Opec’s loss is Poland’s gain
Shale boom tames inflation in east European nation
WARSAW: North America’s shale industry may be the swing producer in the oil market, but it’s becoming a dominant factor across the Atlantic for eastern Europe’s biggest importer of energy.
The Organisation of the Petroleum Exporting Countries’ (Opec) loss of its pricing power, combined with cost reductions and advances in extraction technologies, have resulted in an “important and irreversible change” for Poland’s US$475bil economy, according to central bank governor Adam Glapinski, who says shale production is effectively capping oil at about US$50 a barrel.
The disinflationary force of energy is offsetting the impact of stronger consumer demand in Poland. Retail sales surged an annual 8.4% in May after a gain of 8.1% a month earlier, according to data released on Tuesday.
A new projection for inflation by the central bank’s staff due in early July is expected to show little change from its forecasts in March, whose upward revisions largely resulted from higher fuel costs.
“Opec and Russia may agree on their joint policy about the amount of oil extracted and they still won’t help the situation since it’s up to the oil and gas supply from the US and Canada,” Polish central bank- er Jerzy Kropiwnicki said in an interview in Warsaw. “Energy resources will remain the anchor for all other prices. However, unlike the summer of 2016, there are no grounds to expect that they will boost CPI.”
Crude has remained stuck below US$50, tumbling into a bear market this week, amid speculation that rising US supplies will offset output curbs by Opec and its partners, including Russia.
New production from Opec rivals, led by shale, will be more than enough to meet demand growth next year, the International Energy Agency said last week in its first forecast for 2018.
The outlook for oil means one less worry for the central bank as it waits for the right time to end its record-long pause on interest rates. The governor has been reiterating that no increase may be warranted until the end of 2018. Poland’s last three tightening cycles were accompanied by rising global oil prices.
“We now up our forecast for core CPI in Poland in 2018 on stronger than expected domestic demand growth in the first quarter,” Agata Urbanska-Giner, a London-based economist at HSBC Holdings Plc, said in a note. “But with a stronger drag from fuel price disinflation/deflation, we end up with only limited changes to our headline CPI forecasts this year and next.”
Oil is the second-largest energy source in Poland, with most of it shipped from Russia. It also relies on imports for two-thirds of its natural gas needs.
To diversify its energy supply away from Russia, Poland received the first shipment of liquefied natural gas from the US this month.
Poland, which needs imports to meet 97% of its oil consumption, has long been vulnerable to commodity shocks.
But inflation has stabilised this year after a rebound that started in late 2016 led to the world’s biggest six-month acceleration in price growth.
Energy affects inflation by way of housing and transport costs, which together account for a third of Poland’s consumer-price basket. Annual inflation surprised by slowing for a second time this year to a four-month low of 1.9% in May.
Energy prices “will be a factor in depressing inflation,” Kropiwnicki said.
“Despite all efforts of Opec, prices of energy resources won’t return to the level from last year thanks to new technologies in oil and natural gas extraction.” – Bloomberg