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UK Prime Minister Theresa May’s draft agreement over Britain’s departure from the European Union has sparked an extensive amount of controversy. The deal has been described in rather unglowing terms as a least bad Brexit, but May says the draft agreement she managed to stitch together is in the national interest.
Addressing the nation, she said it’s better than no deal and she wants to use it as the basis for negotiating the future economic relationship with the European Union. But getting her divorce accord ratified by parliament may prove impossible, as she faces opposition outside and within her own party. Several of her ministers have resigned.
The draft agreement focuses a lot on new proposals over the Irish border. Both sides have committed to avoiding a hard border between Northern Ireland and the Republic of Ireland. There’s an arrangement to keep the UK within the EU ‘s customs union after Brexit for a certain amount of time. The customs union is the arrangement by which EU members apply the same tariffs to products imported from the rest of the world.
Brexit’s been a massive distraction of efforts, of energies – it was really a misguided decision but we have to live with it.
Lorenzo Codogno, founder and chief economist, LC Macro Advisors
“Brexit’s negative for the UK and the rest of the EU, so there’s no doubt that any kind of deal you can strike with the UK and the EU is going to be negative, but at least it’s less negative than other options that are on the table,” explains to Lorenzo Codogno, founder and chief economist at LC Macro Advisors.
“It would be highly disruptive if there was no deal and the UK ends up with the WTO backstop … so, the one solution that’s on the table – and while not yet 100 percent sure, clearly, as it has to go through the political process and approval – is the least damaging option.”
While UK citizens will “be paying for Brexit, this deal is also negative for the EU,” says Codogno, “it’s a lose-lose proposition, so everybody’s going to lose. But clearly, the UK is going to lose more than the EU.”
Ultimately, “Brexit’s been a massive distraction of efforts, of energies – it was really a misguided decision but we have to live with it. UK people decided to leave the EU and the government has to deliver, but it has been a massive distraction from more important issues.”
Oil’s new reality
The global oil market is to experience an oversupply of oil in 2019, according to a new report by the International Energy Agency (IEA). It also highlighted the relentless growth in non-OPEC supply.
Most of the world expected Iran’s oil output hit by US sanctions to fall to zero, but with the US granting waivers to eight countries, that will no longer be the likely scenario.
It has sparked OPEC’s top producer, Saudi Arabia, to call for a cut in production by OPEC countries as early as December. Slamming the brakes on oil production is a dramatic turnaround for the cartel, which up until recently was ramping up production.
However, it’s unlikely there will be a production cut at the next OPEC meeting, suggests Professor Giacomo Luciani from the Graduate Institute in Geneva, because of disagreements between members. “The Russians don’t seem ready to cut their production now. I’ve never been happy with prices reaching $80 or more per barrel, but I think it’s too early for them to react and reduce production and that makes it very difficult for OPEC, as well.”
Drilling for oil in shale rock, known as fracking, has dramatically reshaped the global oil industry. And US shale oil production continues to defy expectations. The IEA predicts the US will rival OPEC when it comes to market share in the years ahead. But some say the new black gold rush in the US is overhyped, as shale is hard to reach and reserves decline quickly.
Explaining current US oil policy Luciani says “it’s pursuing two different aims. One is to increase shale oil production, and that’s favoured by higher prices and the other is to defend the American consumer against price increases. The miracle of shale oil production in the US has been going on for a long time … and in the last year, the US has added 1.5 million barrels to oil production and that’s quite remarkable.”
Broadly speaking, “the oil market’s influenced by the market opinion and sentiment on broader economic data. There’s considerable uncertainty about the future of the global economy. Continuing commercial conflict between the US-China, difficult relations between the US and Europe, Brexit – all of this is not very positive at all,” concludes Luciani.
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This post was written by HisWord