We are still facing a significant level of uncertainty which has coincided with an already tight market. Russia’s invasion of Ukraine has contributed to volatility in markets – energy and elsewhere – and no end in sight yet. The more uncertainty prevails, the more this will translate into a volatile market, with currently an upward pressure on prices the more likely scenario.
Meanwhile, the aggressiveness and reach of sanctions imposed by world powers on Russia are growing on a regular basis. For example, initially sanctions targeting Russian energy exports were ruled out only to be introduced by the US, Canada and even the UK, albeit effective at different times. In this respect, we cannot rule out the EU following suit, though the process and consequences will be much tougher for Europe.
Dr Nakhle adds that throughout the history of the oil industry, whenever a major energy crisis takes place with sustainably high prices, the outcome has always been structural changes to market dynamics particularly in terms of demand destruction.
The net-zero targets are set for the next few decades – 2050 or 2060 for some countries, thereby it is highly unlikely that the current energy crisis is going to deviate the transition march. However, the crisis could be a wake-up call that some plans or policies should be revisited in a sense that a smooth energy transition takes place with conventional fuels providing backup when renewable energy sources fail to generate sufficient power. The reaction will vary between countries as we already are seeing in Europe with the UK and the revived interest in the North Sea and Germany going more to LNG from Qatar.
OPEC+ has been always iterating through its statements and via press that it wants to ensure market stabilisation but this seems to act upon when oil prices fall. While one can understand their stance primarily that there aren’t supply disruptions and the market is being driven by fear, in fact this is exactly the time where OPEC+ should act as the calming force – something that the producers group has failed to do to date.
Watch the discussion:
“No endgame for Ukraine“, Christof Rühl, Feb 2022
“The EU’s 4th round of sanctions on Russia“, Dr Carole Nakhle, Mar 2022
“Recent political developments in Ukraine“, Christof Rühl, Mar 2022
“Russia-Ukraine crisis and oil prices“, Dr Carole Nakhle, Mar 2022
“Can Europe completely cut its reliance on Russian energy supplies?“, Dr Carole Nakhle, Mar 2022
“Russia, OPEC+, Europe and Energy Markets“, Dr Carole Nakhle, Mar 2022
“EU Energy Policy amidst the Current Gas Crisis“, Dr Carole Nakhle, Feb 2022