Global Economy and Energy Markets Weekly Commentary – 19th Jun ‘22

Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Center on Global Energy Policy at Columbia University, discusses the latest global macroeconomic developments and energy markets in this weekly interview to the Gulf Intelligence. 

Christof leans more to those who are bearish on oil for Q3. Recessionary fears, decline in China demand, one million barrels a day already being pumped from the Strategic Petroleum Reserve, and the upcoming Biden visit to the Middle East with possibly more Saudi and UAE oil forthcoming, in addition to Venezuelan oil being signed off to be sold to Europe, all these indicate that the crude oil market is not as tight as everybody said, and lower crude oil prices will also eventually feed through to product prices.

He also discusses how effective have sanctions been on Russia. From a US perspective, what the Biden administration wants is the redirection of oil flows. Firstly, they want more oil from the Middle East going to Europe, and, then, they want to slowly throttle Russian supplies, by Europe not buying it and then presumably by Asia, either voluntarily or forced to join the sanctions regime by secondary sanctions. Not only are countries like China benefitting from getting sanctioned Russian oil at a 35% to 40% discount, but also Chinese businesses in terms of oil and, to some extent, gas costs will now be outcompeting European business on a large scale, so it’s not clear that they’re going to be lining up to give up this advantage. China and India are more oil intensive economies than the West and their oil demand is growing, so they are much more sensitive to the oil price.

Christof further comments on Russia’s curtailment of gas deliveries to Europe. Gas is different and is being approached in a completely decentralised and voluntary mode by Europe. Countries such as Bulgaria and the Netherlands have been cut off by Gazprom as they have refused to pay in Rubles – that’s accounting for 16% to 20% of European deliveries already. But despite Gazprom turning up the heat, the EU will maintain a flexibility and we are now for example seeing it starting to replace gas with coal. The storage of gas in Germany is at 50% right now, far above the lowest levels we have seen over the last five years. Russia won’t be able to sell its gas anywhere else, so this will eventually have more tangible financial consequences than what we see in the oil markets. And if EU energy sanctions are maintained, in a falling oil price environment, it will cause serious problems internally for Russia.

Christof is joined by Adi Imsirovic, Senior Research Fellow, the Oxford Institute for Energy Studies. Sean Evers from Gulf Intelligence moderates the discussion.

Watch the full discussion:
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Related Analysis

Energy Sanctions and the Global Economy: Mandated vs Unilateral Sanctions“, Christof Rühl, May 2022

Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022

Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022

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