Leadership (Abuja)
Kunle Somorin
8 January 2008
(Page 2 of 2)
Some currencies stand to benefit significantly from rising oil prices while others suffer greatly. Traditionally we know that commodity currencies rally when energy prices increase because those currencies are from countries that tend to be net exporters of commodities such as crude oil. Therefore the oil producers within the country are simply reaping higher profits for the same barrel of oil. Currencies of countries that are net oil importers on the other hand face increasingly higher costs whenever energy prices rise. So taking a look at this from a net oil exporter / importer perspective, the currency pair that should be impacted the most by changes in energy prices is the Canadian Dollar and the Japanese Yen. Canada is the world's ninth largest crude oil producer, while Japan imports 99% of its oil.
Paradox 7: OPEC
In International Economic Relations, a Cartel is a group of sellers who work together to set prices and outputs; they therefore exercise a monopoly control on the markets for their products. Established in 1962 with headquarters in Geneva, OPEC is presently the most important and most successful cartel in the world, because there seems to be no immediate substitute for oil. The agreements of OPEC on production, competition allocation of markets to forestall price war would come under fierce politicking by the consumer nations, especially the US and ECC. This hike may widen division within the cartel and amplify the intensification of the powerful consumer countries to deepening crisis of confidence by member nations of OPEC. Such politics accounts for Gabon's to withdraw from OPEC; and even though they are oil producing countries, Norway, Britain, Russia and Mexico have distanced themselves from OPEC. OPEC oil cartel, which decided against raising production levels in December, may consider lifting output in February amid stronger-than-expected winter demand.
Julian Jessop, chief international economist at Capital Economics, said: "For now the cartel's view is that underlying supply and demand conditions are nowhere near as tight as record oil prices would suggest. But if oil prices are still around 100 dollars a barrel in the run-up to the next OPEC meeting on February 1, we would expect quotas to be raised again."
Some OPEC member are currently being tempted to boost production to bring the prices down, many analysts think that high prices will themselves do the trick by cutting down the demands.
"It is unlikely the cartel will decide to increase output quotas ahead of the normally low-demand second quarter", said Addison Armstrong, director of exchange traded markets at TFS Energy Futures in Stamford Connecticut. He added that research has shown that "furthermore, the US economy is slowing, the result of which is likely to be lower demand for oil".
Paradox 8: Poor Gets Poorer
For poor nations that don't produce oil, the past several years have been a full-blown oil shock. The price rise adds another obstacle to providing modern energy to the estimated 1.6 billion people who have no access to electricity and the 2.4 billion who cook with traditional sources like wood, coal or dung. A recent World Bank study concluded that a sustained $10 increase in the price of a barrel of oil translates roughly into a 1.5 percent knock to the gross domestic product of the world's poorest countries.
Few places have been harder hit than Malawi, a small southern Africa country with annual per capita gross domestic product of just $179. According to the World Bank report, a $10 oil-price increase is expected to translate into a 2.2 percent fall in the GDP of Malawi, where tobacco is the dominant cash drop.
"When gasoline goes up, everything goes up, so we really have to struggle to earn a living," said James Mdachi, 43 years old, an assistant accountant for the government. He and his wife, a teacher, bring in about $200 a month, to support three children and five other dependents. A world away, U.S. industry has so far managed to take the oil surge in stride, although economists fret that this may not last long. Automakers, for instance, may have even more reason to fear high oil prices today than they did in the late 1970s, when price shocks and gas lines tipped Detroit's auto giants into crisis. Then and now, surging petroleum prices caught U.S. automakers with model lineups full of powerful rear-wheel-drive vehicles designed for an era of cheap gas.
Paradox 9: Inflation
There are concerns that the high price of crude oil will stoke inflation. Coming at a time when most Central Banks are adopting and enforcing measure at cutting down interest rates in order to simulate economic growth, it is rather unfortunate. Already, the US shares had been hit, just as in the European Economic Community, EEC, which is reputed to have the best stock exchanges in the globe. Their manufacturing sectors are also feeling the impact of the rising oil prices. The manufacturing sectors started contracting. They fell with Dow Jones trading 215.1 or 1.6 percent, lower at 13,049.73, even as analysts downplay the relevance of the $100 mark. According to Tim Evans of the Citigroup Futures Research in the US: "The entire focus on $100 oil is frivolous. It is not a magic number. It doesn't suddenly make this a fundamentally strong market"
Paradox 10: Middle East
Oil's run-up is bringing the most startling changes of all to the Middle East. Big producers like Saudi Arabia and the United Arab Emirates are using their billions in profits to build their economies with roads, schools, airports and entire new cities. The value of hydrocarbon exports from the Middle East and Central Asia is expected to approach $750 billion this year, almost four times the level in 2001, according to the International Monetary Fund.
Paradox 11: External Debt
In spite of the rising prices of oil, Nigeria's economic mainstay, the debt profile of Nigeria is increasing. The Federal Executive Council released a data of $3.3 billion at it December 18 meeting. The debt stock keep ballooning. According to Finance Minsiter, Shamusideen Usman they were consumed by "targeted developmental projects'. The government has instead of focusing on the oil and gas; power and railways- area of strategic development relevance, predicate the development of these sectors on availability of soft loans. Excess crude oil revenue prior to $100pbd stood at N1. 5 trillion, yet in far away Saudi Arabia, Minister of Energy (petroleum) was busy soliciting for $3.8 billion to finance oil and gas projects. It seems that season of oil boom always provide opportunities for Nigerian leaders to seek new loans.
Paradox 12: Hustling for Oil Till
The rising oil revenue for Nigeria seems to provide an impetus for pro-activism for State Governors to seek better terms of sharing the accrued funds. Since they are also the costudians of local government fund and are responsible for the mounting new debt at $2billion against Federal Government $1.3 billion, it remains to be seen why they would not converge soon in Abuja to discuss how to share the windfall. A newspaper editorial enjoined the government on the recourse to fresh borrowing would lead to productive enterprise adding that: "state Governments and their Federal counterpart are continually bickering could best be utilized in remediation of our infrastructural deficit"
Be the first to Write a Comment!
Copyright © 2008 Leadership. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
