WASHINGTON, Oct 11 (Reuters) - Below is the text of a statement from OPEC
to the International Monetary Fund's steering committee meeting in Washington
on Saturday:
OPEC would like to assure the distinguished delegates to the IMFC of the Organization's ongoing commitment to oil market stability. This has been reflected in recent efforts to help reduce excessive volatility, which have mainly been caused by factors outside the physical oil market. With the world economy going through one of its most challenging times, broad cooperative efforts on the part of the international community are needed to minimise the adverse impact of financial market turmoil on the world economy.
Since the Spring meeting of the IMFC in April, crude oil prices continued to rise to a record high in July, with benchmark WTI reaching $147/b. Paradoxically, the steady upward trend came at a time when the actual performance and outlook for the global economy were deteriorating leading to significant downward revisions to incremental world oil demand. Since mid-July, oil prices have experienced a sharp reversal, falling more than $59/b to a low of $87/b in mid-October.
The shift to bearish market sentiment has been precipitated by a growing awareness of weakening oil market fundamentals, due to deteriorating economic prospects, an associated decline in oil demand growth and the healthy supply situation primarily from increased OPEC production. Indeed, the price rise seen over the first half of the year was mainly driven by non-fundamental factors including the financial market flows, perceived supply tightness and geopolitical factors.
The emergence of oil as an asset class has exposed the oil market to volatility in the wider financial markets. A prominent example is the impact that US dollar fluctuations have had on crude oil prices. The dollar exchange rate and crude oil prices have shown an unusually strong inverse relationship since August 2007. From the fourth quarter of last year until mid-July 2008, US dollar weakness attracted further investment into commodities, particularly oil, as a hedge against inflation and dollar devaluation.
Perceptions of tightness, mainly promoted by investment bank reports predicting ever higher oil prices, added to supply fears in the market.
With the easing in market fundamentals, it has become increasingly difficult for financial players to convince the market that supply is tight and will lead to a price spike. As the supply shortfall perceptions have turned out to be illusive and unjustified, and the US dollar found strength, prices have corrected to the downside.
Geopolitical factors are a constant feature in the oil market and influence crude oil prices with varying magnitudes. Similar to weatherrelated disruptions, geopolitical developments tend to have a short-term influence on prices and their effects do not persist unless they have a significant and lasting impact on supply and/or demand. The degree to which geopolitical shocks influence prices also depends on prevailing market conditions. When the market is in a tight balance, geopolitical factors can place strong upward pressure on prices but will have less of an impact in a bearish market. This can be seen in the market's mild reaction to recent geopolitical events.
Recently, hurricane-related disruptions have temporarily reduced crude and product output in the US and, as a consequence, have slowed the downward price movement. However, the overall bearish sentiment in the market is expected to persist, particularly since there seems to be no quick end to the current financial market crisis or the worsening economic outlook. The outlook for the world economy has continued to deteriorate in the last few months as more evidence of a global slowdown emerged and continued turbulence in equity and credit markets reflected a persistent lack of confidence. The economic slowdown has now spread beyond the US to Europe and Japan with contagion risks to other regions. The US financial sector crisis has continued to spread to other parts of the world and poses the main risk to the global outlook, as was witnessed recently by the government takeover of the two giant US mortgage lenders, the radical change in the landscape for investment banks and the enormous bailout plan for financial firms. The housing sector downturn is still to reach bottom as seen from the continued fall in sales and prices. Looking ahead, the housing sector and tighter credit are expected to remain a drag on the US economy in the coming quarters. Data in the Euro-zone and Japan also point to stagnating economic activity, as consumers and businesses retrench amidst falling confidence and exports.
Growth in the emerging markets is decelerating from the very high levels seen in the past years as lower exports and potential fallout from the financial crisis begins to impact growth in the coming quarters. The risks from the financial market crisis are quite significant. Stock markets in the emerging economise have fallen sharply, creating negative wealth effects and undermining confidence. Significant risks from banking and credit market difficulties in the emerging and developing countries could curtail investment, consumer demand and consequently economic growth. The problems in the banking and credit markets in the US and Europe may also impact the availability of international credit and result in a slowdown in foreign direct investment. While there is evidence of a partial 'recoupling,' the severity of the impact will largely depend on the internal dynamics of consumption and investment in the developing economies. However, the recent deepening and widening of the financial crisis may take a greater toll on growth this year and in 2009.
tf.TFN-Europe_newsdesk@thomson.com ak COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
OPEC would like to assure the distinguished delegates to the IMFC of the Organization's ongoing commitment to oil market stability. This has been reflected in recent efforts to help reduce excessive volatility, which have mainly been caused by factors outside the physical oil market. With the world economy going through one of its most challenging times, broad cooperative efforts on the part of the international community are needed to minimise the adverse impact of financial market turmoil on the world economy.
Since the Spring meeting of the IMFC in April, crude oil prices continued to rise to a record high in July, with benchmark WTI reaching $147/b. Paradoxically, the steady upward trend came at a time when the actual performance and outlook for the global economy were deteriorating leading to significant downward revisions to incremental world oil demand. Since mid-July, oil prices have experienced a sharp reversal, falling more than $59/b to a low of $87/b in mid-October.
The shift to bearish market sentiment has been precipitated by a growing awareness of weakening oil market fundamentals, due to deteriorating economic prospects, an associated decline in oil demand growth and the healthy supply situation primarily from increased OPEC production. Indeed, the price rise seen over the first half of the year was mainly driven by non-fundamental factors including the financial market flows, perceived supply tightness and geopolitical factors.
The emergence of oil as an asset class has exposed the oil market to volatility in the wider financial markets. A prominent example is the impact that US dollar fluctuations have had on crude oil prices. The dollar exchange rate and crude oil prices have shown an unusually strong inverse relationship since August 2007. From the fourth quarter of last year until mid-July 2008, US dollar weakness attracted further investment into commodities, particularly oil, as a hedge against inflation and dollar devaluation.
Perceptions of tightness, mainly promoted by investment bank reports predicting ever higher oil prices, added to supply fears in the market.
With the easing in market fundamentals, it has become increasingly difficult for financial players to convince the market that supply is tight and will lead to a price spike. As the supply shortfall perceptions have turned out to be illusive and unjustified, and the US dollar found strength, prices have corrected to the downside.
Geopolitical factors are a constant feature in the oil market and influence crude oil prices with varying magnitudes. Similar to weatherrelated disruptions, geopolitical developments tend to have a short-term influence on prices and their effects do not persist unless they have a significant and lasting impact on supply and/or demand. The degree to which geopolitical shocks influence prices also depends on prevailing market conditions. When the market is in a tight balance, geopolitical factors can place strong upward pressure on prices but will have less of an impact in a bearish market. This can be seen in the market's mild reaction to recent geopolitical events.
Recently, hurricane-related disruptions have temporarily reduced crude and product output in the US and, as a consequence, have slowed the downward price movement. However, the overall bearish sentiment in the market is expected to persist, particularly since there seems to be no quick end to the current financial market crisis or the worsening economic outlook. The outlook for the world economy has continued to deteriorate in the last few months as more evidence of a global slowdown emerged and continued turbulence in equity and credit markets reflected a persistent lack of confidence. The economic slowdown has now spread beyond the US to Europe and Japan with contagion risks to other regions. The US financial sector crisis has continued to spread to other parts of the world and poses the main risk to the global outlook, as was witnessed recently by the government takeover of the two giant US mortgage lenders, the radical change in the landscape for investment banks and the enormous bailout plan for financial firms. The housing sector downturn is still to reach bottom as seen from the continued fall in sales and prices. Looking ahead, the housing sector and tighter credit are expected to remain a drag on the US economy in the coming quarters. Data in the Euro-zone and Japan also point to stagnating economic activity, as consumers and businesses retrench amidst falling confidence and exports.
Growth in the emerging markets is decelerating from the very high levels seen in the past years as lower exports and potential fallout from the financial crisis begins to impact growth in the coming quarters. The risks from the financial market crisis are quite significant. Stock markets in the emerging economise have fallen sharply, creating negative wealth effects and undermining confidence. Significant risks from banking and credit market difficulties in the emerging and developing countries could curtail investment, consumer demand and consequently economic growth. The problems in the banking and credit markets in the US and Europe may also impact the availability of international credit and result in a slowdown in foreign direct investment. While there is evidence of a partial 'recoupling,' the severity of the impact will largely depend on the internal dynamics of consumption and investment in the developing economies. However, the recent deepening and widening of the financial crisis may take a greater toll on growth this year and in 2009.
tf.TFN-Europe_newsdesk@thomson.com ak COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.