The scenario of even lower prices in 2016 than in 2015 may further benefit European households, but adds to risks tied to political and financial instability in the producer countries. The decisive second round of the French regional elections will test the ability of the doubleround electoral system to contain the populist drift…….
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If proof was needed of the deep crisis being experienced by the old cartel of oil producer countries, the surreal statement released following the OPEC meeting of 4 December could be just that. After observing that “since its last meeting in June, oil and product stock levels in the OECD have continued to rise”, and that inventories remain “well above the five-year average”, the ministers emphasised their “commitment to ensuring a long-term stable and balanced oil market”, agreeing that they “should continue to closely monitor developments in the coming months”. Period. No signal that the members are any closer to agreeing on cutting output and curbing excess supply on the market by doing so. As things stand, and in the uncertainty of which Saudi Arabia’s ultimate motives are, the prospect of a rebalancing of the market rests solely on the recovery of demand (estimated at 1.3 million barrels per day in 2016) and on the decline of non-OPEC supply (-0.39 million b/d). However, according to OPEC’s own analysis even so demand addressed to the cartel would amount to 30.8 mb/d, 900k b/d less than currently produced (31.7 mb/d).
The price drop which followed the OPEC meeting also involved term markets. Futures on the Brent are rather flat, and only price in an increase to 47.6 dollars by December 2016, after an opening quarter which is more or less stable at levels even lower than spot prices. Even assuming a stronger recovery in quotations in the second half of the year, the average for 2016 is forecast to be lower compared to our September estimates by 10-15%, and will probably be below the 2015 average of USD 53.5 as well. Therefore, positive effects of the additional purchasing power afforded to households will continue to be felt next year as well.
However, they will not be large: we estimate around 0.1% of disposable income in Italy, after savings of 0.6% on overall energy spending in 2015 (including electricity and gas). Savings should be slightly higher in France (0.1-0.2%) and Germany (0.2%). However, benefits will be offset by an increase in the portion of the final cost accounted for by fuel taxes, and by the past reduction of the share of overall spending allocated to energy. On the other hand, the extension of the low-price phase may amplify the negative effects tied to the heightening of the risk of financial and political instability in producer countries, and to the drop in exports to these countries. According to the IMF database, in 2Q 2015 exports to fuel-exporter countries had already decline in global terms by 17% y/y, with even worse results for Spain (-27%), Italy (-23%), Germany (-22%) and France (-19%). Of Italian exports, about 6% are addressed to OPEC countries.
The victory of the Front National (FN) in the first round of the regional elections in France confirmed the critical phase the political scenario is currently experiencing, as the barycenter of the electorate shifted heavily to the right (as is normal in times of strong migratory flows and terrorist threats) and, most importantly, there is now the prospect that a party which opposes many aspects of European integration may seriously compete to win a majority of seats in the national Parliament. However, France’s case may even offer tangible proof that a well-designed electoral system is equipped to prevent the moderate majority from falling hostage to extremists. At Sunday’s decisive second round vote, the FN will have to claim a number of votes well in excess of its normal electoral base to win. The latest polls indicate that if the socialists pull out from the race in selected regions, the FN may lose to the centre-right even in regions, such as Provence or Nord-Pas-de-Calais-Picardie, where it won 40% of the vote in the first round. In other 10 regions, however, a more complicated three-way ballot is on the cards (FN, the centre-right represented by Les Républicains-UDI-MoDem, and the left represented by PS-PRG-EELV), and in one region (Corsica) four competitors will run. The lesson will also be important for other countries, such as Italy.
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