Al-Badri: OPEC can ride out a slump in oil prices

Updated 14 December 2014

Al-Badri: OPEC can ride out a slump in oil prices

DUBAI: Oil producers group OPEC can ride out a slump in oil prices and keep output unchanged, its head said on Sunday, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.
Speaking at a conference in Dubai, Abdullah Al-Badri defended November's decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.
"We agreed that it is important to continue with production (at current levels) for the ... coming period. This decision was made by consensus by all ministers," he said. "The decision has been made. Things will be left as is."
OPEC policy remains a crucial factor in global economic prospects after Brent crude settled at below $62 a barrel on Friday, following a steep descent which hammered energy stocks and currencies exposed to crude exports.
The move left benchmark grades nearly half levels set earlier this year and doused appetite for riskier assets, pushing investors into the safety of government debt despite strong US consumer sentiment.
In a further reaction to slumping oil, stock markets across the Middle East fell sharply on Sunday, adding to a plunge in Gulf equity markets which has wiped out roughly $150 billion of value since the end of October.
Some say selling may continue as few participants are yet willing to call a bottom for markets.
But Al-Badri suggested the crude price fall had been overdone. "The fundamentals should not lead to this dramatic reduction (in price)," he said in Arabic through an English interpreter.
He said only a small increase in supply had lead to a sharp drop in prices, adding: "I believe that speculation has entered strongly in deciding these prices."
Asked if OPEC planned an emergency meeting before its next scheduled gathering in June, or a meeting with non-OPEC producers, Al-Badri said such meetings would not have an effect on oil prices.
OPEC had no target price for oil, Al-Badri said in a reiteration of policy, and urged Gulf states to continue investing in exploration and production, saying the United States would continue to rely on Middle East crude for many years.
Stopping new production projects would bring about a situation in which prices "will go back to $147 a barrel as in 2008. This was a result of a previous such situation," he said, recalling the potential market effect of a dearth in supply brought about by inadequate upstream investment.
Al-Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November's decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of US shale oil production or weaken rival powers closer to home.
"Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said.
Al-Badri said OPEC members Iran and Iraq, their oil sectors restricted respectively by sanctions and insecurity, both had the potential to raise production, but significant increases were possible only after two or three years.
Adding to the effects of OPEC's unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices.
There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.


Africa development bank says risks to continent’s growth ‘increasing by the day’

Updated 38 min 52 sec ago

Africa development bank says risks to continent’s growth ‘increasing by the day’

  • The trade dispute between US and China has roiled global markets and unnerved investors
  • African nations need to boost trade with each other to cushion the impact of external shocks

DAR ES SALAAM: The US-China trade war and uncertainty over Brexit pose risks to Africa’s economic prospects that are “increasing by the day,” the head of the African Development Bank (AfDB) told Reuters.
The trade dispute between the world’s two largest economies has roiled global markets and unnerved investors as it stretches into its second year with no end in sight.
Britain, meanwhile, appears to be on course to leave the European Union on Oct. 31 without a transition deal, which economists fear could severely disrupt trade flows.
Akinwumi Adesina, president of the AfDB, said the bank could review its economic growth projection for Africa — of 4 percent in 2019 and 4.1 percent in 2020 — if global external shocks accelerate.
“We normally revise this depending on global external shocks that could slowdown global growth and these issues are increasing by the day,” Adesina told Reuters late on Saturday on the sidelines of the Southern African Development Community meeting in Tanzania’s commercial capital Dar es Salaam.
“You have Brexit, you also have the recent challenges between Pakistan and India that have flared off there, plus you have the trade war between the United States and China. All these things can combine to slow global growth, with implications for African countries.”
The bank chief said African nations need to boost trade with each other and add value to agricultural produce to cushion the impact of external shocks.
“I think the trade war has significantly impacted economic growth prospects in China and therefore import demand from China has fallen significantly and so demand for products and raw materials from Africa will only fall even further,” he said.
“It will also have another effect with regard to China’s own outward-bound investments on the continent,” he added, saying these could also affect official development assistance.
Adesina said a continental free-trade zone launched last month, the African Continental Free Trade Area, could help speed up economic growth and development, but African nations needed to remove non-tariff barriers to boost trade.
“The countries that have always been facing lower volatilities have always been the ones that do a lot more in terms of regional trade and do not rely on exports of raw materials,” Adesina said.
“The challenges cannot be solved unless all the barriers come down. Free mobility of labor, free mobility of capital and free mobility of people.”