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

Dr Nakhle comments on OPEC+ decision to resist calls to add more oil, explaining that the group’s position all along has been justified by what they see as significant uncertainties for demand. And the recovery so far is not a fait accompli. We do have growth in some areas, but we also have risk emerging in others, so I don’t see a reason for OPEC+ to move away from the planned 400,000 b/d increase. Yes, we have tighter supply as a result, but we need to remember that the global economy has also changed from the conventional linear model. The ramifications of the Covid crisis are yet to play out. When do we go back to pre-pandemic GDP levels, for example? And in terms of US pressure on OPEC+ to add more oil, let’s remember that these higher oil prices also benefit the US, as the world’s largest oil producer, bringing in higher tax returns for government and more employment.

She also discussed if there is still a chance for a taper tantrum. The Federal Reserve’s meeting last week produced no surprises. They have always said they’re going to proceed in a very transparent manner. They did say there would be some flexibility on the pace of tapering depending on conditions, but they also said they could be patient on raising interest rates, maintaining that today’s inflation is related to supply chain bottlenecks that are expected to ease by the second half of next year. What worries me more is the uncertainty that we have in Europe. The ECB says it’s not contemplating any rise in rates any time soon, but I feel the market is less confident about ECB monetary policy than it is about the US.