The G7 is betting on capping the price of Russian oil. There is a significant risk of shortages accompanied by a new wave of inflation. Enough FTX, let’s get back to Bitcoin fundamentals.
ceiling price
The G7 countries (United States, Canada, France, Germany, Italy, Japan and the United Kingdom) have reportedly agreed to set a price cap for Russian oil from December 5.
What price exactly? We do not know yet.
It is planned to block access to certain ports (already in force in Europe) and to no longer insure shipowners (tankers) to buyers of Russian oil. Unless the oil is sold at a price equal to or lower than the fixed ceiling.
However, the world is bigger than the G7. And as Europe seeks to wean itself off Russian oil and gas, Moscow has increased its oil sales to countries like India. Janet Yellen, the US Treasury Secretary, has already indicated that India will be exempt from this cap.
The fall in Russian oil exports to the old continent (from 1.2 million barrels per day (bpd) to less than 100,000 bpd) is fully offset by a jump in exports to India:
All that said, India is navigating its boat well and already enjoys substantial discounts, which is a bit like a cap. Hence the free pass granted by Washington.
But Russia has warned that it will not sell oil to countries participating in the Western-orchestrated cap. India will therefore not be able to pull the rope too much.
OPEC gets involved
Let’s not forget that Russia is one of the top three oil producers in the world. Any reduction in its production would have serious repercussions on world prices.
We have had the demonstration with gas. The TTF gas benchmark is still six times higher than the long-term average. Here is what awaits us this winter according to Nicolas Meilhan, engineer specializing in transport and energy:
Western countries will soon have a date with mob justice. It’s a near certainty. To avoid them, OPEC would have to be able to compensate for any drop in Russian exports.
The rumor would like that an increase in production would actually be under discussion. However, the Saudi Minister of Energy denied this information on Monday, even threatening to further reduce production.
The next OPEC meeting promises to be explosive. It will take place on December 4th. That is to say the day before the entry into force of the price cap on Russian oil.
Any increase in production would mark a reversal of the decision made in October to cut production by 2 million bpd.
With Saudi Arabia and Russia accounting for almost half of OPEC quotas, there is a good chance that these geopolitical and energy contests will drive up the price of a barrel.
The International Energy Agency warns that the sanctions scheduled for December 5 “will add further pressure to global oil balances, and, in particular, to already exceptionally tight diesel markets.”
For’OUCH, “a myriad of uncertainties and logistical challenges remain.” “The range of uncertainties has never been wider. »
Less Oil = Inflation
The current situation is similar to that of 2005, when the world crossed the peak of conventional oil (oil that is easy to pump).
The problem in 2005 was that rising energy prices were feeding into headline inflation. Especially on food products. The Fed then did what it always does when inflation is too high. It halted growth by increasing its key rate, which rose from 1% to more than 5% between 2004 and 2006.
We face the same problem in 2022. High energy prices again affect food. For 2023, the Leclerc supermarket has warned that its suppliers are asking it to increase the prices of fruit and meat by 20% and 41% respectively…
But unlike 2005, the underlying trend in energy consumption today is much weaker. The growth rate of global per capita energy consumption was 2.3% per year during the period 2001-2005, compared to a decline of 0.4% for the period 2017-2021.
The chart above basically shows that the world is already on the brink of recession. We can no longer increase our energy production. And this time, there will be no cavalry as in 2008. Renewable energies (intermittent) will unfortunately not make it possible to compensate.
When oil prices began to rise in 2005, oil companies were able to adopt more expensive extraction techniques. It is thanks to this “shale oil revolution” that inflation has been able to settle.
But now the shortages of cheap energy are back. The peak of shale oil has probably passed and, contrary to 2005, prices are already too high for everyone!
This new reality suggests that unconventional oil reserves are unlikely to be exploited. Instead, we risk facing critical shortages of the diesel needed for trucks and farm equipment around the world.
Unless central banks print harder to finance government budget deficits? It hasn’t gone so well for England lately… Without energy, printing more is a very dangerous game. Inflation is here…
Bitcoin is an escape from the hyperinflation promised by the loan shark ponzi soon caught up in the physical limits of growth.
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