Stocks, opec, and other producesd greed agreed to further output cuts. We ask about future steps to rebalance the market. First i want to start with saying we have analyzed the jvc report presented to us by the jcc. It by the jtc. Based on actual data, but also on forecasts. I can say that we have a fairly diversified range of opinions which we have looked into. They will give us grounds to be optimistic. We can see that they are being revised upwards based on the economics of the Global Economy. We believe we have solid grounds to assume the Global Economy is headed in the right direction, and this should boost demand. The traders eye speaks to and a lot of other key people okehats the traders i sp to, and a lot of other key people, how much room do you q3, q4 . Maneuver in a can you make the adjustments to make to where you want those inventories, be it more partners, more cuts . Give me a sense of whether everything is on the table, if it is necessary. Guest let remind you let me remind you that the geomancy was created to death the gn mc the jmmc was created to monitor the situation i can say the instrument is quite flexible, and it can recommend ministers to consider various actions it deems necessary. Then this can result in a decision by this group of ministers to follow up. I can also say the 1. 5 years of experience we have of negotiating, working together, shows that we are quite mobile is a group of countries with common interests. We are quite flexible and we actot we can we can responsibly and decisively if the need arises. Has been very efficient in helping to rebalance and stabilize the markets, and i am sure that if we see the necessity, the new ministers can come to quite a fast agreement in regard to actions which need to be taken to further support rebalancing of the market and stabilizations. As an example of such response to challenges, i think we can easily name the may extension of the initiative, when we have all come together and decided to maintain the death of the cuts at the current level, but at the same time extend the initiative by nine months. We see everybody on board. I cannot name any minister or any country in my memory which would have been against reasonable action. It is still early on, but we are already hearing from the uae minister of energy that he is considering looking at a possible extension. Is that something you are open to as well . I think if you ask any minister this question, everybody will at this point respond yes, we are indeed ready to renew this. Should beestion which asked is, should the decision be made now or at a later date when we have more data and more details as to have the markets desk as to how the market is performing . As to how the market is performing . At this point we have decided to recommend that all ministers keep this option on the table, think about it, in case it is needed in the future to rebalance the markets. Yousef coming up, oil prices gained after the meeting in st. Petersburg, but richard gori told us why he fears what he fears. This is bloomberg. Boost oil prices got a after the producers meeting in st. Petersburg, but the managing director at jvc asia told us 40 a barrel can still happen to fight can still happen despite more output cuts from opec. There is great seasonality and inventory. Right now inventories are declining very sharply because this is the peak summer demand. Bank demand. Bank demand. Amanda. Demand. Im demand. Bank demand period. Overall they are also correct that inventory on average will decline in the second half of the year. Right now it is definitely the strongest decline for the market. Once we go through the summer, we will see seasonal builds again. There are plenty of choices out there that indicate that there is too much there is this that too much too much bearishness. The Worlds Largest oil trader, seems like you have differentials in the grades of oil that are improving from their point of view. Accurateis that an representation in the current price of oil when you look at supply and demand fundamentals . Guest i would be inclined to think so. I would have expected rises to be higher in the summer, around the 55 mark, particularly that periods of the first of the year. We have a little bit of a bearishger from hangover from the first half of the year. The markets showed very extreme tightening in the first half of the year, which didnt occur. Now that we have gotten into the stronger period of the market, there is an overall bearish optimism on the arctic on the market. I think prices probably should be higher if we look at how the price has developed this year. S is definitely on that point, this chart on the bloomberg does in fact show that at least in the last week, we did see the market a little more sanguine when it ,ame to hedge fund prices shortsellers on a steady retreat. Would you then attribute this to just the opec meeting coming up and that this will actually fade . Guest i think this was purely a seasonal adjustment. We have the weekly u. S. Inventory reports showing declining u. S. Inventory. These key indicators now are making those who have been very bearish become a little more optimistic. It does not surprise me to see this take place. I believe it will be shortlived. I believe it will only be throughout august where we have the potential upward for the price. Beyond that, we dont have much in positivity. Sheri what about the comments from halliburton saying that the boom is slowing . You dont think that will give a boost prices if that were true . What do you see in the shale market . Guest the shale market is so difficult to read because it is highly reactive to the price. The shale market has benefited greatly from the high prices, relatively high prices in the early part of the year. Lot of shale producers to hedge their production. Of course, if those hedges are unwinding and they have to come back into the market at a much lower level, then the question is how strong can shale be in a lower price environment . Nevertheless we dont see shale being the major contributing factor to the oversupply in the auto market as we go towards the end of the year. What happens at the end of the year is you have a huge seasonal change in demand. Demand in the first half of next year is going to be much lower than in the second half of this aar, which means it is really case of demand dropping and supply not dropping fast enough to account for that, and the oversupply reemerges. Yousef so richard, youre not convinced that opec and nonopec is going to be able to push this market for the first half of 2018 . Guest no, not without doing more. Clearly we see, just looking at the fundamentals, looking at our outlook for demand, at analysis , evenpply, we still see with the opec deal running into the First Quarter of 2018, and oversupply in the First Quarter. To account for that, opec nonopec would have to do more. We didnt have any indication they were going to do more, so i think it is going to be a very difficult time for them. Sheri at least when it comes to prices, we are seeing a significant drop in saudi shipments to the u. S. We do know theres a failure to change that the failure to drain the u. S. Failure to drain the u. S. Storage has driven prices down. Guest obviously the u. S. Is a very competitive market. Placing your oil in that market is not always so easy. The saudis probably have the saudis probably have more interested customers in other parts of the world particularly here in asia. The u. S. Has an abundance of oil that it can pull in. I dont think that necessarily has any huge overall effect. It can have regional imbalances, but overall i dont see the saudis producing shipments to the u. S. As being in any way going to reverse the price trend. Ifsef julie if yousef you were part of the group, how would you deal with this . Guest it is very difficult. Trying to can be reduce it by another Million Barrels as we go into 2018. That would go a long way towards bringing us closer to balance. Of course, opec knows this, and they also know that the u. S. Shale players stand ready to react to any rebound in the markets. I think that is what makes it a little bit of a poisoned chalice. If you say, lets be aggressive and do this, you still create a longerterm problem that you have to battle with this swing production from the united states. I understand he has and see. For me, the hesitancy. For me, i think they could be a little more aggressive in how they talk through the markets, trading little bit more uncertain the that uncertainty. Bit more uncertainty. The bearishness has come into the market. I would probably try to talk the market up a little more. I definitely understand the problem that they face when they consider deeper cuts. They know longerterm, it is causing even more problems. Yousef up next on the best of Bloomberg Markets middle east, we speak about Investment Strategies as the blockade on qatar rolls on. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The qatari stock market seems to be ignoring the diplomatic disputes. An investor for his Investment Strategy as this crisis drags on. The markets fell about 5 in the following three sessions. Some peoples worst fear did materialize, the market stabilize, and after returns from the break in july, the market was up 6 so far. That combined with the fact that companiesow some benefiting from the current situation, there is a significant increase and urgency in spending from both the government and the private sector in a number of areas. Reporter youve been following this story very closely. My question to you here is how do you trade the gulf crisis . What has changed permanently for the way you approach putting money to work in market like qatar or saudi arabia . Isnt immunegion to crises. You have probably had no more than three or four years over the past 16 years that is nothing war or crisis. Our region is very used to crises, very used to things going wrong. Bahrain a issues in few years ago. There have been issues in other countries as well. It doesnt actually change. It just needs to continue to do what you do, which is to focus on companies. , which is how we invest which is how we invest. Nothing actually changes. It just so happened that the country i live in right now is the one that is at the heart of the issues. Sheri to that point, just socusing on what you know, i politics now the driver of markets . This chart on the bloomberg showing that qatari stocks and bonds are paying almost identical risk premiums. Im talking about the fiveyear credit default stocks converging for the first time in five years for the first time in two years. The markets dont seem to mind the qatari isolation as much, as you mentioned. What is, then, the driving force in the markets right now . Is it oil again, just focusing on what you know . Weeks the first couple of of june, Foreign Investors in equity market [indiscernible] since then they have bought back about half of what they sold. There is aggressive selling followed by aggressive buying. Movement or impact of Foreign Investments clearly has an effect. Specifics are always what drives the shortterm. You do need to go back to basics. Clearly as things change, the output from companies change. You have to take that into account the core part of what we do hasnt been affected. It just means we continue to reassess the investments that we make, as do all investors, and make decisions accordingly. To talk a little bit about what the Federal Reserve has been doing with this path of gradual rate hikes. This is a very important week for the fed, perhaps not in the actual decision, but in that they are meeting. You got the rest of the year to look forward to in terms of other possible scenarios. How do these hikes translate into some of the key golf assets , specifically in terms key gulf assets, specifically in terms of banks . Are their names you would highlight that could really benefit on the back of the fed moves . Banks are impacted by the increased interest rates. On average, they have about 20 to 30 of their funding affected by accounts where they dont actually pay into any of that funding. They are able to reprice their loans overtime. It doesnt take several quarters. There should be a kill wind behind many of these banks well into 2019. We will see some banks deliver doubledigit Profit Growth this year. Not all of them will. Obviously you do have to take into consideration the balance provisioning, other operations. Larger banks will do very well. Into saudit, we look ale of more than 4 billion in local islamic bonds to tie over the deficit. This is bloomberg. Welcome back yousef welcome back. Saudi arabias first local islamic bond sale this year proved to be a hit. Finance reporter Matthew Martin gave us the details. Reporter the government raised 70 billion rials. 10 billioned over rials. Theres plenty of capacity in the government, only taken 1 3 of what was offered do it. Early in the year the said that up to 70 million rials was raised from local banks. We should expect the government to come back again fairly soon and try and muck up some more of that liquidity. Wasor when the government raising money from local banks last year, it did have a negative effect on liquidity and pushed up the cost of borrowing for the private sector. This time around, is that a concern . Reporter at the moment, we are not seeing a huge amount of private sector borrowing. As you said, when the government last year raised close to 100 billion riyals from the local banks and pushed the interbank rates up to the highest since the financial crisis, the government hasnt issued local currency bonds since september. Bank rates have come down now, but they are starting to take up. The more the government comes out, the higher that rate is going to get, and this is all going at a time when the government is trying to set back from the economy and let the private sector take more role in driving the economy forward. Anchor you are in abu dhabi, and we are hearing news that possibly the other. Reports considering possibly the Abu Dhabi Ports considering a lifting. Reporter theres a whole rest of ipos being planned in abu dhabi and dubai. Really this is the first time we have seen a pipeline of potential listings emerging in abu dhabi. Weve got ports, emirates, local aluminum. Those industrial companies. Weve got Abu Dhabi National oil company, a national ipo. Theres really some momentum to come here as the government the economy,back trying to monetize the companies it has built while oil is over 100 a barrel. Very positive signs that we might actually start to see some momentum developing in the ipo markets here. Anchor let me just veer a little bit off topic talk about the energy industry. It is very interesting about a saudi dairy farm, considering powercow dung in order to , to achieve their power needs. Reporter exactly. As you say, is a quirky, offbeat story. This dairy come be based in the north of saudi arabia, it kind of makes total sense for them at a time when subsidies are being removed on oil prices, and they are not very close to a grid connection. Theyve got to look around for alternative sources of power, and the obvious answer, and many respects, was why not take the cow dung and create your own biofuel . Youve got it right next to you that you are already generating. What a great answer for this blem of how to create our create power for this dairy company. If its in with this diversification saudi arabia is trying to do, moving away from oil. Im not sure they expected people to come up with cow dung as the answer, but that is the solution that they came up with. Anchor but seriously, are they going to get the right funding . Are they partnering up with local banks . How far along are they in this process . Reporter it is a very new concept for saudi arabia. There is no developers with great experience of building these plants. I think at the moment they are sort of casting out to find somebody who can build an operating plant for the. I think some of the banks we have spoke to our sort of scratching their heads as they look at this, wondering what to make of this sort of thing which they have never done before. But it is not too big a size. Good pricing for a sector, as well. Yousef coming up on the best of Bloomberg Markets middle east, we hear from citigroups chief how qatar will affect the gulf economy. This is bloomberg. Welcome back to the best of Bloomberg Markets middle east. The blockade on qatar by the saudi late block continues. We spoke to city and s P Global Ratings about how they view this impasse and how they are measuring the geopolitical risk. Guest weve actually been calling for a negative nonoil growth for the past couple of years. I think weve been surprised how resilient the economy has been so far. If you look at the kind of consolidation that has taken place over the last couple of years in saudi arabia, it is hardly surprising that Economic Growth is coming down. Government expenditure remains a major driver of the economy, not just in saudi arabia, but across the gulf as a whole. A lot of the private sector is supportive of either the government sector or oil sector. With those sectors in trouble and Government Spending coming down, it is quite clear to us that he was he a softening and economic activity. We are forecasting a negative growth in 2017 in the nonoil economy. Yousef the Saudi Oil Minister has been here in st. Petersburg. Ultimately the oil price where it is at, not really helpful to the saudi economy. The key question that comes in oil does go lower, how little room does the saudi economy have . How much painful can it get . Guest whether he goes lower or not, the saudi economy is still going to feel the pinch of fiscal consolidation. There is still more to be done. It oil prices go lower from where we are today, clearly what that means is that consolidation has to be deeper. Spending has to come down more quickly. Spending has to come down more aggressively. At the same time, Revenue Growth has to increase more quickly as well. Those two aspects, lower spending and higher taxation, effectively mean that the economy is going to soften. Means that that is going to be ever more acute. I would make the point that from an economic objectives perspective of a why is it what is the concern from the saudi perspective . I think theres a lot of resil