Global Economy and Energy Markets Weekly Commentary – 10th Feb ‘22

In this commentary to the Gulf Intelligence, Dr Carole Nakhle, CEO of Crystol Energy, discusses the latest macroeconomic developments and their implications on energy demand.

Dr Nakhle talks about the expectations for US Fed policy going forward. She explains that we are going to see a deviation from what they have announced in terms of increasing rates, and we are, finally, getting some reaction and a tighter monetary policy to tame inflation. In the end, it’s about striking the right balance between that, and not damaging the economy by decelerating growth.

There’s also the other side of the story beyond what the Fed is going to do, and that’s the supply chain bottlenecks that have been driving inflation. If we have a gradual increase in rates starting from a low base and, at the same time, the supply chain starts to ease, we might not end up in the drastic scenario that some are fearing. It’s better than going down the route of higher inflation rates which might cause the Fed to take more aggressive steps. 

She further comments on OPEC+, stressing that despite the fact that OPEC spare capacity is declining, it is not alarming. It is around 4% of global spare capacity production supply. If it was below 1%, then we would be in a much worse situation. If you look at the numbers for the rest of the year, we see a build-up and that it’s going to stabilize.

With respect to the oil market, it seems that, in the very short term, it is balancing around $90 a barrel. We are seeing some diffusion of geopolitical tensions in Europe but no final outcome yet. We hear about progress vis-a-vis Iran, but does that mean there will be a deal? And Libyan production is uncertain. So, the geopolitical card is still not clear.

On the other hand, we are expecting higher supplies from outside OPEC, such as from the US, but not necessarily in the coming weeks. If geopolitical tensions are resolved completely, we will see downward pressure on prices, but if not and supply continues to be constrained, we will more likely remain where we are today.

Dr Nakhle is joined by Reem Shamseddine, Senior Correspondent, Zawya, Arabic, and Omar Al-Ubaydli, Director of Research, Bahrain Center for Strategic International and Energy Studies (DERASAT). Sean Evers from Gulf Intelligence, moderates the discussion.