Key points covered during the discussion:
- As expected, no surprises from OPEC+’s latest meeting, but the big question is what will happen next as the OPEC+ deal will be revisited in September.
- OPEC’s spare capacity has always been concentrated in the GCC countries, namely, Saudi Arabia, UAE and Kuwait, and current estimates indicate that Saudi Arabia and the UAE hold around 2.5 Mb/d spare capacity, though the numbers vary across different sources.
- Currently, warnings of shortage of oil are becoming increasingly louder. However, with the world’s second largest oil exporter being most sanctioned country and if not enough oil around, why aren’t oil prices much higher than what we are seeing today??
- US President Biden’s recent acknowledgement that Americans should accept high oil prices indicates that there isn’t much he can do to tame prices after months of trying.
- The future of Russia in OPEC+ is a sticky point. It is unlikely that OPEC+ will turn its back to Russia as its the second largest producer in this alliance and, thus, is important for the longevity of the producers group.
- The application of a price cap on Russian oil supplies is complicated since it will involve different countries with varying legislations and administrative capacities. A big question also looms which is whether Russia will stick to the current production levels if a price cap was introduced.
- As inflation in 2022 is worsening and central banks are raising interest rates, the scenario of a global recession is becoming closer to reality. In this case, weaker economic growth will lead to weaker demand for oil, thereby putting downward pressure on prices.
Watch the discussion:
“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
“Global Economy and Energy Markets Weekly Commentary – 23rd Jun ’22“, Dr Carole Nakhle, Jun 2022
“OPEC, Oil Prices, and the US: Reasons for, and Solutions to, the Current Crisis“, Dr Carole Nakhle, Jun 2022
“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