18-11-2008

The stream of oil…….


The deep filled well of banking liquidity, is now almost dry, because of the turmoil we have seen in the last couple of months. That well now almost empty up as a dried up oil well.

With an oil price rising from a mere 85 $ to an unhealthy 150 $ and then back again to 56 $ in just a year, the banks starting feeling the pinch. The stream of the oil dollars is vastly drying up.
The stream of money into the banks vaults and from there to the many loan absorbing clients has come to an abrupt end.

The oil stream reduced in an attempt to keep the price in tact also stopped the flow into the banks vault.
The banks receiving in the past the oil dollars as deposits and then squandering it almost directly, to lead the world into a global recession.

The stream of the oil dollars, which has now been so dramatically stopped, made it also clear to the banks that the free for all loans had dried up. While the banks did not receive the paybacks they also did not receive the so useful deposits of the oil revenue.
The financial world therefor had come to a sudden full stop.

Russian oil revenue will not leave the country as they need it for the further progress of Russia as they also had to spend already over 100 billion to keep the ruble on level. Other oil producing countries will also not
deposit the revenue as was the case before as they need to fill the short fall to balance the books at home.

What does this mean for Asia, Europe and US banks will be the question? The answer, all though for the collected countries far and between, will be simple a further reliance on the Government funds.
The only part the banks can play is surviving on State funds.

It will be also rather obvious that deposits from oil states will not reach the banks in totality anymore.
The main oil states have their own problems now the output is lowered and the price hit the lowest point for over a year. The home spending will need to be kept on level and reduced revenues filled up out of the reserves. They also will receive demands for democratic reforms which if they are granted will cost funds and if denied will also cost funds. The bottom line being that there will be for the time being no stream of deposits to any bank in sufficient quantities.

The bank by the lack of those deposits, which will repress their possibilities further, will also loose trading power. They will also loose position which also will further reduce their possibilities and it will make it almost impossible to supply loans.

The question arising out of this is, who will suffer most.
As it stands it will be the US, followed by Britain and Europe as an entity.

The Middle East oil producing countries, with a diminishing production and revenue are already pumping billions into their financial institutions. Russia did and does the same as do the main Asian countries.

Emerging economy’s in Eastern Europe are crying out for billions. The developing countries in Asia and Africa do the same. But the billions needed are not longer available freely.

Countries like the US, Britain and Europe as an entity having themselves to borrow. They are borrowing because they have to support the financial institutions and at the same time to stimulate their own economy in the hope it will up start again.

However, on this moment that will be fruitless as only the first part of the downfall has occurred.
The lack of funds and payment possibilities by the emerging and developing countries will bring the second
Chapter in the next months to come. The failure of the developed countries to supply the funds needed to the emerging and the developing countries and the failure of those countries loan pay back will trigger the second wave. That second wave will further depress the already depressed situation affecting the oil supply and the deposit of oil revenues.

The way up is therefore still a long way off as we are just emerging from the first deep dive before we going into the second dive. What will happen after that will depend on the reactions of certain countries on the weaker financial and economical US, Britain and Europe as an entity.

We don’t hold our breath.