Global Economy and Energy Markets Weekly Commentary – 15th Feb ‘24

In this commentary to the Gulf IntelligenceDr Carole Nakhle, CEO of Crystol Energy, discusses the why oil prices are trading at the current levels, the impact of interest rates on prices and the pause in Saudi Arabia’s capacity expansion plans.

According to Dr. Nakhle, plentiful oil supplies and muted demand growth are keeping prices in check, despite OPEC+ cuts and the geopolitical stability in the Middle East. Dr. Nakhle expressed an inability to fathom such a scenario occurring perhaps a decade prior without witnessing widespread panic across markets, especially within the oil sector. But today, this is not happening as it would have in a tighter market. The macroeconomic outlook is still weighing on oil – there are some positive signs, but one can’t change the whole outlook based on, for example, one month of good data. Caution should also be taken when assessing the outlook for China because its structural problems are not going to dissipate overnight.

Dr Carole Nakhle discusses the latest macroeconomic developments and their implications on energy prices in this interview given to the Gulf Intelligence

When asked about the impact of higher for longer interest rates on oil markets, Dr. Nakhle said that oil markets have already factored in the current scenario of rates. Many are betting on seeing several cuts this year in the US, but also in other important economic regions, such as the EU. But the Federal Reserve has also said that people should not make early bets on rate cuts. Of course, if and when rates do start to decline, that should provide a boost to economic activity and be supportive of oil demand. It won’t be a boom overnight, but rather a gradual increase. And interest rates are just one of many factors impacting oil markets. 

As she evaluated Saudi Arabia’s decision to halt its production capacity expansion, Dr. Nakhle emphasized that the kingdom’s market influence stems not solely from its production volume, but predominantly from its surplus capacity. Consequently, any loss of this capacity would diminish its sway in the market. Therefore, Saudi Arabia will persist in playing a pivotal role as a swing producer, as its ability to swiftly adjust production levels remains the cornerstone of its significance in global oil dynamics. Another point that is sometimes overlooked is that Saudi does not only have a low cost of production and massive reserves, but also their oil has one of the lowest carbon intensities. So, when other producers leave the market in a greener future, Saudi oil will continue to have an advantage on many fronts, including from a climate change perspective.

Dr Nakhle was joined by Neil Atkinson, Former Head of Oil Markets Division at the International Energy Agency, and Mehmet Ogutcu, Group CEO of the Global Resources Partnership. Sean Evers from Gulf Intelligence moderated the discussion.

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