Dr Nakhle comments on the global economic recovery, with the US Federal Reserve seeming to targeting full employment and continuing the stimulus, regardless of inflationary fears. Wall street appears to be taking the same approach and that has boosted support for oil prices as money seeks out tradable assets like precious metals and oil. However, Dr Nakhle cautions that the real fundamentals on the ground do not translate into sustainably higher oil prices. We still have significant inventories and high spare capacity, despite the tempered demand recovery.
On the surface, high oil prices appear as a blessing for oil producers, given the dependance of their economies on oil revenues. But high oil prices can also spell trouble for organisations like OPEC. An immediate example is shale, an industry that can react quite quickly to sustainable, higher prices. Longer term, if fossil fuel prices remain high, renewable and alternative sources of energy also become more attractive.
Dr Nakhle also discusses the impact of the debt market activity on Middle East countries’ fiscal health. The macroeconomic outlook has not changed drastically for many years – serious efforts are still needed to diversify economies away from oil to limit exposure to the cyclicality of the market. We must also remember that there is a massive difference between the financial status of economies like Kuwait and the UAE and weaker ones such as Iraq. Saudi Arabia lies somewhere in the middle, but the current low interest rate environment is an opportunity for the kingdom to borrow. It is capitalizing on its massive and low cost oil reserves and has the capability to pay back its debt.
Dr Nakhle is joined by Matt Stanley, Director, Star Fuels, and Ahmed Mehdi, Research Associate, Oxford Institute for Energy Studies. Sean Evers, Managing Partner, Gulf Intelligence, moderates the discussion.
Why high oil prices spell more trouble for OPEC+:
“New Opportunities 2021: Some optimism for oil markets“, Dr Carole Nakhle, Feb 2021
“Oil market outlook: Striking a delicate balance“, Dr Carole Nakhle, Dec 2020
“Goodbye 2020. Trends and Prospects“, Lord David Howell, Dec 2020
“Global Economy and Energy Markets Weekly Commentary – 21st Feb ’21“, Christof Rühl, Feb 2021