Many discussions, few solutions
“We have strong concerns about the sharp rise in oil prices, which poses risks to the global economy.”
This quote came from the G8 communiqué on the world economy from
Many pundits got excited by the $5 drop per barrel earlier in the week -- the largest single day fall since March. These analysts believed the drop pointed to a bottoming out for the U.S. dollar and falling demand for crude as a result of a global slowdown.
Personally, I think it is too early draw those conclusions on both fronts. The housing market remains dangerously weak in the
The dollar weakness that we have witnessed for the better part of three years is likely to remain until:
Political change often brings with it an ability to break with positions from the past. This could apply to both the dollar and oil prices.
Daily demand is holding up at around 87 million barrels a day, but according to OPEC and Saudi officials there is no demand beyond the current production now in place. Traders are basically making a big bet (and a lot of money in the short term) that demand from the developing world will outstrip the production earmarked to come on stream in the next few years.
On that front, the G8 also had something to say:
“Oil producing countries should ensure transparent and stable investment environments conducive to increase the production capacity needed to meet rising global demand.”
Transparent was a word used at great length this week in
With crude at this level, national oil companies don’t want to pump too much oil and want to hold onto the highest percentage of a field that they can. Many of these NOCs, according to non-government oil company officials I have spoken with, have been less than eager to speed into production or give too much away. This is not reported in the headlines of daily papers and telecasts, but it is the reality on the ground.
That equation is part of a greater co-dependency between the G8 and the
On the macro-economic level, G-8 countries are more dependent than ever on
In today’s scenario, the G8 is calling for great cooperation and dialogue. We saw a hint of this in
This effort was however a good start. A G-13 (despite the unlucky number) is much more welcoming than the current structure, which candidly seems dated. It should be a group of equals addressing concerns eye-to-eye. While the world seems to be in an expansive mode, we might want to think a bit differently.
It should not be a gathering of just energy consuming nations, but bring in the producers (either GCC or another structure) to take us from dialogue to action. Let’s not have one-off energy summits like the recent meeting in Jeddah, but make the process more inclusive, more productive and yes more transparent.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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