Saudi Arabia, Russia should take long view on oil agreement, says IEA chief

IEA boss Fatih Birol praised Saudi Arabia’s efforts to diversify away from oil dependency. (AP Photo)
Updated 13 March 2019

Saudi Arabia, Russia should take long view on oil agreement, says IEA chief

  • Executive director of the International Energy Agency Fatih Birol warned that short-term volatility can throw out policymakers’ calculations
  • The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse

HOUSTON: Fatih Birol, executive director of the International Energy Agency (IEA), has urged Saudi Arabia and Russia to be aware of the consequences of their alliance on oil production levels.
Speaking exclusively to Arab News on the sidelines of the CERAWeek by IHS Markit energy forum in Houston, Texas, Birol said: “It is very important to see what are the consequences of such agreements not only in the very near term but also in the medium term. This is important, to make those agreements according to the entire picture.”
The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse.
However, Birol warned that short-term volatility can throw out the policymakers’ calculations. He cited the recent renewal of production limits as a case in point, when the latest deal to extend the caps on output was followed by a period of volatility in crude prices.
“Russia has become one of the main drivers of the Vienna parties agreement, if not the main driver. What we have seen, however, is that after the recent agreement to bring the prices up, prices in fact went down.”
He explained the weakness in crude prices late last year, after signals from Russia and the Organization of the Petroleum Exporting Countries (OPEC) that the “Vienna alliance” would be extended, by reference to the strength of US shale oil production. The IEA highlighted the “remarkable growth” in US oil production as the main reason why crude prices have not risen more in recent months.
Birol made clear that he was not advising Saudi Arabia and Russia on the future path of their oil alliance, saying that was an issue for the policymakers of the two biggest oil exporters. Asked later in the CERAWeek forum if the alliance was having the intended effect of balancing out global oil supply and demand, he said it is getting there.
Asked what Saudi Arabia and Russia should do in the face of increasing US oil production, to the extent that the US will overtake Russia and rival Saudi Arabia as an oil exporter in the next five years, he said both countries should continue their efforts to diversify away from oil dependency.
“They (Saudi Arabia) made a very important plan in terms of Vision 2030, and they took some important steps. I really hope that this vision will be realized, not only for Saudi (Arabia) but for Russia and all the others. In my view, it is obvious that no country can afford to be a single-product economy now, and they have to diversify.
“Saudi Arabia has all the means to be able do that. There have been some successful steps in recent times, like the petrochemical industry and putting more emphasis on natural gas. But there are also some non-energy steps that need to be part of the game, like a broader economic diversification,” he added.


OECD forecast sees global growth at decade low

Updated 22 November 2019

OECD forecast sees global growth at decade low

  • Governments failing to get to grips with challenges, outlook says

PARIS: The global economy is growing at the slowest pace since the financial crisis as governments leave it to central banks to revive investment, the OECD said on Thursday in an update of its forecasts.

The world economy is projected to grow by a decade-low 2.9 percent this year and next, the Organization for Economic Cooperation and Development said in its Economic Outlook, trimming its 2020 forecast from an estimate of 3 percent in September.

Offering meagre consolation, the Paris-based policy forum forecast growth would edge up to 3 percent in 2021, but only if a myriad of risks ranging from trade wars to an unexpectedly sharp Chinese slowdown is contained.

A bigger concern, however, is that governments are failing to get to grips with global challenges such as climate change, the digitalization of their economies and the crumbling of the multilateral order that emerged after the fall of Communism.

“It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary or fiscal policy: they are structural,” OECD chief economist Laurence Boone wrote in the report.

Without clear policy direction on these issues, “uncertainty will continue to loom high, damaging growth prospects,” she added.

Among the major economies, US growth was forecast at 2.3 percent this year, trimmed from 2.4 percent in September as the fiscal impulse from a 2017 tax cut waned and amid weakness among US trading partners.

With the world’s biggest economy seen growing 2 percent in 2020 and 2021, the OECD said further interest rate cuts would be warranted only if growth turned weaker.

China, which is not an OECD member but is tracked by it, was forecast to grow marginally faster in 2019 than had been expected in September, with growth of 6.2 percent rather than 6.1 percent.

However, the OECD said that China would keep losing momentum, with growth of 5.7 percent expected in 2020 and 5.5 percent in 2021 in the face of trade tensions and a gradual rebalancing of activity away from exports to the domestic economy.

In the euro area, growth was seen at 1.2 percent in 2019 and 1.1 percent in 2020, up both years by 0.1 percentage point on the September forecast. It is seen at 1.2 percent in 2021.

The OECD warned that the relaunch of bond buying at the European Central Bank would have a limited impact if euro area countries did not boost investment.

The outlook for Britain improved marginally from September as the prospect of a no-deal exit from the EU recedes.

British growth was upgraded to 1.2 percent this year from 1 percent previously and was seen at 1 percent in 2020.