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How OPEC lost its mojo Add to ...

How OPEC lost its mojo
As the 12 members of OPEC meet in Vienna, you’ve got to ask this question: How much do they matter any more.

At their semi-annual meeting today, the oil ministers agreed to hold their production quota at 30 million barrels a day. They meet again Dec. 4.

While OPEC still accounts for some 40 per cent of global crude, its influence is waning.

“The bigger picture is that the cartel now ranks no higher than a distant fourth in the list of factors determining global oil prices," said global chief economist Julian Jessop at Capital Economics in London.

Here are the three main factors, according to the London-based economist:

  • The global economic and financial pressures on oil demand.
  • The increase in the supply of oil from non-OPEC regions.
  • What Saudi Arabia wants: “The key Gulf producer can act independently of the rest of OPEC if required – and often does. But as it stands, Saudi officials are probably comfortable with current global oil prices of around $100 per barrel, particularly given the fragility of demand and the strength of the dollar.”

Further out, Mr. Jessop said, OPEC will probably cut the output quota amid soft demand and plentiful supplies from the non-OPEC countries.

Remember that a  year ago, OPEC considered the U.S. shale oil boom little more than a thorn in its side.

No longer.

Just this month, the International Energy Agency cited a “supply shock” from North American crude production, noting the surge in the United States and the output from Canada’s oil sands.

“Following several years of stronger-than-expected North American supply growth, the shock waves of rising United States (U.S.) shale gas and light tight oil (LTO) and Canadian oil sands production are reaching virtually all recesses of the global oil market,” the group said.

Also an issue is a plan by Iraq to start output at two key fields at some point soon, as outlined yesterday by the country’s oil minister, Abdul Kareem al-Luaibi.

“There are plenty of tensions between the relatively wealthy OPEC members in the Middle East and the poorer producers in Africa and Latin America,” Mr. Jessop said.

“And even within the Gulf, there are three-way disputes (and, of course, broader geo-political conflicts) between Saudi Arabia, Iran and Iraq,” adding the group could not agree on a new leader because of that.

“The real business of this meeting will therefore be an attempt to ease these tensions,” Mr. Jessop said.

“This might result in some form of deal to manage the growth of Iraqi supply, perhaps in return for Saudi endorsement of Iraq’s candidate for secretary-general. Any such sign of improved co-operation might be spun by some as positive for oil prices. But OPEC is simply not as important as it used to be.”

It has been at least a decade since OPEC has had control over oil prices.

"The last extended period when OPEC's policies were the main determinant of prices was 2000-2003, when the cartel successfully kept prices within a target range of $22-28 per barrel," Mr. Jessop said.

He projects that Brent crude will slip below $100 (U.S.) a barrel over the next months “almost regardless of the actions of OPEC.”

Economy perks up
Canada’s economy rebounded in the first quarter of the year, buoyed by a much stronger oil export showing.

Gross domestic product expanded at an annual pace of 2.5 per cent, Statistics Canada said today, a far better showing than the tepid 0.9 per cent of the fourth quarter of last year, which was revised up.

That sets the stage for a solid, if muted, showing for the year, The Globe and Mail’s Richard Blackwell reports.

"While Canada’s economy packed on a few more pounds than expected in Q1, it’s still stuck in slim-growth mode," said chief economist Douglas Porter of BMO Nesbitt Burns. "We don’t expect a break-out in Q2, but a firming U.S. consumer/housing backdrop points to slighter healthier gains later this year and into 2014."

Carney bids farewell
He’s been called everything from a rock star to the “Wayne Gretzky of central banking,” and today is his last day on the job.

Mark Carney leaves as governor of the Bank of Canada with a sterling reputation, having guided the country through the financial crisis and Great Recession.

As Mr. Carney heads to the Bank of England, he may well have been the best central bank chief Canada has known, though the comparisons to those who came before may not be entirely fair given that his predecessors weren’t tested in the same way.

But consider that while many regions of the world plunged into depths not seen since the Depression of the 1930s, Canada’s slump was actually milder than the recessions of the early 1990s and early 1980s.

Unemployment never reached the heights, nor economic contractions the depths, of those earlier downturns as Mr. Carney slashed interest rates to emergency-era lows and took steps that were outside the box.

He also played a leading role in global bank supervision.

“There is no doubting that he is a polished communicator, has catapulted Canada to the forefront of global discussions on capital adequacy and experimentation in monetary policy, and to boot he’s a heck of an affable guy,” said Derek Holt of Bank of Nova Scotia, though he gives Mr. Carney a B+ and ‘incomplete’ for his time at the central bank.

Mr. Carney cut short what was to have been a seven-year term after being stalked by the British government, and time will tell as to his legacy, Mr. Holt said.

“In all, Carney has served his country well, and we wish him the best as he assumes a very different role at the BoE,” he added.

“In our minds, however, the jury is out insofar as history’s full ability to judge Carney’s five-year term in office.”

A look at Mr. Carney, his legacy, past governors and the incoming chief:

Waugh sets retirement date
Rick Waugh is retiring as chief executive officer of Bank of Nova Scotia as Canada’s financial services industry continues to usher in a new generation.

Mr. Waugh will retire from the post on Nov. 1, after 10 years at the helm of the bank, though will remain a director, and take on the deputy chairmanship, until Jan. 31 of next year.

Mr. Waugh will be succeeded by Brian Porter, who late last year became president in a signal of the shift.

As The Globe and Mail’s Tim Kiladze has reported, there’s a changing of the guard under way in the sector.

Julie Dickson, who heads the Office of the Superintendent of Financial Institutions, will leave when her term expires next summer.

Canada Mortgage and Housing Corp. also has a new chair.

Unemployent at crippling levels
Unemployment continues to hobble Europe, where almost 27 million people can’t find work.

The jobless rate in the 27-member European Union held steady in April at 11 per cent, but in the smaller euro zone inched up to 12.2 per cent.

In the 17-member monetary union, more than 19 million people are without jobs, the Eurostat agency said today.

The most troubled nations of Greece, Spain and Portugal are crippled by the region’s highest jobless levels, at 27 per cent, 26.8 per cent and 17.8 per cent, respectively.

The lowest rates of unemployment are in Austria, Germany and Luxembourg, at 4.9 per cent, 5.4 per cent and 5.6 per cent.

“The overall euro zone unemployment numbers are nothing short of dire,” said senior market strategist Brenda Kelly of IG in London.

Particularly troubling, of course, is the fear of a “lost generation” as more than 5.5 million young people in the EU struggle to find jobs.

Youth unemployment is now running at 23.5 per cent in the EU and 24.4 per cent in the euro zone.

Those overall numbers mask the severe pain in Greece, Spain, Portugal and Italy, where youth unemployment stands at a stunning 62.5 per cent, 56.4 per cent, 42.5 per cent and 40.5 per cent.

Inflation, on the other hand, remains tame in the region, though up in May from April, now estimated at 1.4 per cent by Eurostat.

Japan deflation eases
It’s going to take some time yet to determine the success of Abenomics, but Japan is edging ever closer to slaying the beast that is deflation.

Consumer prices fell 0.7 per cent in April from a year earlier, compared to the annual pace of 0.9 per cent in March, according to official data today.

Core prices, which don’t include fresh food, slipped 0.4 per cent, compared to 0.5 per cent.

On a month-over-month basis, both overall and core prices increased by 0.3 per cent.

And, Reuters reports, Apple Inc. today boosted prices of iPads. Other manufacturers have hiked prices as well recently.

“Things are looking slightly better in Japan, where there were more signs of Abenomics at work overnight,” said senior economist Jennifer Lee of BMO Nesbitt Burns, referring to the aggressive economic program of Prime Minister Shinzo Abe, which includes a new team at the Bank of Japan.

“Progress to the 2-per-cent inflation target is slow (it has only been two months that the BoJ has introduced massive stimulus) but there is a two-year time frame,” she added.

At the same time, industrial production picked up by 1.7 per cent last month, though consumer spending slipped on a monthly basis and unemployment was unchanged at 4.1 per cent.

What not to say to clients
Advisor.ca columnist Bryce Sanders today offers 10 things you shouldn’t say lest you do “serious damage to the client-adviser relationship.” Come to think of it, you shouldn’t say them to your boss, either:

1. That’s why you pay me the big bucks.

2. It’s guaranteed.

3. You pay nothing.

4. I don’t know why this happened.

5. Don’t you trust me?

6. I only work with people I like.

7. I’m not in it for the money.

8. It’s my way or the highway.

9. I never said that.

10. I don’t work for free.

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