G-20 meetings end under the shadow of oil prices

GÜNEŞ KÖMÜRCÜLER

Finance ministers and central bankers of the Group of 20 countries (G-20) covered a number of global issues over the last three days in Istanbul. The G-20 leaders tried to find joint solutions to the economic slowdown in many advanced economies, mainly in the eurozone and Japan, under the pressure of low inflation rates. The only good news - and at the same time the most challenging issue for them - was the robust recovery in the U.S. economy.

In the G-20 meetings, which ended yesterday, the hottest topic appeared to be the oil slump. In just three days, we saw significant developments that have directly affected the already-fluctuating oil prices.

Unavoidably, the oil prices shock was at the center of the discussions, and even the most influential world leaders can’t predict what will happen next in the global oil market.

The plunge in oil prices has been giving world leaders reason to reassess their fiscal and even monetary policies for a while. Before digging into the topic, let’s quickly recap what we have observed in oil prices since the beginning of the week.

We have seen varying predictions about the global oil supply and demand, which will directly affect prices.

OPEC estimated on Feb. 9 that demand for the organization’s oil will average 29.21 million barrels per day (bpd) in 2015, up 430,000 bpd from its previous forecast. The group also slashed its outlook for crude supply growth in non-OPEC countries.

Then, Citibank on the same day cut its crude price forecasts, saying West Texas Intermediate (WTI) could drop to as low as the $20 per barrel range before recovering to reach a new equilibrium. The oil market should bottom out between the end of the first quarter and the beginning of the second quarter this year, Citibank added.

Presenting its latest Medium Term Oil Market report, the International Energy Agency (IEA) said yesterday that it expects oil prices to increase moderately. But it also warned that previous highs would not nearly be reached in the coming years.

IEA officials said oil prices were bound to recover at a fast pace, but the agency’s medium term Oil Market report hastened to add that big leaps should not be expected. It said the U.S. would remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices. And Russia, which has already faced international sanctions and currency depreciation, will likely emerge as the industry’s top loser, said the IEA report.

There are opposing ideas about the future of oil prices. Some analysts expect prices to decrease even to $20, although others expect it to increase up to $100 over the next year.

Which countries will be winners and losers in this period is more or less predictable, as the latest IEA report has made clear. However, there are unpredictable countries in this fluctuating environment. Unfortunately, current G-20 head Turkey is one of them.

“The sharp decline in oil prices reflecting both supply and demand factors will provide some boost to global growth but with varying implications across economies,” the G-20 said in its draft communique.
“The decline will increase the purchasing power of oil-importing economies,” it also stated.

Falling oil prices may be good for Turkey’s public finances, but the country’s economy is very sensitive to changes in external financing conditions, as we have all observed with the historic lows in the Turkish Lira. What’s more, the country’s citizens continue to use one of the most expensive gasolines in the world.

So, another column ends by emphasizing the strong need for Turkey to make structural reforms, apart from just focusing on boosting domestic demand.