Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Harvard Kennedy School and the Center on Global Energy Policy at Columbia University, discusses the latest global macroeconomic developments and oil markets in this weekly interview to the Gulf Intelligence.
Christof talks about whether we are going to see China returning to normal growth. Even before covid, China’s growth and its shift to the service sector was slowing, political centralisation was tightening and there were big worries about financial instability. Now, we are in a return to even slower growth and the political campaigns are becoming all encompassing in an attempt to reassert control. But let’s also remember that there is no example of a heavy industrialised economy successfully shifting to a modern market service-oriented economy without going through a financial crisis and China will not be an exception to that. It seems to be getting into a more fragile situation as the economy develops and as the race between centralisation and decentralisation, and market and politics tightens.
He also discusses whether we are going to see tapering in the US or any move on interest rates. The Federal Reserve has a credibility problem. It has to show that inflation doesn’t lift above its target of 2% although they probably would prefer rates of 3% or 4%. Another issue is one of asymmetry in their policy. Since at least the financial crisis of 2008, the Fed seems to have had a bias; when the economy and markets were weakening, they were quick to buy bonds and leave interest rates lower but when the economy was getting stronger, they were slow in tightening up and adjusting. They now need to convince everybody that they mean business with tapering and that will probably start by November with interest rates being delayed a little bit.
Christof further comments on oil prices and whether there is anything to stop Brent getting to $80 perhaps as soon as this week. What would stop it is a return to normality – an end to this relentless flow of disruption such as the hurricanes and outages we have seen. It looks as if the lasting damage from both hurricanes is US inventories drawing again and US demand could be strong enough to get us to $80. But the fundamental picture is also one of too much oil – we see the rig count reacting and price mechanisms kicking in, so sooner or later we could see the price spike and drop – there’s a lot of volatility on the cards and it will be very much driven by what happens in the US because there’s not much support coming from the Chinas of this world.
On nuclear talks with Iran, there are a number of hot spots emerging globally. One is the Iranians trying to find their way back to normality and Biden trying to deal with it. Another is the impact of energy prices on growth and on inflation in particular and what that does to central bank policy. A third is what happens to Nord Stream 2 after the German election – we’ll likely have to see some very swift action on this with the Russians and the Germans probably declaring victory over the US. And all of these are happening in the run up to COP 26 and winter, with high gas and power prices very much top of mind and threatening industrial production and competitiveness both in Europe and China.
Christof is joined by Maleeha Bengali, Founder, MB Commodity Corner. Sean Evers, Managing Partner at the Gulf Intelligence, moderates the discussion.
Watch the full discussion:
“US Fed’s policy and Bank of England’s performance“, Christof Rühl, Sep 2021
“Spare capacity in focus as OPEC+ output hikes coincide with rising oil security risks“, Dr Carole Nakhle, Sep 2021