Update on the oil markets

Main takeaways:

1. It is typical for host governments to pursue windfall taxes when oil and gas companies enjoy high profitability. But the oil industry is cyclical, and prices are volatile.
2. However, the topic is highly political and politicians tend to oversimplify a complex issue.
3. Windfall taxes cannot be introduced without taking into consideration the fiscal system that is already in place.
4. Investors dislike unstable fiscal regimes and continuous tinkering in fiscal terms as governments chase oil prices create fiscal instability.
5. In oil markets, the demand outlook remains quite uncertain, particularly with respect to the health of both the global and Chinese economies.
6. OPEC+’s main problem is in the gap between what they say they are going to do and what they are actually doing. As long as this gap is still in place, it would be hard for the producers group to effectively steer the market.
7. The tension between the US and Saudi Arabia has been exaggerated as the US is the biggest oil producer in the world. The optics of the timing of OPEC+’s decision to remove barrels from the market was ‘wrong’ from the US perspective as it came ahead of the US midterms elections.
8. Russia’s biggest challenge is that its oil production is in long-term decline.