• Broad economic recovery
• Sustained demand growth
from emerging markets
• Depletion of long-term reserves
• Renewed confidence of
commodity investors