BAKU, Azerbaijan, Oct.5
By Leman Zeynalova – Trend:
Higher prices for export commodities support the exporting countries’ local currencies, which is particularly helpful in case the local banks’ balance sheets are highly dollarized, Olga Ulyanova Vice President-Senior Credit Officer, Financial Institutions Group, Moody's Investors Service told Trend, answering the question about the impact of higher oil prices on the banking sector.
“In oil-exporting countries, banking sectors are indirectly benefitting from the growing oil prices, as the latter contribute to the countries’ higher GDP growth. As a result, operating conditions for banks’ borrowers improve,” she said.
Higher oil prices could lead to higher domestic demand which will feed back into higher bank confidence, lending and low nonperforming loans. On the aggregate supply side, the productive capacity of countries is also likely to be expanded with new public and private investments fueled by high oil prices, pushing growth rates even further.
The decision by OPEC+ to add the expected 400,000 bpd in November triggered a market reaction, as traders are now more boldly coming out from their cautious positions and pricing in a confirmed, tighter supply market.
The outcome of the OPEC+ meeting was no surprise, but when prices are at above $80 per barrel Brent, this is a level that makes customers uncomfortable and producers happy but cautious.
Caution was what kept prices unchanged in the early trading session, but after the initial reports of OPEC+ agreeing to maintain its modest supply boost – the market enthusiastically priced in the coming supply tightness.
With prices now sitting comfortably at high levels without the threat of extra OPEC+ supply - other than the planned one - we are entering a period when demand needs closer monitoring, according to Rystad Energy.
“The recovery of the economy, the potential of a cold winter and fuel switching from gas to oil in Asia suggest a rather quick demand increase to as much as 100 million bpd in December, but if prices keep on rising, the elasticity of oil demand may kick in as consumers, out of cost reasons, cut consumption. Producing nations, and namely OPEC+, have to be careful not to allow prices to inflate too much, otherwise we may see an adverse reaction that could negatively impact post-pandemic economic growth. Nevertheless, OPEC+ will surely keep on monitoring market developments and can amend policy going forward if needed, as it has done in the past when market conditions demanded.”
Finally, looking at balances, the oil market will remain in a deficit for November and December, the company believes.
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