In the world of global finance nothing is ever 100 percent certain and what seems like a sure thing today can turn out to be quite different from what was expected.
For months now, global analysts have been waiting for the Federal Reserve Bank to raise the interest rate above the zero position it has held since 2007. Predictions of at least a quarter percent hike float around before each scheduled FOMC policy meeting but pointing to uncertainly in Asia and continued positive U.S. unemployment rates, the Fed has stood firm until now.
The Fed hold-off continues to effect other bank decisions. The European Central Bank (ECB) decided not to boost monetary stimulus further until the Fed makes a move and is betting on the likelihood of a December Fed hike before following suit.
Central banks across the globe need to back up their expectations with alternative plans.
To offset slow European exports, the ECB has already lowered the euro-dollar exchange rate as a weaker currency acts as an economic stimulus. But according to some economists, the ECB will probably wait until 2016 before introducing additional easing programs such as cutting the already negative deposit rate which is what the ECB charges banks to leave money with it, as well as an expansion of its existing 1 trillion euro ($1.1 trillion) asset purchase program.
Although prospects of a December rate hike seem to be gaining speed, the final decision should not be taken for granted and central banks across the globe need to back up their expectations with alternative plans.
Oil to reach $80 by 2020?
Another area of global concern is the price of oil. In a surprise prediction, the latest report from International Energy Agency (IEA) forecast that the oil market would rebalance at $80 a barrel (bbl) in 2020, "with further increases in price thereafter."
In its latest World Energy Outlook, the IEA forecast that demand for the black gold would pick up slowly adding an average of 900,000 barrels a day per year until 2020 and increasing to 103.5 million barrels per day by 2040. This compares with 94.5 million barrels per day currently.
The IEA forecast is based on several factors: Iraq production growth would slow down due to geopolitical turmoil, growth in Brazil, Canada and Russia would be weaker, the U.S., European Union and Japan would see their oil demand drop by around 10 million barrels a day by 2040.
The predictions take into account a cut back in production by U.S. producers while major oil producers, such as OPEC ,the Organization of Petroleum-Exporting Countries,
maintain their policy of not cutting back on their current production levels.
However, the IEA is not ruling out the possibility of oil prices remaining close to $50/bbl until the end of 2020 before rising gradually back to $85/bbl in 2040. For this to happen there would have to be ”lower near-term growth in the global economy; a more stable Middle East and a lasting switch in OPEC production strategy in favor of securing a higher share of the oil market (as well as a price that defends the position of oil in the global energy mix); and more resilient non-OPEC supply, notably from U.S. tight oil."
Add to the mix the strength of clean energy as a factor in the shift in oil demand. According to oil mavens two-thirds of new power plants will be for renewable energy and that additional signals from the energy sector will put pressure on global oil production.