Global Economy and Energy Markets Weekly Commentary – 4th Jul ‘21

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 economic and oil market developments in this weekly interview to the Gulf Intelligence. 

Christof comments on the disagreement within OPEC on production capacity baselines. According to him, producers, like Saudi Arabia, Kuwait and the UAE, all have expectations, at some point, of having to resume their fight for market share and so quotas will need to be adjusted. That’s the issue that the UAE raised at the meeting. It has a production capacity now closer to 4 million barrels but the current baseline benchmark being used is only 3.1 million. These decisions have been carried since 2017 so it’s a problem that has accumulated and OPEC+ has let it fester. If the agreement is redone according to spare capacity, it potentially opens the ‘Pandora’s Box’ because so many producers have expanded capacity. And even if they postpone the decision for now, it is something that will make its way back to the agenda and won’t be easy to resolve.

When you sit on a large chunk of the world’s global oil supply and you think about how to act, you think strategically and long term. So, for example, it is important what the US thinks. It was a huge success for OPEC in April 2020 to have a G20 meeting basically endorse it – you don’t gamble that away lightly. High oil prices do matter as they impact economic growth and more importantly, the momentum in the price impacts the inflation outlook.

On the week ahead, we expect the growth in the US to soldier on, but we are still hearing very little about the Chinese economy. There’s something brewing there which I don’t think most people have got their heads around. I expect China to have a lot of the problems which the US is supposed to get in the autumn, including issues in its financial sector.