Global Economy and Energy Markets Weekly Commentary – 7th Mar ‘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 developments in this weekly interview to the Gulf Intelligence.

Christof comments on OPEC’s surprising decision to keep supply unchanged. The official explanation of such a move could be the fact that they’re erring on the side of caution, but they are also setting the system up for more volatility – the market is now looking towards a supply increase at some point. On the other hand, the decision gives OPEC full control, as commercial inventories will continue to be driven down while they hold all the spare capacity.

He also cautions that these prices call for a reaction from shale – there are already signals of that from all the hedging going on. Some of the larger companies have indicated they may not rush to bring shale back too quickly, but shale is by no means dead. Rather, it has changed, with the big boys replacing the mom-and-pop shops. That may remove the old spontaneity in the industry, but it will not hold back forever.

Christof further discusses the impact of rising prices on the global economic recovery. According to him, although $70/bl oil is bad for economic development, it is not countries in Southeast Asia or even India that will drive global economic growth. That will be determined by the EU, the US and China, for whom these price levels are not a serious stumbling block as oil’s role in their economies has diminished. Secondly, the US, now an exporter, on balance benefits from higher oil prices. Higher oil and commodity prices also fuel inflation, and we are today facing the risk of a demand onslaught hitting the US economy on the back of the massive stimulus. We’ve already seen the markets starting to react, shorting US Treasuries which has pushed yields up. The US Federal Reserve Chairman Powell last week, failed in his attempt to reassure markets against inflationary dangers.

What will be the average price of Brent crude oil in Q2 2021?
In this poll from the Gulf Intelligence, the majority of the respondents believe that average price of Brent oil prices will be closer to $60/bl or closer to $70/bl

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

Related Analysis

Saudi Arabia’s energy ambition: From oil to gas“, Dr Carole Nakhle, Mar 2021

New Opportunities 2021: Some optimism for oil markets“, Dr Carole Nakhle, Feb 2021

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