IMF sees uncertainty about path of oil prices

IMF chief says a stronger US dollar also poses risks

 Uncertainty over the future path of oil prices could throw a wrinkle into the International Monetary Fund’s predictions for the global economy, its staff said in a note on Friday.

On the one hand, lower oil prices could persist and boost global demand more than it foresaw last month, when the IMF cut its global growth forecast to 3.5 percent for this year.

At the same time, low crude prices could still force firms or governments to cut back on supply, nudging prices higher and faster than expected, the IMF said.

The outlook for petroleum prices, which have decreased more than 50 per cent in the last seven months, is likely to form the backdrop for the ministerial meeting of the Group of 20 major economies in Istanbul next week.

While the United States is one of the few bright spots in the world economy, and the US Federal Reserve plans to start raising interest rates around mid-year, other central banks have launched renewed rounds of monetary stimulus, in part due to fears of deflation from falling oil prices.

In a note prepared for the G20, the IMF cautioned the Fed to not put too much weight on the impact of cheap oil, unless it causes long-term changes to inflation expectations, and instead focus on its primary inflation and employment goals.

But the IMF repeated its warning that divergent monetary policies around the world could still lead to spikes in volatility and sharp capital outflows from emerging markets, especially from oil-exporting countries that have become more vulnerable as crude prices have fallen.

IMF Managing Director Christine Lagarde said a stronger US dollar also raises risks. “Emerging market economies are especially vulnerable because, over the past five years, many of their banks and companies have increased their borrowing in dollars,” she wrote in an accompanying blog post.

The IMF, last month, said the positive boost from low oil prices failed to make up for lower potential growth in major economies, including Japan and the euro zone.

The IMF urged countries to pursue deeper reforms to raise their growth path, including wide-ranging trade agreements. But it warned G20 countries not to let regional agreements like the 12-nation Trans-Pacific Partnership take over the global trade policy agenda and leave some countries out in the cold.

Oil climbs, Brent posts best gain

Oil rallied again on Friday, with benchmark Brent crude having its largest two-week gain in 17 years, as falling oil rig counts and violence in producer Libya helped further stall a selloff that began in June.

Crude prices have risen nearly 20 per cent over the past six sessions, but remain about 50 per cent below their peak from the middle of last year due to worries of a global oil glut.

Brent futures posted a 9 per cent gain on the week, their biggest since 2011, and 19 per cent over two weeks, the largest since 1998. Still, the price rebound has been accompanied by sharp market volatility. US crude oil futures have seen daily price swings of up to 9 per cent as bulls and bears squared off positions on mixed signals about crude supplies.