THE flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues.

Big oil producers pumped the windfall from soaring oil prices in the past decade into a huge range of global assets.

Qatar bought the Harrods department store and Paris Saint-Germain, the French football club. Abu Dhabi’s sovereign wealth fund acquired a stake in the glitzy Time Warner building in New York.

The flow of petrodollars boosted liquidity, spurred asset prices and helped to keep borrowing costs down. But Brent’s 40pc fall since mid-June will reverse this trend.

“This is the first time in 20 years that Opec nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, global head of emerging market sovereign and corporate research at BNP Paribas.

If oil production remained at its current level and oil prices stayed at about $70 a barrel for the next year, BNP said, Opec nations would receive $316bn less in export revenues than if prices were at their three-year average of $105.

If oil production remained at its current level and oil prices stayed at about $70 a barrel for the next year, BNP said, Opec nations would receive $316bn less in export revenues than if prices were at their three-year average of $105

George Abed, director for Africa and the Middle East at the Institute of International Finance, said Opec petrodollar flows into US Treasuries, high-grade corporate bonds and equities had been $500bn at their peak in 2012. Next year, they could drop below $100bn if prices averaged $78 a barrel. This was “on top of other trends that seem to be sucking liquidity out of the global system,” he said.

A big factor in the slowing flow of petrodollars has been the surge in US oil production. The US is importing less oil than it used to, so fewer dollars are being sent abroad. Some analysts have said this trend could lead to a shortfall in dollar liquidity.

The $316bn figure would be much higher if other big oil exporters including Russia, Norway, Mexico, Kazakhstan and Oman were taken into account.

George Magnus, economic adviser to UBS, said the main impact of the reduction of petrodollar flows would be less on liquidity than on investment patterns as wealth was transferred from oil-producing countries to consumer nations such as Japan.

“What a sovereign wealth fund might put their money into will be different to what an asset manager might favour,” he said. “We should expect a lot of churn.”

Jason Shoup, analyst at Citi­group, said the petrodollar decline was “likely to equate to less demand” for bonds. The shift could have a bearing on when borrowing costs start to rise. With consumers spending more, the withdrawal of the Federal Reserve’s bond buying could become “that much more palpable,” he said.

Alan Ruskin at Deutsche Bank said Opec money flowing into the US in recent years had been “modest relative to total cross-border flows”. But if oil producers were forced to sell assets, the situation could be “a good deal messier,” he said.

Published in Dawn, Economic & Business, December 8th , 2014