Global Economy and Energy Markets Weekly Commentary – 27th Jan ‘22

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

Dr Nakhle comments on the US Fed’s announcement this week. What caught the attention was Chairman Powell’s referral to the strong economic and labor market recovery. Some have reacted with concern at the possibility of interest rates hikes as early as next month but the Fed also said that they will maintain a degree of flexibility. We will have a better understanding of how the market is taking it all in by next week.

The main debate today is whether they should have taken this kind of action much earlier. They admit they were wrong on inflation and underestimated how fast prices were going to rise. However, if we look at the recent World Economic Outlook report by the IMF, it downgraded forecasts for most of the large economies, including the US and China, and said that the global economy was starting 2022 in a weaker position than originally expected.

She further talks about the rising oil prices despite US inventories building up this week, explaining that we need to look at the whole year ahead. We might see some tightness now, but it’s expected to ease significantly as we move forward. And very high prices tend to be followed by a much longer period of low prices and that will have more significant repercussions on the world economy and on producers.

On whether OPEC+ has the capacity to put more barrels into the market, Dr Nakhle stresses that Saudi Arabia does for example, but it’s not doing so because they don’t want to risk flooding the market and then suffer the repercussions. They want a nimble, step by step approach and to also see how all the geopolitics is going to unfold. There are also huge disparities on forecasts by investment banks, which highlight the kind of uncertainty we are facing. We also don’t know what’s going on with inventories in China and India, nor what is going to happen with Covid and supply chain bottlenecks.

Dr Nakhle is joined by Edward Bill, Senior Director, Market Economics, Emirates NBD, and Ali Al Riyami, Consultant and Former Director – General of Marketing, Ministry of Energy and Minerals, Oman. Sean Evers from Gulf Intelligence, moderates the discussion.