Executive summary:Recently, with the deepening of the crisis in Ukraine and the rising global oil prices, the two benchmarks, the West Texas Intermediate crude oil (WTI) futures price and the North Sea Brent crude oil futures price, performed strongly. Brent crude oil futures prices On the 24th, it broke through $100 strongly, hitting a new high since September 2014. As a special commodity with strategic attributes, the price of oil is not only affected by the relationship between market supply and demand, but also closely related to the geopolitical situation. The last round of large fluctuations in oil prices was due to the imbalance between oil supply and demand caused by the outbreak of the new crown epidemic. So, in the context of the sharp rise in international oil prices, which countries are the beneficiaries, and which countries are the losers? The author believes that the oil producing countries in OPEC+ are the main beneficiaries of rising oil prices, while major crude oil consuming countries such as the EU and China will be negatively affected by high oil prices. For the United States, the impact of high oil prices needs to be viewed dialectically.
Recently, with the deepening of the crisis in Ukraine and the rising global oil prices, the two benchmarks, the West Texas Intermediate crude oil (WTI) futures price and the North Sea Brent crude oil futures price, performed strongly. Brent crude oil futures prices On the 24th, it broke through $100 strongly, hitting a new high since September 2014. As a special commodity with strategic attributes, the price of oil is not only affected by the relationship between market supply and demand, but also closely related to the geopolitical situation. The last round of large fluctuations in oil prices was due to the imbalance between oil supply and demand caused by the outbreak of the new crown epidemic. So, in the context of the sharp rise in international oil prices, which countries are the beneficiaries, and which countries are the losers? The author believes that the oil producing countries in OPEC+ are the main beneficiaries of rising oil prices, while major crude oil consuming countries such as the EU and China will be negatively affected by high oil prices. For the United States, the impact of high oil prices needs to be viewed dialectically.
Oil prices rose and fell from $10 to $100
Recently, the conflict between Russia and Ukraine has attracted worldwide attention. On February 21, Russian President Vladimir Putin signed a presidential decree recognizing the independence of “Donetsk” and “Luhansk” in Ukraine. On the 24th, Putin announced a special military operation in the Donbas region. Russia occupies an important position in global oil production. In 2021, Russian oil production will account for about 11.7% of global oil production, and Ukraine is an important channel for Russia to send energy to Europe. Therefore, this conflict has promoted a new round of oil prices. Brent crude oil prices rose from around $70 in December 2020 to around $100 in February 2022, an increase of 42%.
In the past two years, oil prices have experienced ups and downs. At the beginning of 2020, the global spread of the new crown pneumonia epidemic forced countries around the world to take strict prevention and control measures. Under the epidemic prevention and control, the travel demand of residents has dropped significantly, and companies have been forced to suspend production and production. The restrictions on transportation and industrial production activities have caused a plunge in global oil demand. In addition, the impact of the epidemic has magnified the inventory crisis, storage costs have soared, and the futures delivery contract will continue to exert pressure. Therefore, international oil prices have also fallen off a cliff. The price of WTI crude oil in the United States once fell below $10. The New York Futures Commodity Exchange WTI May The settlement price of crude oil futures is the only negative value of -37.63 US dollars per barrel in history. Under the background of weak oil demand, the overall oil market is characterized by “oversupply”.
With the improvement of the epidemic prevention and control situation, the global economy is gradually recovering. Countries have begun to relax epidemic prevention measures, promote the resumption of industrial production and transportation, and increase the demand for the global crude oil market. Oil prices also bottomed out and started a streak of gains, with Brent rising 95% from around $40 in November 2020 to around $78 in July 2021.
At this time, the global oil market is characterized by “short supply”, which can be attributed to the following two reasons. First, the rebound in demand in the post-epidemic era far exceeds the rate of increase in supply. After the COVID-19 epidemic was effectively brought under control, governments around the world have introduced a series of measures to boost consumption and accelerate economic recovery, resulting in rapid growth in crude oil demand. However, the recovery of oil supply capacity is slow due to the coordination and cooperation of the overall industrial chain involving exploration, exploitation, transportation, and refining. In addition, the new crown epidemic has also damaged the global oil supply chain. Poor logistics in ports has led to a large amount of crude oil accumulation, and the crude oil transportation capacity that is difficult to recover quickly has further restricted the improvement of crude oil supply.
Second, under the background of low-carbon energy transition and low oil prices, investment in the oil industry has been greatly reduced. In order to effectively deal with climate change, countries around the world are actively promoting low-carbon energy transformation, and large international oil and gas companies have also responded by phasing out or reducing new investment in fossil energy. Markets focused on green investments under carbon constraints and sharply scaled back investments in the oil industry. The old oil and gas companies in various countries have begun to enter the new energy industry, and more investors are focusing on the new energy industry with more attractive yields.
So far, low profit returns have led to stagnation of oil investment, insufficient infrastructure construction in the oil industry, and disordered supply chains, making it impossible for supply capacity to recover quickly in the short term.
The “sorrows and joys of oil prices” are not connected
Oil is the world‘s largest source of energy supply (currently accounting for about 33% of the world‘s total energy demand). It has strategic attributes and is vulnerable to the short-term impact of geopolitical conflicts. Historically, local conflicts have always driven oil prices to rise, especially those involving relatively important oil-producing countries, and this time will be no exception.
The geopolitical risks caused by the Russian-Ukrainian conflict will cause the market to worry about oil production and supply in the short term, and the market will always magnify the worry, which will lead to rapid price increases. Not to mention, Russia is an important participant in OPEC+ and the world‘s second largest oil producer after the United States. In 2021, Russia’s average crude oil production will be 10.5 million barrels per day, making the conflict between Russia and Ukraine affect the global oil supply. The impact is more obvious. According to data from the U.S. Energy Information Administration (EIA), OPEC’s remaining capacity in the four quarters of 2022 is expected to be 4.22 million barrels per day, 4.08 million barrels per day, 3.75 million barrels per day and 3.74 million barrels per day, far lower than Russia’s Average crude oil production, the decline in spare capacity also affected OPEC’s ability to stabilize the crude oil market. If the conflict between Russia and Ukraine further deteriorates, Western countries will introduce more severe and comprehensive sanctions against Russia, especially if the settlement system is involved, which will greatly affect Russia’s oil exports and exports, and may cause a shortage of global crude oil supply. There is also a risk that oil prices will rise further.
It is foreseeable that rising oil prices will benefit OPEC+ producers such as Saudi Arabia. The major international oil producers represented by OPEC+ all hope that oil prices will continue to remain high, which should be OPEC+’s stance of insisting on slow growth in oil supply. The economies of OPEC+ countries such as Saudi Arabia rely heavily on oil export revenue and have suffered from low oil prices in recent years. If Russia’s oil exports are reduced due to sanctions, the international oil price will remain high for a long time, which will not only enhance the financial and economic vitality of oil-producing countries, but also expand its share in the global crude oil market and enhance its influence on the global crude oil market. force.
As a major oil producer, Russia is theoretically a beneficiary of the surge in international oil prices, but this needs to be established on the premise that the United States and the European Union do not impose export controls on Russia. At present, the United States and the European Union have only imposed financial sanctions on Russia, not directly targeting oil exports. The Russian-Ukrainian conflict has given Russia enough incentive to seek further potential buyers for its energy products.
Second, rising oil prices are not conducive to crude oil consuming countries such as the European Union, Japan, and China. As an active advocate of addressing climate change, the European Union has taken a radical approach to reducing coal and nuclear power in recent years, shutting down thermal and nuclear power plants, and issuing regulations to curb investment in fossil energy. The radical low-carbon energy transition has made the European energy system currently heavily dependent on oil and gas (59%), and the decline in domestic oil and gas production has resulted in a high degree of external dependence. In the process of rapidly abandoning fossil energy (including nuclear power), Europe has gradually lost its energy dominance, and the overall energy system has insufficient resilience. The rise in oil prices will increase the production costs of enterprises and the living costs of residents, making the already soaring energy prices and price indices in Europe worse, and may lead to a more serious energy crisis.
For China, the foreign dependence on oil will be 72% in 2021, and its own high foreign dependence on oil and gas will make China negatively affected by high oil prices in the international market. However, as oil consumption accounts for less than 20% of energy consumption, rising oil prices have relatively little pressure on inflation.
Finally, the impact of rising oil prices on the United States needs to be viewed dialectically. The United States achieved energy independence after the shale oil and gas revolution and became the world‘s major oil exporter. In recent years, with the continuous increase of shale oil production in the United States, its crude oil self-sufficiency rate has also been significantly improved. However, the drop in oil prices during the epidemic has had a huge impact on the huge shale oil and gas industry in the United States. The prolonged period of low oil prices has caused a large number of oil and gas manufacturers to go bankrupt. The current high oil and gas prices can already provide huge profits for U.S. oil and gas manufacturers and drive the strong return of the overall shale oil and gas industry. Once problems arise in Russia’s oil and gas exports, the strategic position and right to speak of the United States in the global energy system will be self-evident.
However, the current impact of high oil prices on the United States also has disadvantages. The high car penetration rate and skyrocketing oil prices have seriously affected the life and happiness of ordinary people in the United States. Moreover, since oil and gas in the United States accounts for 71% of energy consumption, the increase in crude oil (natural gas) prices will greatly affect the consumer price index and directly increase the level of inflation. At present, the United States is facing serious inflation. The latest data from the US Department of Labor shows that the US inflation rate reached 7.5% in January this year, setting a new high in 40 years. How to quickly and properly stabilize domestic oil prices, and use this as a starting point to alleviate the inflation problem, has become the top priority of the Biden administration. The United States also recently proposed to release the strategic oil reserve. In addition, the rise in oil prices may further compress the already stretched U.S. monetary policy adjustment space.
Game over oil prices may intensify
The current crude oil price is already at the highest level since 2014, and further rises will push up the already worrying global inflation level, which should be a situation that all parties do not want to see. Whether the United States, Japan, Europe or China wants to keep oil prices at a low level. However, oil-producing countries are highly dependent on oil exports economically and hope that oil prices will remain high. The game between oil producers and consumers, oil exporters and importers may intensify.
The future trend of global oil prices is worthy of attention. In the long run, oil prices depend on market supply and demand. Therefore, future oil price trends need to be analyzed from the supply and demand sides. From the demand side, the OECD predicts that the global economy will grow by 4.5% in 2022, so regional economic growth will drive demand growth in the crude oil market. From the supply side, the US Energy Information Administration (EIA) believes that the failure of OPEC members to meet the planned oil supply is an important factor in the tight supply of the oil market. The chairman of OPEC also said on the 16th that in the case of insufficient investment in oil and gas for many years, it is difficult for the organization to cope with oil demand on its own, and the situation of tight global crude oil inventories may continue for some time.
Iran, on the other hand, is actively seeking to lift oil sanctions. In its latest draft budget, Iran raised its forecast for oil export revenue from March 2022 to March 2023 by 27 percent, according to Iran’s Tasnim news agency, indicating that the United States and Iran may be able to reach an agreement to allow more Iranian crude oil Entering the international market, as Iran is an important oil producer, its return to the global crude oil market will increase the global oil supply to a certain extent. Therefore, there are still many favorable factors on the supply side in the long run. First, the mismatch between oil supply and demand will be gradually resolved; second, the market’s worries about oil and gas supply under geopolitics will be eased; With the support of further improvement; Fourth, Iranian crude oil entered the international market. In this way, oil supply and demand will reverse, and oil prices may return to a more appropriate level from a high level.
The recent large fluctuations in international oil prices have also brought many inspirations to China’s energy transition and energy security. On the one hand, China’s overall strategic oil reserves are relatively low. As the world‘s largest oil importer, China’s low-carbon and clean development needs to take into account energy security. Under the background that the share of electric vehicles and clean energy is not enough to substantially replace oil, China should focus on promoting the increase of oil and gas reserves and production, strengthen the exploration and development of domestic oil and gas resources, and reduce oil and gas based on the clean and efficient utilization of coal such as coal-to-liquids. Strategic energy dependence, enhance domestic energy production security capabilities, and strengthen resistance to external energy supply risks.
On the other hand, China still needs to work hard to expand oil import channels and continue to enhance its influence in international crude oil trade. Ensuring the diversification of imports is an effective measure for China to deal with the sharp fluctuations in oil prices in the face of increasingly serious global religious, political and cultural conflicts. At the same time, in order to improve China’s energy security level and resist the huge risks caused by frequent fluctuations in international oil prices, it is still necessary to continue to promote the construction of the offshore RMB market and deepen the construction of the Shanghai crude oil futures market. (The author Lin Boqiang is a researcher at the Jiageng Innovation Lab, and the Dean of the China Energy Policy Research Institute of Xiamen University)
Original title: From $10 to $100, who are the beneficiaries of the surge in international oil prices?