x Abu Dhabi, UAEThursday 18 January 2018

Oil prices set to dominate Davos

Rising prices of vital commodities like oil and food will be a focus for delegates at the World Economic Forum annual meeting in Davos this week.

The Davos forum will focus on the shift in the global balance of power.
The Davos forum will focus on the shift in the global balance of power.

Surging oil prices are likely to come under scrutiny at the World Economic Forum in Davos this week as politicians and business leaders gather at the Swiss ski resort to discuss the fallout of a commodities boom.

An increase in crude prices has led to progressively more upbeat outlooks for GCC economies in recent months. For consumer countries, however, the surge could pose risks for the sustainability of economic expansion, say economists.

"It's a concern for oil consumers," said Dr Giyas Gokkent, the chief economist for National Bank of Abu Dhabi. "And from a producer's point of view you've got to strike a balance as you don't want to kill the goose that laid the golden egg."

Prices of European Brent have sailed close to US$100 a barrel recently, prompting some analysts to raise their forecasts for the year ahead. Brent crude on London's ICE Futures exchange rose to $98.11 yesterday.

Participants at forum's annual meeting, which opens tomorrow, will be keen to discuss the commodity's future prospects.

Big names such as Khalid al Falih, the president and chief executive of Saudi Aramco, and energy ministers from the Gulf will be among regional oil players rubbing shoulders with officials from the principal consuming nations such as China.

Oil's price rise comes against a backdrop of rising price pressures in other commodities such as food.

Unlike oil, increases in basic staples have economic concerns for the Gulf, a region that imports about 85 per cent of its requirements. Global food prices rose to a record high last month, the latest data from the UN Food and Agriculture Organisation shows.

Recent floods in producers such as Australia, Brazil and India have already contributed to pushing up prices for consumers in UAE shops, traders say.

People across much of the Arab world from Tunisia to Yemen have also taken to the streets to protest against soaring food bills.

"Food price inflation and food security is a growing concern for the region because of structural price pressure from China," said Jarmo Kotilaine, the chief economist of NCB in Saudi Arabia.

Globally, a focus of the 2,500 people attending the five-day event in Davos are likely to be on a gradual shifting of the balance of power from the developed world to emerging markets. Nimble economies such as China, India and Brazil are outflanking a more sluggish US and Europe.

Talk may surround how to build a financial architecture better at reflecting a changing global economy. France and India have both proposed reforming the international monetary system.

Debate over the US dollar's status as a reserve currency intensified after a year of volatility in currencies. Any change would have implications for the GCC, with five of the six regional states linking their currencies to the dollar.

"Discussions will be about the role of the US and China," said John Sfakianakis, the chief economist of Banque Saudi Fransi. "But the dollar is here to stay as the currency reserve; there are no viable alternatives."

Sovereign debt problems in Greece dominated the headlines during Davos last year. This year Portugal is likely to be the focus of worries about the EU. But despite continuing woes in the euro zone, some economists anticipate a more optimistic feel to meetings in the mountain resort this year.

"Attendants will be keen to move away from the crisis conditions and introspection of the last two years and be more expansive about the opportunities that lie ahead," said Tim Fox, the chief economist of Emirates NBD.