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

Christof stresses that blaming oil prices for current inflationary pressures is not justified. The rise in energy prices is part of the cyclical ups and downs. So far, it’s a one-time increase and just a shift in relative prices, which will not show up as inflation over time. The Biden administration really did itself a disservice domestically by asking OPEC + and others for more oil while asking their own producers to slow down. We know that Saudi Arabia and Russia are not in the mood to leave a cent on the table. And while there may be inflation, OPEC+ probably does not view $85 as killing the global economy. At the end of the day, there’s still too much oil in the world. This current tightness is just a political decision by OPEC and others, like US private producers, to constrain supply.

On the restraints we are still seeing in the Permian, Christof explains that it’s not only them reacting slowly – it’s majors globally, with their giant share buyback programs and hesitancy to approve big oil or gas projects because of shareholder and political pressure. The investment gap in oil and gas (which has been talked about for decades) has today to do with this shift from Western private producers to state owned producers in the rest of the world, triggered by environmental concerns. And it’s a shift which has barely started. I don’t see the BPs of this world going back very quickly to an aggressive oil production mode.

He further discusses the gas shortage situation in Europe which seems to have eased. European prices have calmed down to an extent and are becoming more or less a function of LNG and coal prices elsewhere, particularly driven by Asia. Putin’s announcement last month that Russia could supply Europe with more gas did calm the market as it is believed that he has the ability to deliver.

On the Fed meeting which took place last week, Christof believes that there are several strands of reasoning which can explain the Fed’s behavior. The US has been living with inflation rates of 5% for a few months now – higher and longer than the Fed and the government had ever predicted. But the Fed starting to taper is really just taking its foot off the accelerator of QE – not the end of it. Plan B will be the rise in interest rates to curb inflation from hurting growth.

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

Watch the full discussion:
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Related Analysis

European gas crisis – the new normal“, Dr Carole Nakhle, Oct 2021

An Energy Crisis Like No Other“, Lord Howell, Oct 2021

Related Comments

Oil demand recovery and gas price spikes“, Christof Rühl, Sep 2021

Gas crisis hits the European Union“, Dr Carole Nakhle, Sep 2021

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