The International Monetary Fund said the U.S. economy remains at the front and center of the global economic conversation. Now in week two of a partial federal shutdown, the IMF warned, however, that an obstinate political climate was creating uncertainty about the strength of the recovery in the U.S. economy. Oil prices continued to trend lower amid ongoing concerns Washington wouldn't be able to get its fiscal house order before defaulting on its debt obligations. Apart from the impact of rising U.S. oil production, the IMF warned lower oil prices could leave many oil producers in the Middle East and North Africa in economic trouble.
"The U.S. economy remains at the center of events. Private demand continues to be strong, although growth has been hobbled this year by excessive fiscal consolidation," the IMF said in its report on the global economy. "Politics is creating uncertainty about both the nature and the strength of the fiscal adjustment."
U.S. President Barack Obama this week said he wasn't giving in to Republican demands to cut his healthcare law in exchange for a higher borrowing limit and a new budget. That sent crude oil prices even lower given a weaker demand outlook. In its short-term market report for October, the U.S. Energy Information Administration said 2014 demand would be 1.17 million barrels per day, a 1.6 percent decline from its September report.
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The IMF said it expected oil output from Middle East and North African producers to fall by 1 percent in 2013. Despite recent recovery from Libya, overall the country failed to perform at its pre-war level of 1.6 million bpd for much of the year. Iran's production, meanwhile, is constrained by economic sanctions. Production from Saudi Arabia, for its part, is expected to decline in part because of higher oil production from non-OPEC members, primarily the United States. The IMF said it didn't expect the U.S. financial imbroglio to last, however, and forecast higher production from some OPEC members next year.
It warned, however, that a sustained decline in oil prices could spell trouble for oil-rich MENA countries. Oil prices mid-day Wednesday were around $103 per barrel and the IMF said it expected a 2014 average of $101.35 per barrel. Non-oil gross domestic product in the region was expected to be on par with oil GDP at 4.5 percent growth next year for the region. The IMF warned weaker global demand, lower prices and pressure from non-OPEC producers suggests the MENA region may want to look behind its oil legacy.
"Fiscal policy should focus on building buffers against oil price shocks by finding non-oil sources of revenue," the IMF said.
By. Daniel J Graeber of Oilprice.com
