The output cut may not have come to the liking of Asian importers, who have been enjoying sharply lower prices in recent weeks.

But a decision by Opec and its allies led by Russia earlier this month in Vienna to implement 1.2 million b/d production cuts has at least for the time being stabilised the price outlook amid expectations that the reduction would prevent a surplus from building in the early part of 2019.

According to S&P Global Platts Analytics, the cuts would help to bring stability to crude prices above $60/b.

It expects Brent to hover in the $60-65/b range through the early months of 2019.

With crude having crashed from as high as $86/b in early October to below $58/b a barrel in late November, Opec and non-Opec leaders walked into the December 6-7 meeting not free of challenges.

Several questions lingered: Can Iran be convinced to cut production? Will Russia agree to an output cut? Can countries exempted during the last round of production cuts pitch in this time?

And tweets from US President Donald Trump complicated matters further. “Hopefully Opec will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!,” Trump said in a tweet ahead of the meeting.

One delegate described it as the “toughest meeting” he had experienced.

In the end, Saudi Arabia relented on exemptions for Iran, Libya and Venezuela. OPEC would cut 800,000 b/d under the deal, or 2.5 per cent of production for each member, with the 10 non-OPEC partners slashing 400,000 b/d, or 2 per cent.

The cuts , using October as the baseline level, except for Kuwait, which will use September, as its production was impacted by bad weather in October — will last for six months, through the end of June.

Saudi Arabia will bear the biggest share of the production cut. It will be aiming to bring down production to 10.2 million b/d in January, from as high as 11.1 million b/d in November and an estimated 10.7 million b/d in December. Russia has also agreed to a meaningful reduction of close to 230,000 b/d. The impact of the production cut was immediately visible – crude oil jumped 5 per cent the same day.

Meanwhile, Qatar’s surprise decision to leave Opec and focus on LNG, made it the first Middle East member country to leave the organisation.

While the impact on the oil market from Qatar’s decision is expected to be minimal — Qatar accounted for less than 2 per cent of Opec’s output – the exit clearly highlighted the fragile relations among Opec members.

Qatar’s decision to leave the Opec may work in favour of major Asian oil consumers as the Persian Gulf producer could focus on increasing its condensate output, while ensuring stable supply of its light and medium sour crude oil in the Middle Eastern spot market.

Many Asian refiners and petrochemical companies have been struggling to access Iranian South Pars condensate amidst the re-imposition of US sanctions on Tehran that took effect November 5 and left Qatar as the only supplier capable of exporting 300,000 b/d or more of ultra-light crude oil.

The output cuts will no doubt help balance the market. But uncertainty around Iran’s oil exports still linger.

The US has granted sanction waivers to eight buyers. But the US State Department has reiterated that it was doing everything it can to deter and discover evasion of sanctions on Iran’s oil buyers.

Platts Analytics expects Iran’s exports will likely stay around 1 million b/d by the next deadline in May, compared with a six-month average of 2.4 million b/d earlier this year.

US-China trade relations have also been playing a role in oil prices given their potential impact on global economic growth and oil demand.

Following a meeting between Trump and Chinese President Xi Jinping at the Group of 20 nations gathering in Buenos Aires earlier this month, the US agreed not to raise tariffs on $200 billion worth of Chinese goods to 25 per cent from January 1 and leave it at the current 10 per cent level, for a 90-day period of negotiations.

This was initially expected to restore trade flows, but the 90-day window appears unrealistic for Chinese importers to ramp up purchases of US oil and gas. In addition, unstable relations between the US and China have elevated the risks of US-China trades. Boosting purchases of US crude oil for a 90-day period is inconsistent with the normal trading cycle for physical barrels.

Contributed by SAMBIT MOHANTY, S&P Global Platts

The Democrat Party last week announced six key economic policies to address the needs of low-income groups at around the same time as arch-rival Pheu Thai unveiled its broad policies. The previous week, the debutante Future Forward Party had put forward bold proposals to address the widening inequality in society.

Future Forward Party (FWP) announced that, if elected, it would reform the political and economic structures, which currently tend to favour centralisation and economic monopoly. It also plans to empower people via state welfare and educational reform.

“The FWP has a clear concept and almost all of its proposals have the potential to structurally narrow the disparity of income,” said Somchai Jitsuchon, research director at the Thailand Development Research Institute.

Somchai 

But if the party does not have a clear majority, how will it compromise on its agenda with another party participating in a coalition government Somchai asked

Regarding the state welfare proposal made by the party, Somchai said a universal grant of Bt1,200 a month to support a child up to six years of age was outstanding. He, however, was doubtful about grants of Bt2,000 to support those aged between 18 and 22, asking what was its purpose. Cash handouts of Bt1,800 a month for the elderly might be too high and it would result in a budget burden in the long run, he said. The party should encourage people to save for their retirement, he suggested. The party is also proposing to expand social security coverage but has yet to provide details on how it would do so. Past governments have tried and failed, Somchai noted.

The FWP estimated that its proposed universal welfare would cost about Bt650 billion annually. To finance its plan, it intended to cut 30 per cent of the defence budget and reduce tax incentives offered by the Board of Investment to investors. The party also wants to reduce the tax allowance offered by the Revenue Department. It proposes to increase building and land tax rates, and legalise underground lottery.

Somchai expressed support for the financing plan and suggested that the party increase the rate of value-added tax for a welfare state.

Budget under strain

Regarding the Democrat Party’s policy platform, Somchai said he agreed with the income guarantee proposal, saying that it would be a first step to reduce income inequality. However, the general public knows little about it and the party could face strong opposition, he said.

The Democrats plan to introduce a minimum income guarantee for rice farmers, rubber farmers and oil palm growers. Somchai said an income guarantee of Bt10,000 per month for workers may be too high and it could strain the budget, as the amount would be higher than the current minimum wage. If the party aims to cover only workers in the formal sector, then the impact would be limited. The proposal to offer cash handouts of Bt1,000 to senior citizens could be practically implemented, compared to what is being proposed by the FWP, he said.

He backed the Democrat proposal for capitalisation of land title deeds, similar to what former premier Thaksin Shinawatra’s administration had implemented.

The proposal for a community water fund is interesting, he said, but the Democrats must provide more details. He expressed support for education reform proposed by the Democrats, which could lead to narrowing of income inequality. The plan to give every child Bt1,000 a month until age eight he found a welcome proposal.

Anusorn Tamajai, dean of economics at Rangsit University, said there was little contrast between the rival parties in most of the policies announced, since so many were aimed at reducing income inequality.

Anusorn

But expanding the government’s role would run into financial difficulties, he warned. He agreed with the Pheu Thai plan to expand the role of the people and private companies. To empower people, the next government will have to reduce its own role. Deregulation would also encourage businesses to play a greater role in helping theeconomy, he said.

Pawin Siriprapanukul, an economics lecturer at Thammasat University, said social and other spending proposals made by the parties could lead to burgeoning public debt, well beyond the current level of 42 per cent of gross domestic product.

Pawin

He said he did not agree with many of the cash handout proposals, adding the next government must ensure productive spending. He also called for debate on increasing the tax on asset ownership, such as implementation of capital gains tax. Currently those who sell shares in the capital market are exempted from capital gains tax.

The Stock Exchange of Thailand (SET) has a market cap of up to 115 per cent of the nation’s GDP, he says, and “is one of the largest and most advanced stock market systems in the Asean region and globally”.

However, only 3.5 million Thais are registered in the stock market, a small fraction of the total population of approximately 69 million.

Rapee was speaking at the “Structure of Thai Stocks, Will it Plummet or Continue to Grow?” event, organised by Krungthep Turakij, a sister newspaper to The Nation.

Thailand’s population is rapidly ageing, with up to 17.1 per cent of Thailand’s population now seniors. As a proportion of the total population, this places Thailand’s elderly as the second highest in the Asean region, behind Singapore with 19.6 per cent and ahead of Vietnam with 11.1 per cent, he said.

“This not only increases the tax burden on the younger population as the number of taxpayers fall, but also leads to a financial problem |for the elderly population,” Rapee said.

Savings accounts in banks and purchasing government bonds will not suffice as a financial retirement plan, as the increase in their value over time from interest may not compensate for inflation. The interest-based approach would over time reduce the net wealth of individuals, he said.

Meanwhile, the secretary-general added that the average return from investing in stocks is at 10 per cent, making it a more viable option for long-term investment for retirement.

“For this reason, the SEC and SET have been introducing new programmes and initiatives to encourage more Thais to start making long-term investments in the stock market,” he said.

For example, the Supervision and Provident Fund Management programme aims to offer a life path-oriented plan for its members.

“The plan will adjust the members’ portfolios automatically and appropriately according to their age. It would change the nature of investments as members’ approach closer to retirement,” Repee explained.

The SEC has also launched “Wealth Advice for All” as another long-term investment service for the public.

It was kick-started at the beginning of this year and is now picking up steam, with up to 170 listed companies cooperating with the SEC to provide wealth advice, he said.

The service aims to provide the public with financial advice and financial planning as well as |promote the use of financial technology (fintech) as both a business tool and assistance for personal financial planning, said Rapee.

“Most Thais receive inadequate financial advice from banks as banks tend to only offer constant and flexible financial advice to private wealth investors. This is due to the lack of human resources to offer detailed financial advice [targeted for the personal situation of each] bank client,” he said.

“Hence, most Thais are misinformed about how to most effectively invest their capital. The ‘Wealth Advice for All’ project aims to address this, focusing on giving advice about long-term and sustainable investments for the public,” he explained.