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Global Economy and Energy Markets Weekly Commentary – 5th Jun ‘22

Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Center on Global Energy Policy at Columbia University, discusses the latest global macroeconomic developments and energy markets in this weekly interview to the Gulf Intelligence. 

Christof comments on the EU decision on the Russian oil boycott which has been a poor one. In practice, it was not just about giving in to countries like Hungary. They allowed the Russian shipped oil to be easily redirected. Sanctioning pipelined oil is what would have really hurt more. EU decision making based on unanimity is a thing which doesn’t work in crisis situations, and it clearly showed its limitations in this case. Having said that, the sanctions game will continue, precisely because there is more scope in the crude oil markets to tighten the screws, and people who are adamant about ending the war, will continue to advocate for this, including those in government.

He also discusses the OPEC announcement last week. OPEC+ is about 2.6 to 3 million b/d short of its current commitments – that’s almost 30%, so they have to find a way to resolve this. They are walking a tightrope between peace offers with the US and keeping Russia on board. In terms of the current market, there is no problem with crude oil supply, and if there are no secondary sanctions, Russian oil can be exported. We have four safety valves – the SPR; Venezuela, Iran and, potentially, Nigeria and Libya; the core OPEC countries with spare capacity; and fourthly, ratcheting up US shale. The problem is with products, particularly with diesel, but even there, we will have the enormously flexible global refining system eventually adjusting, as it has done before.

On the outlook for oil demand, the demand destruction argument is a race between when China will pick up again and the US, Europe and other advanced and emerging markets falling behind in recession fears. Once lockdowns are lifted, we will likely see a boost in demand from China, supported by government programs that will concentrate on the consumption side in a very clearcut way.

Christof further comments on whether there is a chance that inflation won’t derail oil demand. Inflation for oil is only a problem once it hits demand and it hits demand only once it hits economic growth. So, the single most important thing will be aggregate economic growth – the sum of components of recession fears and economic recovery. If inflation impacts economic growth, it will do so through creating a recession or a slowdown in particular countries and, then, it becomes a matter for oil demand and prices. It is not expected that we will have a global recession with a real hard impact on oil demand, but there will be a lot of victims on the sidelines, in particular in emerging market economies. We will see more bankruptcies there.

Christof is joined by Mike Muller, Head, Vitol Asia. Sean Evers from Gulf Intelligence moderates the discussion.

Watch the full discussion:
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Related Analysis

Energy Sanctions and the Global Economy: Mandated vs Unilateral Sanctions“, Christof Rühl, May 2022

Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022

Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022

Related Comments

Oil Slides on Saudi Output Report“, Dr Carole Nakhle, Jun 2022

Global oil markets and OPEC+ plans“, Dr Carole Nakhle, Jun 2022

A new oil cartel?“, Dr Carole Nakhle, May 2022

EU Sanctions on Russian Oil“, Dr Carole Nakhle, May 2022

EU Talks to Ban Russian Oil“, Dr Carole Nakhle, May 2022

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