When will oil prices stop falling?

SINGAPORE - Oil prices will continue to drop as high production meets weak demand and a strong U.S. dollar pressures crude, and markets will only pick up once major manufacturing economies particularly in Asia feel the benefit of cheaper energy.

Oil prices LCOc1 CLc1 have halved since last June to near 6-year lows as economic growth stutters, and analysts say that a building supply glut means prices are set to fall further before any rebound. O/R

On the supply side, downward pressure on oil has come from a boom in U.S. shale oil output and, more recently, by the Organization of the Petroleum Exporting Countries' (OPEC) decision not to cut output in support of prices, and instead try to defend market share against North American shale by offering discounts.

"The risks to oil prices remain skewed to the downside in the near term," ANZ Bank said on Wednesday.

"(US) shale producers won't start feeling the pinch for another six months. In addition, there is the prospect of further supply increases from highly stressed OPEC members such as Libya, Nigeria and Venezuela, which could place further downward pressure on prices," the bank added.

There's also more oil in the system as slowing economies are using less and as energy efficiency improves.

In Asia, Japan is battling recession, while in China, the commodity boom driver in recent years, demand is slowing as the world's second-biggest economy shifts from energy-intensive construction to consumer-fuelled growth.

Citi this week predicted China's crude oil imports would grow more slowly this year, adding that "anyone hoping for China to drive a rebound in oil prices is likely to be disappointed."

Adding to the slack in Asia is that Europe has yet to recover from its post-credit crunch crisis in 2008-09.

Another drag on oil comes from the dollar. With the U.S. Federal Reserve expected to raise interest rates this year for the first time since 2006, supported by healthy growth, the dollar is likely to keep strengthening, putting more pressure on oil markets as European and Asian currencies fall.

BOON FOR CONSUMERS

While the immediate outlook for oil remains weak, analysts say cheaper fuel costs for households and businesses should at some point support demand, especially in manufacturing-led economies.

"The collapse in oil prices looks set to wipe out the Gulf's external surpluses next year, leaving China and the euro-zone as the world's major surplus economies," Capital Economics said in December.

Citi noted that lower oil prices could save China more than 1 percent of GDP on imports, helping boost consumption.

In Japan, cheaper fuel costs will not only benefit large industry, but also help reduce an enormous deficit, triggered in part by soaring fuel imports following the shutdown of its nuclear power plants after the 2011 Fukushima reactor meltdown. (Full Story)

For India, Asia's No.3 economy, lower oil imports will also be a boon. "Growth prospects have improved ... as lower oil prices will allow households and businesses to increase spending and the central bank to loosen monetary policy," research firm PIRA Energy said.

Analysts say oil prices will bottom out and start to rise again - part of the so-called commodity supercycle - once some producers scale back production to adjust to falling prices and major manufacturing centres begin to feel the economic benefits of cheaper energy and again start using more.

source: www.abs-cbnnews.com

'Emerging economies slowing more than expected'

WASHINGTON - The International Monetary Fund warned the Group of 20 Wednesday that emerging economies were slowing more than expected and under pressure from US plans to slow its stimulus.

In a report prepared for the two-day summit of the G20 major economies that opens Thursday in St. Petersburg, Russia, the IMF said that recent indicators pointed to stronger growth in several advanced countries, but key emerging economies have slowed.

Since its July report on global developments and risks, the IMF said, growth projections for emerging economies are being revised downward "with risks still to the downside."

"The impulse to global growth is expected to come mainly from the United States in the near term," the report said.

"Overall, concerns about a prolonged period of sluggish global growth (a plausible downside scenario) remain elevated."

Brazil, China and India were mainly responsible for the loss of some 2.5 percentage points in emerging economy growth since 2010 levels.

Lower commodity prices also have hit the outlook for many commodity exporters.

Tightening global financial conditions, spurred by market conviction that the US Federal Reserve is close to reeling back its stimulus program, have added to the pressure on emerging economies.

Since May, when the Fed began signaling it would taper its $85 billion a month bond-buying program if the US economy continued to improve broadly, investors have pulled out of emerging economies seeking higher returns in the US and elsewhere.

The outflow of capital has driven emerging-market currencies sharply lower, from Brazil to India and Turkey.

"Emerging economies were hardest hit following Fed 'tapering' remarks," the IMF said, adding that external financing pressures remained heightened in Brazil, India, Indonesia, Turkey and South Africa.

Emerging economies' policy responses should be tailored to the specific country and could include "some intervention to smooth current market volatility" in countries with adequate reserves.

"Fed tapering of asset purchases may trigger exchange rate and financial market overshooting in emerging market economies, while they are trying to cope with rising domestic vulnerabilities and slower growth," the report said.

The IMF predicted global growth to strengthen moderately in 2014 from 2013.

But it warned, "downside risks remain and some have become more prominent."

"More policy ambition and cooperation are needed to achieve the G20's shared objectives of strong, sustainable, and balanced growth," the 188-nation IMF said.

A heavy reliance on unconventional monetary policy in the advanced economies, for example, has had "overall positive effects" and has bought time for economies after the 2008 global financial crisis.

But the IMF told G20 leaders that reforms were clearly needed.

"Widespread financial, fiscal, and structural impediments need to be addressed to bolster growth and financial stability."

source: www.abs-cbnnews.com

Selection Of Next WB President, Emerging Economies To Challenge US

MEXICO CITY (Reuters) – Emerging economies said on Sunday that they will challenge a tradition that has placed an American at the head of the World Bank for decades, as the Obama administration shows sensitivity to the need for change at global institutions.

Emerging economies said it was time to break a decades-old tradition that has long shut out candidates from the developing world and kept an American at the head of the World Bank and a European leader at the International Monetary Fund.

On Saturday outgoing World Bank President Robert Zoellick said a solid US candidate to head the World Bank would be good for the United States and the bank because the world's largest economy should be represented in top international bodies.

The World Bank last week launched the nomination process to select a new president to succeed Zoellick when he steps down in June, inviting names from any of its 187 member countries. The Obama administration has said it would open the process to competition. He said, however. He has no role in the selection process.

Zoellick noted however that Americans did not hold top posts at the United Nations, World Trade Organization, regional development banks or International Monetary Fund.

The problem emerging economies face is finding a candidate willing to challenge the United States, which is the largest and most influential shareholder in the World Bank and IMF.

''I am sure the United States will nominate an excellent candidate but it is imperative that the process this time be contestable,'' said Amar Bhattacharya, director of the G24 Secretariat, whose members include major developing and emerging economies.

''There are very strong candidates in the developing world.

It is important, therefore, that emerging and developing countries make every effort to identify suitable candidates from the developing world,'' he added.

Bhattacharya said emerging and developing countries would try to come up with a list of candidates by the deadline for nominees on March 23.

The politically-thorny issue of whether the leadership of the World Bank should be reserved for an American was not formally raised during G20 meetings of finance ministers in Mexico City at the weekend.

But US Treasury Secretary Timothy Geithner privately sounded out ministers from emerging economies on the sidelines on qualities necessary to head the World Bank, but did not say who the US candidate might be, senior G20 official told Reuters.

Addressing a closing news conference on Sunday, Geithner made no direct comment about the World Bank but appeared to send a message that Washington recognized the need for change to reflect the growing economic might of emerging economies.

''The US has played a major role, and has been very supportive, of reforms in the IMF and other international financial institutions to significantly increase the voice and vote of the major emerging economies in those institutions,'' Geithner said.

''That is very much in the interest of the United States, and certainly in the interest of the broader legitimacy and effectiveness of those institutions. We are very committed to making sure those reforms take effect and we can build on those reforms in the future,'' he added.

The question of who should heads the World Bank did not feature prominently at the G20 as expected as ministers focused on Europe's efforts to manage its debt crisis and ensuring that the IMF is properly funded to deal with potential global fallout from Europe's troubles.

Three people most often mentioned as possible US nominees are all American: former US Treasury Secretary Lawrence Summers, U.S Secretary of State Hillary Clinton, and US Ambassador to the UN Susan Rice. The State Department has said Clinton would not be taking the job.

''They can put forward their candidate but rather than it becoming a destructive exercise, it should be a constructive process to that we attempt to build consensus on who the candidate should be,'' South African Finance Minister Pravin Gordhan said.

''It is idealistic but let's give it a shot.''

Groupings such as the BRICS - Brazil, Russia, India, China and South Africa - have struggled to come up with candidates given the long-standing dominance of Europe and the US in the institutions.

Mexico's central bank chief Agustin Carstens, who last year launched an unsuccessful bid against France's Christine Lagarde for the IMF top job, has ruled himself out of the World Bank race. So has Nigeria's Finance Minister and former World Bank Managing Director Ngozi Okonjo-Iweala.

Over the last few years the World Bank has taken steps to enhance emerging markets' power and influence, endorsing a plan in 2010 that gave more voting power to developing countries, making China the third-largest shareholder behind the United States and Japan.

Its chief economist is from China and two of the three managing directors are from emerging markets Egypt and Indonesia.

The World bank is the leading provider of development grants and loans to poorer countries and its president is one of the world's top policymakers.

source: mb.com.ph