Roundtable: High oil prices threaten economic recovery

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 19 -- Energy officials attending the 4th Asian Ministerial Energy Roundtable in Kuwait have heard from leading Middle Eastern oil ministers that higher oil prices could threaten the world’s economic recovery.

“The recovery remains patchy. In many countries, unemployment remains at unacceptable levels,” Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali I. al-Naimi told the conference.

Kuwait Oil Minister Sheikh Ahmad Al-Abdullah Al-Sabah said, “At these high price levels, spending on oil imports could represent a significant economic burden for many import-dependent countries.”

UAE Energy Minister Mohammed bin Dhaen Al-Hamli said oil priced at $120/bbl “does not interest us in the short term if it undermines long-term economic growth and leads to a collapse in demand and prices in future years.”

The statements reflect a concern among members of the Organization of Petroleum Exporting Countries that increased oil prices could lead to demand destruction and loss of markets to other players or forms of energy.

OPEC members also are concerned about having to shoulder the blame for the increased burden of higher oil prices on the world’s economic recovery as well as on the ability of emerging economies to compete. 

The impact of higher prices was outlined by John Sfakianakis, chief economist at the Riyadh-based Banque Saudi Fransi. He said, “If oil prices surge further, they could threaten recovery of the global economy, which is already complicated and difficult due to a variety of risks.”

Sfakianakis said, “The ratio of oil expenses to global GDP above 4% (current global levels) has historically been a sign of economic hardship.”

The Philippines’s Energy Sec. Jay Layug underlined the concerns of his country regarding higher prices, exhorting members of OPEC, the International Energy Forum, and the International Energy Agency to help countries like the Philippines that had been adversely impacted by the soaring world oil prices.

“While there is so much optimism in the new Aquino administration, we do not wish for the oil price volatility to affect the potential of the country to meet its aspirational economic targets,” Layug said. “We now appeal to IEF, OPEC, and IEA: Please help us and help oil consumers in the world.”

OPEC Sec. Gen. Abdalla El-Badri said there is little that members can do to relieve prices that are buoyed more by speculation than by fundamentals of supply and demand.

“The rise in oil prices during the past weeks [was] mainly due to apprehensions about the global economy,” El Badri said, adding that as a result of those concerns, speculators had added a $15-20/bbl risk premium to the price of crude.

“The fact that OPEC has not revised its quotas reflects a conviction that the current demand-supply balance is close to correct,” said Jarmo T. Kotilaine, chief economist at Saudi Arabia’s National Commercial Bank, adding, “There is little in the current environment to give OPEC a compelling reason to significantly loosen its policy.”

Contact Eric Watkins at hippalus@yahoo.com.



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