Oil cartel OPEC predicts tightness in the oil market. Consumption may exceed production. Earlier this month, a reduction in oil production was announced in order to boost oil prices. According to Han de Jong, BNR’s in-house economist, the oil market is facing a drop in demand, but that could soon be over.
‘Last year the market had to cope with the outbreak of war in Ukraine. But the stagnant Chinese economy in particular has led to falling oil demand.’ China is a major consumer of oil and also imports a lot of oil. That question fell away due to the many lockdowns during the corona pandemic. ‘That has done a lot of damage to the Chinese economy,’ says De Jong.
According to De Jong, the fact that OPEC+, the oil-producing countries and Russia are now warning of oil shortages, is mainly due to the consequences of a rapidly changing world. “China has reopened, which has caused demand to increase sharply.”
But especially the relationship between Saudi Arabia, Russia and America, the three largest oil-producing countries, has changed. ‘Saudi Arabia increasingly sees Russia as a partner, while the relationship between Saudi Arabia and the United States is under increasing tension,’ says De Jong. “President Biden has repeatedly treated Crown Prince Mohammed bin Salman, one of Saudi Arabia’s most powerful men, negatively.”
Murder
For example, the crown prince is said to be responsible for the murder of the Saudi journalist Jamal Khashoggi in 2018. De Jong also sees a geopolitical shift. “America has become almost self-sufficient in oil in the last decade and needs Saudi Arabia less and less.”
The effects of a rising oil price could be very detrimental to Europe, which has been struggling for some time with an energy crisis, high inflation and rising interest rates. “That would be extremely annoying.” The Americans don’t want this either, because political preferences in America often depend on the price of gas at the pump. “A higher oil price is detrimental to Biden,” says De Jong.
‘A shortage, an imbalance between supply and demand, is getting closer than we would like’
Although a rising oil price for both America and Europe means that inflation will also rise again, there are still major differences, De Jong believes. ‘America is largely self-sufficient in oil, which means that the problems caused by the rising price are less serious. On balance, the country is not getting any poorer.’ Europe is only 30 percent self-sufficient, which means that our economy will be hit by more expensive oil. ‘There is a conflict going on here that will make Europe the victim.’
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Shortage
In the coming period, De Jong will keep his eyes on China, which is importing more and more oil from Russia. ‘The logistics of the international oil trade are changing, but ultimately it is about global supply and demand. If China does indeed recover much more strongly than expected, demand will also pick up more strongly. Then a shortage, an imbalance between supply and demand, comes closer than we would like.’
