Global Economy and Energy Markets Weekly Commentary – 11th Nov ‘21

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

Dr Nakhle comments on oil prices and the simplistic view of the US that has been blaming high prices on OPEC. OPEC policy has contributed to where prices are today but the main problem the US faces is inflation. The macro picture is a worry for the entire global economy, as well as the oil sector. The CPI in the US in September was at 5.4% and at 6.2% in October. In China, factory gate prices were the highest in 26 years, while in Germany, the inflation rate hit the highest rate in 28 years. We have a problem of rising prices everywhere.

Has the Fed lost control of this market? Not yet. They’re still saying this inflation is transitory and will hopefully be resolved by the middle of next year once supply chain bottlenecks ease. This may be true, but the question is whether consumers can sustain the additional pain for so long. Politicians are quite sensitive to the reaction of the average person in the street so that raises a dilemma for the government because it wants to trust the economists but also has to respond to the needs of consumers. The Fed might well accelerate its tapering and even revisit its increase of interest rates.

She further discusses the outlook of the Chinese demand and whether it will remain an engine of demand growth, stressing that she would be cautious about the outlook in the short term. However, it’s the longer-term picture that matters most. The country already had structural problems before Covid with regards to its GDP and oil demand slowing down.

Meanwhile, we’ve also seen US crude inventories rising for a third straight week, reaching the highest level since August this year. Everybody seems to agree that supply growth will outpace demand growth in 2022.

On the takeaways from COP 26, it’s all in the eyes of the beholder – some might see it as a major success, and others a major failure. One thing that was interesting to hear was John Kerry, the US climate czar, saying that the US would stop producing coal by the end of 2030, only eight years from now. Bearing in mind that coal represents 10% of the country’s primary energy mix and 25% of the power sector, it begs the question of how that gap would be filled. Natural gas industry would be the most logical substitute. 

Dr Nakhle is joined by Walter Simpson, Managing Director, CCED, and Matt Stanley, Director, Star Fuels. Sean Evers from Gulf Intelligence, moderates the discussion.

Watch the full discussion:
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