Peter Cooper's  Instablog

Gulf stocks have taken a beating over the past week with pressure on hydrocarbon prices giving investors packing up for the summer another reason to sell.

Oil prices could move even lower. After all $60 would have been considered a very good price 18 months ago and the global economy has changed dramatically for the worse since then.

Of course, the pattern of oil prices has been more of a roller-coaster ride over that period: up to $147 in July, down to $33 in December and then back up to $73 last month. Gulf stock markets followed a similar pattern but without showing such a sharp recovery this year.

It is far from impossible to see oil striking another low before recovering again. There are record oil stocks on land and floating at sea which could easily be dumped on the market in a panic about prices, exaggerating the downside. Even Iraq has restored pre-invasion production levels.

The recovery in demand for oil this year also seems to have been driven by stockpiling and not an upturn in the global economy where trade has actually seen a bigger slump than in the 1930s. With business down and economies shrinking all over the world it is hard to see where sustainable energy demand could emerge.

That perhaps accounts for caution among stock market investors in the Gulf States, with shares in Qatar yesterday trading at their lowest levels for two months. But clearly the risk still seems to be to the downside if hydrocarbon prices are now in a down trend.

It is remarkable, not to say almost unbelievable, that oil and gas prices have surged while the global economy has tanked in a way not seen since the Great Depression. Even Chinese exports fell 23 per cent last month, falling for the ninth month in succession.

Last month US auto sales registered their smallest year-on-year decline since Lehman Brothers crashed last September, but that was still 31 per cent down. German and Japanese falls in GDP will be the worst since the Second World War as their status as major exporting nations is now working against them.

In short, the oil market and Gulf stock markets seem set to repeat the experience of last autumn. The question then is whether global governments can pull off another series of stimulus packages to keep the show on the road, and whether that money will again inflate the cost of energy.

It probably will, and that would make oil assets and Gulf stocks a good buy when markets weaken.