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Oil producing nations to sell US$240b assets this year: JP Morgan

The International Monetary Fund said on Tuesday that the sharp collapse in the price of oil is proving more of a drag on the global economy than a stimulus.

[LONDON] Oil-producing countries will sell US$240 billion of international assets this year, mostly stocks and bonds, in an attempt to hold together budgets blown apart by the slump in oil prices, according to estimates from JP Morgan.

That sum will come from running down their foreign exchange reserves and Sovereign Wealth Fund holdings. They will also raise some US$20 billion by selling government bonds of their own to help cover a current account shortfall of US$260 billion, the US bank predicts.

These countries will sell holdings of US Treasuries and other bonds worth about US$110 billion plus US$75 billion of equity investments, up from US$45 billion and US$10 billion last year. The remaining funds will come from liquidating other assets such as cash, real estate and private equity.

"The lower the oil price, the higher the potential depletion of SWF assets as oil-producing countries struggle to prevent their spending from declining too much," JP Morgan strategists wrote in a client note late on Friday. "For 2016 we look for FX reserve depletion of US$100 billion and a decline in SWF assets of US$140 billion," they wrote, noting that asset sales last year, when plunging oil prices also left some countries with budget shortfalls, totalled US$70 billion.

These estimates are based on the price of Brent crude oil averaging US$31 a barrel this year, sharply down from US$53 from last year, which would see producer countries' oil revenues plummet by US$300 billion to US$440 billion.

Brent has tumbled 22 per cent so far this month to a 12-year low of US$27.67 thanks to a slowing demand growth and bumper supply. The slump has rocked global world markets and hit the finances and markets of oil producers especially hard.

Saudi Arabia's currency, the riyal, has fallen to a record low against the dollar on the forward market, while Russia's rouble has hit a record low and Gulf region stock markets are at multi-year troughs.

Saudi Arabia, the world's largest oil exporter, could face a budget deficit approaching 20 per cent of gross domestic product, according to some estimates.