A recovery in the Gulfs stock markets, after interest rate cuts yesterday, eased fears of further fallout from the turmoil on international markets.
Kuwait and Muscat saw the biggest gains 3.8% and 8.3% respectively but all seven Gulf Cooperation Council (GCC) stock markets were well down over the weeks trading, which ended yesterday.
The week ended with net falls of 22.5% in the Dubai Financial Market Index and 18.9% in the Abu Dhabi market, both in the United Arab Emirates. The UAE central bank cut interest rates on Wednesday and eased banks access to a 50 billion dirham ($13.6 billion) liquidity mechanism introduced in late September.
Bankers and analysts continue to believe that large accumulated reserves mean the Gulf authorities are well placed to inject liquidity where necessary.
Raja Kiwan, UAE-based analyst for consultants PFC Energy, said: In the GCC there has been a markets reaction that is ignoring fundamentals, which remain very strong.
Foreign reserves put [the GCC countries] in a very comfortable position to engineer a soft landing. [...] Even if there is a slowdown in growth from 7% to 6%, these are still among the fastest growing countries in the world. People get quickly used to 7% growth so if you downgrade then they may panic.
Although the GCC markets including Bahrain, Saudi Arabia, Kuwait, Oman, Qatar and those in the UAE have in total lost $186 billion in market capitalisation since late September, Saudi Arabia is running a projected current account balance of about $180 billion, and the UAE close to $56 billion.
But there is also concern among officials at the falling price of oil, which has tumbled dramatically since record highs near $150 per barrel in July.
OPEC, the producers cartel that pumps 40% of world oil production, yesterday expressed concern over deteriorating economic conditions with contagion risks and said it would hold an emergency meeting on November 18, rather than waiting for a regular meeting scheduled for December 18.
US crude oil futures dropped $1.75 to $87.15 a barrel yesterday, after falling to a 10-month low of $86.50 on Wednesday.
With demand likely to wane further with a global slowdown, Opec is still to implement in full Julys decision to reduce output by 500,000 barrels a day.
The oil price is like a ball that bounced too high, said Mehdi Varzi, president of London-based consultants Varzi Energy. My feeling is that the floor is somewhere around $80-90. This is partly because of Opec and partly because of the increasing costs of extracting oil in difficult places like Canada.
PFC Energy said yesterday that their estimates of the oil price per barrel needed by producers to balance their external accounts in 2008 ranging from $94/barrel for Venezuela and $68 for Nigeria to $4/barrel for Qatar showed the Gulf producers in a reasonable light. The GCC countries are sitting fairly pretty at $80 and are not ugly at $70.