IMF raising volume on call to address anti-globalization anger

IMF chief Christine Lagarde has repeatedly stressed that giving in to protectionism will not help those on the margins and in fact will make matters worse by driving up prices and eroding global growth. (AFP)
Updated 21 April 2017
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IMF raising volume on call to address anti-globalization anger

WASHINGTON: As the global recovery gathers pace, the International Monetary Fund (IMF) is turning up the volume on its call for wealthy countries to address popular anger over the impact of globalization and head off the threat of protectionism.

The renewed push comes as finance ministers from 189 countries gather for the fund’s semi-annual meeting Friday and Saturday, in a tense atmosphere of rising anti-trade rhetoric in many advanced economies.
“This sentiment of populism in the views of many is fueled by the feeling of being excluded or being left out,” IMF chief Christine Lagarde said Thursday night.
“What better than more growth, more equitably shared, in order to respond.”
The IMF for years has been calling for countries to drive toward what it calls more inclusive growth with programs to help those hurt by globalization and trade — but typically it has centered on developing nations.
Now the focus is on advanced economies and the message has taken on greater urgency, amid anti-internationalist sentiment evident in the election of US President Donald Trump, as well as in the bitter French election campaign and last summer’s British vote to leave the EU.
Lagarde has repeatedly stressed that giving in to protectionism will not help those on the margins and in fact will make matters worse by driving up prices and eroding global growth.
But as the IMF raised its forecast for global economic growth to 3.5 percent for this year — a rare upward revision — Lagarde said it is time to address these concerns from “an economic point of view,” to help spread the benefits of growth to marginalized groups while preserving international cooperation.
Raghuram Rajan, former governor of the Reserve Bank of India (RBI), said the legitimate concern in advanced economies “reflects a cry of anger and for help.”
Governments should respond with “broad-based rehabilitation” of communities hurt by lost manufacturing — a situation nearly entirely due to technological advances rather than trade, even though trade is blamed, he said.
“We need to think seriously about rebuilding these communities... to lift up the forgotten man,” Rajan said in a lecture at the IMF entitled “Popular Insurrections,” which Lagarde attended.
“Industrial countries have large areas that need development,” Rajan said. But this “requires (a) certain amount of funding, and new thinking.”
It also may mean returning decision-making on some issues like trade and climate rules back to national governments, rather than leaving them in the hands of multilateral institutions — which have drawn the ire of many US, British and French voters.
The IMF said “hundreds of millions” of people have been lifted out of poverty through economic integration and technological progress, “helping to reduce global income inequality.”
The fund is calling for governments to use “well-targeted initiatives” to help workers adversely affected by free trade and other economic changes to find jobs in new industries.
In addition, they should direct spending toward establishing social safety nets to help with the loss of income, as well as improving education and training, the IMF said.


Saudi Arabia seeks stable, not soaring, oil prices

Updated 31 min 55 sec ago
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Saudi Arabia seeks stable, not soaring, oil prices

  • Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
  • The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98

RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.

Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.