Saudi energy minister predicts era of ‘perpetual stability in world oil’

Saudi Energy Minister Prince Abdul Aziz bin Salman at the Energy Week International Forum in Moscow. (Reuters)
Updated 06 October 2019

Saudi energy minister predicts era of ‘perpetual stability in world oil’

  • Kingdom’s ‘marriage of convenience’ with Russia will benefit global economy, Moscow industry summit hears

MOSCOW: The relationship between Saudi Arabia and Russia brings an opportunity for “perpetual stability” in global oil markets, Prince Abdul Aziz bin Salman, the Kingdom’s energy minister, told a gathering of energy industry leaders in Moscow.

“We could not be doing better than what we are doing today. It’s quite a marriage of convenience. We are in an alliance because there is a lot of rationale in that alliance. It did not come because there is emotion in it, but is a result of straight thinking about what we could do together,” the minister told a packed hall at the Russian Energy Week summit of global energy leaders in Moscow.

The panel was on the theme of “global energy — new alliances,” and both the energy minister and his Russian counterpart Alexander Novak stressed the common interests in the “OPEC+” arrangement, whereby global oil producers coordinate output levels to ensure price and supply stability.

Prince Abdul Aziz said: “I am always conscious of the effect of the oil market on the global economy, and I believe the OPEC+ agreement will help ensure the perpetual stability of the oil market to the benefit of producers, consumers, the energy industry and the world economy.”

Novak agreed that the output agreement — signed first in 2017 and reinforced with a charter last year — had brought “some stability” to global oil markets, but he was worried about what he called “black swans” in the form of global economic and geopolitical factors.

FASTFACT

OPEC members supply about 43.5 percent of the world’s crude oil production.

“There is a lot of uncertainty in the market. For example, trade wars between certain countries is leading to lower demand and consumption. There are also sanctions introduced by one big country that seems to proclaim weekly sanctions against some other country,” he said, in a reference to US actions against Russia and others.

“Black swans are more important than supply and demand in the oil market at the moment, but it is good we have common ground in the oil markets,” Novak added.

In a keynote speech later, President Putin said that the OPEC+ deal was “the first-ever successful interaction between OPEC and non-OPEC.

“What matters is supply predictability and reliability. We have a business-like approach with our energy partners in Europe and the rest of the world, of a commercial nature with no political reasoning,” Putin added.

Mohammed Barkindo, secretary general of OPEC, told delegates: “OPEC+ has become a reliable and dependable source of supply. The world should not panic.”


IMF downgrades outlook for world economy, citing trade wars

Updated 15 October 2019

IMF downgrades outlook for world economy, citing trade wars

  • Growth this year will be ‘weakest since the 2008 financial crisis,’ according to 2020 forecast

WASHINGTON: The International Monetary Fund is further downgrading its outlook for the world economy, predicting that growth this year will be the weakest since the 2008 financial crisis primarily because of widening global conflicts.

The IMF’s latest World Economic Outlook foresees a slight rebound in 2020 but warns of threats ranging from heightened political tensions in the Middle East to the threat that the US and China will fail to prevent their trade war from escalating.

The updated forecast released on Tuesday was prepared for the autumn meetings this week of the 189-nation IMF and its sister lending organization, the World Bank. Those meetings and a gathering on Friday of finance ministers and central bankers of the world’s 20 biggest economies are expected to be dominated by efforts to de-escalate trade wars.

The new forecast predicts global growth of 3 percent this year, down a 0.2 percentage point from its previous forecast in July and sharply below the 3.6 percent growth of 2018. For the US this year, the IMF projects a modest 2.4 percent gain, down from 2.9 percent in 2018.

Next year, the fund foresees a rebound for the world economy to 3.4 percent growth but a further slowdown in the US to 2.1 percent, far below the 3 percent growth the Trump administration projects.

IMF economists cautioned that that even its projected modest gains might not be realized.

“With a synchronized slowdown and uncertain recovery, there is no room for policy mistakes, and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions,” Gita Gopinath, the IMF’s chief economist, said in the report.

Last week, the US and China reached a temporary cease-fire in their trade fight when President Trump agreed to suspend a tariff rise on $250 billion of Chinese products that was to take effect this week. But with no formal agreement reached and many issues to be resolved, further talks will be needed to achieve any breakthrough. The Trump administration’s threat to raise tariffs on an additional $160 billion in Chinese imports on Dec. 15 remains in effect.

The IMF’s forecast predicted that about half the increase in growth expected next year will result from recoveries in countries where economies slowed significantly this year, as in Mexico, India, Russia and Saudi Arabia.

This year’s slowdown, the IMF said, was caused largely by trade disputes, which resulted in higher tariffs being imposed on many goods. Growth in trade in the first half of this year slowed to 1 percent, the weakest annual pace since 2012.

Kristalina Georgieva, who will preside over her first IMF meetings after succeeding Christine Lagarde this month as the fund’s managing director, said last week that various trade disputes could produce a loss of about $700 billion in output by the end of next year or about 0.8 percent of world output.

IMF economists said that one worrying development is that the slowdown this year has occurred even as the Federal Reserve and other central banks have been cutting interest rates and deploying other means to bolster economies.

The IMF estimated that global growth would have been about one-half percentage point lower this year and in 2020 without the central banks’ efforts to ease borrowing rates. “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot,” Gopinath said.

In addition to trade and geopolitical risks, the IMF envisions
threats arising from a potentially disruptive exit by Britain from the EU on Oct. 31. The IMF urged policymakers to intensify their efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath said. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing and raise world growth.”

The IMF projected that growth in the 19-nation euro area will
slow to 1.2 percent this year, after a 1.9 percent gain in 2018. It expects the pace to recover only slightly to 1.4 percent next year.

Growth in Germany, Europe’s biggest economy, is expected to be a modest 0.5 percent this
year before rising to 1.2 percent next year.

China’s growth is projected to dip to 6.1 percent this year and 5.8 percent next year. These would be the slowest rates since 1990, when China was hit by sanctions after the brutal crackdown on pro-democracy demonstrators in Beijing’s Tiananmen Square.