We Are Entering a New Era of Fossil Fuels‏

A neat article in the Pacific Standard: Rapidly advancing technologies are opening up astonishing sources of oil and gas all over the world. We are entering a new era of fossil fuels that is reshaping global economics and politics—and the planet...

Commodities on the Rise

Dambisa Moyo: The economic fundamentals of supply and demand remain the key factors in driving the direction of commodity prices and determining whether the commodity super-cycle will persist. In practical terms, this means that oil prices, for example, are more likely to hover near $120 per barrel over the next decade, rather than $50; and we are unlikely to see a $20 barrel of oil ever again...

Commodity booms, busts and bubbles

The Financial Times has a summary of the IMF-OxCarre conference on International Commodity Price Fluctuations that took place at the IMF last week: Commodity markets are prone to bubbles, but like the ones in bathtubs, they don’t last...

The papers presented at the conference can be downloaded here.

From this week's Economist

• Africa and China: More than minerals
• Gazprom: Russia’s wounded giant

Managing Oil Wealth in Brazil

World Bank blog: 

Mr. Fajnzylber: The study showed that it would be optimal for Brazil to save a significant share of the oil windfall, not only with the objective of reducing the volatility of the economy around oil-price fluctuations, but also to help ensure inter-generational equity, fund pro-diversification investments, help smooth the consumption of poor households during economic downturns, and prevent sudden exchange appreciations in the short run. The project also showed that the oil windfall creates an additional motivation for redoubling efforts to improve public investment management and ensuring that oil-financed social expenditures are as progressive as Brazil’s social programs.

The Trade Post: What kind of resistance are you getting to this type of reform, and how do you try to overcome it?

Mr. Fajnzylber: There is a natural tendency for Brazil to increase public and private consumption and indebtedness ahead of the expected rise in national wealth associated with the new oil discoveries. If, however, the newly generated wealth were to be smaller than anticipated, the country would have to go through a potentially painful adjustment in consumption. To minimize this risk, we recommend that policies be based on the most conservative projections for oil production growth. Similarly, if at least part of the windfall is to be used to finance public or private investments, there may be trade-offs between the quality of those investments and the speed at which they can be implemented. In other words, the project showed that it may be optimal for Brazil to pace the exploitation of the new oil reserves with a view to maximize their potential transformative impact.

Saudi Arabia and the Oil Market

Forthcoming in Economic Journal: In this paper we document two features that have made Saudi Arabia different from other oil producers. First, it has typically maintained ample spare capacity. Second, its production has been quite volatile even though it has witnessed few domestic shocks. These features can be rationalised in a general equilibrium model in which the oil market is modelled as a dominant producer with a
competitive fringe. We show that the net welfare effect of oil tariffs on consumers is null. The reason is that Saudi Arabias' monopolistic rents fall entirely on fringe producers.

Ecuador's energy policy mix: Development versus conservation and nationalism with Chinese loans

Energy Policy: Ecuador's energy policy faces a complex variety of political and economic objectives that are difficult to reconcile in a consistent manner. Ecuador is a small oil producer and exporter with significant renewable (mainly hydropower) resources, hosting some of the richest biodiversity areas in the world, part of which are inhabited by so far indigenous un-contacted people. Being a developing country, tensions arise between conservation aims and development imperatives, as well as between resource nationalism and much-needed foreign financing. However, the really limiting factor for the country's energy development seems to be its constraints in financing the government's development and redistributive policies. Resorting to Chinese loans-for-oil may be part of the solution in the short term, but it does not substitute for a more consistent energy policy. Ecuador's case illustrates the dilemmas of energy policy in natural resource-rich developing countries when confronted with diverging political economy, social, environmental and macro-financial goals.