Blowout #Saudi Bond Deal Sends a Message to Markets - Bloomberg

Blowout Saudi Bond Deal Sends a Message to Markets - Bloomberg:

Saudi Arabia on Monday began offering $10 billion of bonds of Saudi Aramco, the world’s largest oil company. Most of the focus was on how investors submitted orders for about $60 billion of bonds. Even if you are (rightly) skeptical of “order books” and think the true demand was for half that amount, it’s still a remarkable development for a country that just a few months ago was being ostracized for its role in the killing of Washington Post columnist Jamal Khashoggi. But there’s more to the story.

In essence, the high demand is a referendum on the oil market. Investors are really looking to jump into the deal because they think that oil prices, which are up more than 50 percent from the lows in December, are headed much higher. Rising oil prices are generally not a problem for markets during times of economic strength, but the majority of analysts expect weaker growth, with the Organization for Economic Cooperation and Development having just slashed its global forecast for this year to 3.3 percent from a previous estimate of 3.5 percent. Higher crude prices could act as a further drag on the economy and weigh on riskier financial assets. In the U.S., for example, prices for a gallon of regular grade gasoline have risen to an average of $2.74 heading into the all-important summer driving season, according to the Automobile Association of America, up from January’s low of $2.23 a gallon. Prices are in sight of the $2.90 a gallon seen in early October right before personal spending took a dive and equity markets collapsed. Some might say that higher oil prices indicate an economy that isn’t as bad as thought, but the reality is they probably have more to do with a decline in the supplies, thanks to OPEC.