1 UAE may scrap subsidies on power, gas (Francis Matthew in Gulf News) The UAE is looking at removing subsidies on both electricity and on gas sold to companies generating power, said Energy Minister Suhail Al Mazroui, speaking at the World Economic Forum in Davos.
“Consumers need to pay the real price. They already do so for petrol and diesel, and electricity is still to come, and we will look at the subsidised sale of gas to power providers,” he said. Mazroui said that the impact on removing subsidies on domestic electricity would not be that great to the consumer as it only really applies at the higher levels of use at present.
Al Mazroui also added that once subsidies were removed and the prices were at standard world levels, the source of the fuel would cease to matter and providers could use UAE gas or import it. He pointed out that this process of subsidy reduction is part of a much wider strategy to make the government budget independent of oil revenues.
Reinvesting the subsidy into areas like building a world class infrastructure, modern schools and up to date hospitals is an opportunity for the government, but it is not the whole story said Al Mazroui. “We need to work across all our GCC partners, and we need to tell the people what is happening so they understand what we are doing and appreciate it”.
Al Mazroui also took the opportunity to point out that diversity was not just about developing new non-oil industries (that the UAE has been developing for decades), but was also about building a diverse population and he hoped that this sense of inclusion would increase and act as a guide for the whole Arab world.
2 Why low oil prices hurt the markets (The Guardian) Wall Street is drowning in oil. Stocks are having their worst start to a year in history in part because of a rapid plunge in the price of oil. The price of crude is down 28% this year already, which in turn has dragged down energy company shares in the Standard & Poor’s 500 index by 13%, which has helped pull the overall index down 9%.
The drastic drop in oil and stock prices stands in contrast with a US economy that, on the whole, is doing pretty well. US employers created 252,000 jobs in December, and few economists see the economy sliding into recession. Here’s what experts think is going on.
Oil is so low because there is so much of it. A long run of high oil prices inspired drillers to develop new techniques and to go to new places to find more oil, and they succeeded. US stockpiles are at their highest level in at least 80 years, and the International Energy Agency predicts that during the first half of this year global oil supply could outstrip demand by 1.5m barrels per day.
Why do low oil prices hurt the stock market? Oil company profits are plummeting, so oil company shares are plummeting, and that is dragging down the whole market. Analysts estimate that profit for all S&P 500 companies in total are on track to be down a recession-like 5.8% for 2015. But if energy companies were removed from that figure, S&P 500 profits would be up a very healthy 5.7% for the full year.
That profit drop directly leads to lower share prices that drag down entire indexes. Two of the biggest oil companies in the world, Exxon and Chevron, are part of the 30-member Dow Jones industrial average. Of the 20 biggest share price losers in the S&P 500 this year, 13 are energy companies.
Aren’t lower oil prices a good thing for the economy? It depends on why prices are lower. If they fall because new supplies have been found, it usually helps the broader economy, and markets held up fairly well during oil’s big slide from over $100 a barrel in 2014 to under $50 a barrel last year.
But this latest plunge in prices to under $30 a barrel has investors worried that oil prices are falling because global growth is slowing, as businesses and consumers in many developing countries, particularly China, cut back on spending. Bruce Kasman, chief economist at JPMorgan Chase, says that steep drops in oil prices have historically been a sign of a weakening global economy.