Bassam Fattouh


Dr Bassam Fattouh is the Director of the Oxford Institute for Energy Studies (OIES) and Professor at the School of Oriental and African Studies (SOAS). He has published a variety of articles on energy policy, the international oil pricing system, OPEC behavior, the energy transition, and the economies of oil producing countries. Dr Fattouh served as a member of an independent expert group established to provide recommendations to the 12th International Energy Forum (IEF) Ministerial Meeting in Cancun (29-31 March 2010) for strengthening the architecture of the producer-consumer dialogue through the IEF and reducing energy market volatility. He is the recipient of the 2018 OPEC Award for Research. He acts as an advisor to a number of governments and companies. He is a regular speaker at international conferences.

Areas of Expertise
Bassam Fattouh focuses his research on aspects of the international oil pricing system such as the relationship between the futures market and spot market, the relationship between OPEC and the market, the causes of oil price volatility and the dynamics of oil price differentials. He also focuses his research on the IOC-NOC relationship and its implications for investment behaviour. He has a strong background in the economic environment of the Middle East.

For non OIES publications please click here.


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                    [post_content] => Oil has always assumed a special position within the energy complex. Oil is a global and mature market, fungible, with many interrelated physical and financial layers, diverse set of players both on the demand and the supply side and has dealt with many shocks in the past (geopolitical and weather-related outages and demand shocks). Nevertheless, 2022 generated new types of shocks and the oil market has not been immune from government interventions which added new layers of uncertainty. However, despite the severity of the shocks experienced in 2022, the oil market through its various layers and players has shown strong resilience and continues to perform its key functions of price discovery and redirecting crude and products in the face of a massive shock. These shifts in trade flows will accelerate and consolidate in 2023, with wide implications for the structure of the market, price discovery, geopolitical relations, and the dominance of the dollar in oil trade. However, this has come at a cost. The trade routes have become longer and the cost of re-optimizing trade flows has increased, the adjustment in price differentials is sharper, the markets have become more segmented and less transparent and new class of trading entities have emerged. Also, refineries are having to change their crude slates resulting at times in sub-optimal use of crudes and supply of products. Most importantly, the current crisis is causing increased government intervention in energy markets including oil markets as energy security, alongside reducing emissions, becomes a key driver of energy policy. These government interventions have not yet reached their peak and are unlikely to be reversed anytime soon and the full impacts of which will become more visible in 2023 and beyond.
                    [post_title] => Oil Markets in 2023: The Year of the Aftershocks
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                    [post_content] => New OIES presentation – Short-Term Oil Market Outlook: Prospects, Risks and Uncertainty.

Key points:
  • The market is torn between a bullish micro-oil story and a bearish macro story. This is exacerbated by potential government intervention (price caps, embargoes, talks of restrictions of US products exports) and macroeconomic measures (aggressive tightening of monetary policy). Volatility also reflects tightness in some segments of the market particularly in the refining sector and the low levels of middle distillates stocks.
  • The key elements of the bullish micro-oil story are based on expectations of larger Russian crude and products disruptions; end of crude stock releases from SPR; OPEC+ role in balancing the market; moderate non-OPEC supply growth due to underinvestment; geopolitical risks outside Russia; and limited buffers in the system to deal with outages.
  • The bearish macro story is based on fears of a global economic recession with big negative impacts on oil demand and with no signs that China will alter its zero COVID-policy anytime soon; and some micro-oil factors such as expectation of limited Russian supply disruption, continued release of stocks from SPR, high US shale response, and until recently potential full return of Iran oil supplies.
  • Prospect of Russian supply disruption is a key factor shaping market expectations and the bullish story. So far, disruption of Russian crude production has been limited and well below initial expectations at the start of the Russia-Ukraine war. Despite this limited disruption, there has been massive transformation in global crude and products trade flows.
  • Products markets are tight and diesel stocks in Europe are below the 5-year average. The decline in Russian products exports to Europe; the loss in refining capacity in some parts of the world; maintenance and the strikes that paralyzed French refining sector are all factors contributing to this tightening and to the sharp swings in diesel margins. A key question is whether China’s refineries will increase its exports of products and ease the pressure on diesel markets after China has set its latest batch of oil products export quotas for 2022.
  • Another key factor shaping expectations is the downgrading of global growth prospects and the potential impact on oil demand. Global oil demand growth is now forecast at 1.8 mb/d in 2022 and 1.7 mb/d in 2023.
  • On implied balances, the market has shifted from deficit to surplus in Q3 2022. Weaker demand growth, limited supply disruption, and robust supply particularly from key OPEC countries alongside release of crude from the SPR all contributed to this shift.
  • Reference forecast for Brent stands at $100.8 in 2022 and $94/b in 2023, but the balance of risks in 2023 is skewed on the downside dominated by negative demand pressures (-$6/b on annual terms) and the price band ranges between $77.8/b and $104.3/b.
[post_title] => Short-Term Oil Market Outlook: Prospects, Risks and Uncertainty [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => short-term-oil-market-outlook-prospects-risks-and-uncertainty [to_ping] => [pinged] => [post_modified] => 2022-10-18 12:12:02 [post_modified_gmt] => 2022-10-18 11:12:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 45223 [post_author] => 111 [post_date] => 2022-09-06 11:08:52 [post_date_gmt] => 2022-09-06 10:08:52 [post_content] => If two different jurisdictions are involved in the Carbon Capture and Storage (CCS) chain, CO2 handling needs to be harmonized across borders and interface issues should be resolved (e.g. technical and operational standards, certification, transfer of ownership and risk, etc.). Similar to the imbalance which exists between the demand for fossil fuels between importing and exporting countries, suitable geological formations for CO2 storage may not exist in the highest-emitting countries, which calls for a need to export CO2 to countries with more suitable storage sites. It may also be in the interest of fossil fuel exporting countries to help their customers to dispose of CO2 stemming from imported hydrocarbons, as importing countries may have no other option due to the lack of sequestration potential (e.g. Japan). This will involve exporting and importing of CO2 across borders, relying on offshore transport by ships or via pipelines in most cases. Thus far, such examples include the transport of CO2 by onshore pipelines from the Boundary Dam project in Canada to the Weyburn project in the US, and the upcoming Longship project which envisages cross-border transport of CO2 via shipping from the UK and EU countries to Norway. All other projects so far have been within one jurisdiction. However, most recently (August 2022), Northern Lights signed a first-of-its-kind commercial agreement for cross-border CO2 capture and transport, where, from 2025, CO2 will be captured, compressed and liquified in the Netherlands, to be transported and stored in Norway. It is expected that other similar ventures will be established, making the publication of this study all the more timely. This paper appraises a specific case study of cross-border CO2 transport from Germany to Norway. It is argued that the opportunity offered by Norway to sequester large volumes of CO2 under its shelf in the North Sea is one that Germany should use to meet its ambitious net-zero goal for 2045. While the infrastructure needed on both sides requires vast investments, coordination and regulatory and legal efforts, endeavours of comparable scale have been achieved by cooperation between both countries in the past such as the successful development of the Troll gas export project and the infrastructure linked to it both offshore and onshore and the development of its market in less than 20 years. One important conclusion is the need to develop a joint vision on the necessary development in the short time (and the limited size of the CO2 budget) left, and to create procedures and institutions needed for cooperation and coordination. [post_title] => Cross-border cooperation on CO2 transport and sequestration: The case of Germany and Norway [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => cross-border-cooperation-on-co2-transport-and-sequestration-the-case-of-germany-and-norway [to_ping] => [pinged] => [post_modified] => 2022-09-09 15:56:31 [post_modified_gmt] => 2022-09-09 14:56:31 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 45137 [post_author] => 111 [post_date] => 2022-08-04 11:52:51 [post_date_gmt] => 2022-08-04 10:52:51 [post_content] => Volatility has been the name of the game in oil markets where we have recently seen some very sharp movements in oil prices and spreads. This reflects the high degree of uncertainty surrounding the oil market both on the supply and the demand side, but also lower liquidity which is amplifying some of these price movements. And these are reflected in two contrasting narratives: The super bullish scenarios which are projecting sharp acceleration in prices and focusing on the supply side of the market and the super bearish scenarios which are projecting a sharp decline in the oil price and focusing on the demand side and recessionary fears. This new OIES presentation empirically assesses these two narratives via forecast scenarios that attempt to stress test the upside and downside extremes of the short-term price outlook to 2023. On the upside, the main elements of the bullish narrative are supply-driven in terms of Russian disruptions accelerating again in H2 2022 and persisting in 2023, some OPEC+ producers continuing to struggle returning production, geopolitical risks outside Russia persisting and Iranian production failing to return in 2022 and 2023, and non-OPEC growth continuing to undershoot expectations. From a demand perspective, gas-to-oil switching amid winter gas shortages and a stronger comeback of Chinese demand dictate the bullish narrative. Analysis shows that even if all these bullish factors converge together to generate a perfect bullish storm, oil prices are not expected to exceed $140/b and they cannot be sustained in a strong price environment of $130s for more than two quarters due to strong negative responses from the demand-side. For prices to persist on an upward momentum, the eventual realization of the Russian disruption needs to be large, and one needs to make the unrealistic assumption that high prices due to the supply shock don’t have a substantial impact on demand. On the downside, the main elements of the bearish narrative are demand-driven in the face of recession concerns amid persistent supply-chain disruptions and high inflationary pressures squeezing global growth. Bearish supply-driven pressures are also present in terms of a lower realization of Russian disruptions, a potential breakthrough in the Iran nuclear negotiations and the full returning of Iranian production, modest improvements in the non-OPEC outlook and an extension of the SPR releases to year-end. Under a perfect storm of negative drivers, our modelled projections suggest that oil prices could fall in the $70s, but this will require all the negative demand and supply forces to converge together in a perfect storm including the Russian supply shock to be resolved and ignoring the impact of the low-capacity buffers in the oil system. This sets the price floor higher by between $5-$10/b in the $75/b and $85/b range. Our reference outlook suggests that the oil market volatility will remain elevated and the eventual realization of the oil market will likely turn out to be somewhere between these two extreme scenarios as there are many moving parts shaping the market and not all of these moving parts can move in the same direction for long. Eventually as the dominant elements become clearer (i.e. the impact of sanctions on Russian production, macro-outlook and demand impacts), price volatility will start to ease and move away from the recent extremes. [post_title] => Oil market volatility: Assessing the bullish and bearish narratives [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-volatility-assessing-the-bullish-and-bearish-narratives [to_ping] => [pinged] => [post_modified] => 2022-08-04 11:52:51 [post_modified_gmt] => 2022-08-04 10:52:51 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 44973 [post_author] => 111 [post_date] => 2022-06-10 11:31:21 [post_date_gmt] => 2022-06-10 10:31:21 [post_content] => This new OIES presentation assesses the implications of the tightening sanctions on Russian oil for crude and product markets, as well as the short-term oil market outlook in terms of supply/demand and price dynamics. Some key points:
  • The immediate restrictions on Russian crude and products flows remain driven by self- sanctioning. But the EU’s recently agreed year-end embargo on Russian oil and prohibition of EU operators from insuring and financing the transport of Russian oil to third-party countries are bound to change this, albeit the full impact of the latest sanctions on Russian oil flows may not be felt until 2023.
  • The redirection of Russian crude to Asia and the Med, the EU intake holding steady at 2.1 mb/d in March/May following an initial m/m drop by 0.48 mb/d, and lower refinery output amid a slowdown in domestic demand have led to Russian crude exports jumping to 2019 high levels at 5.4 mb/d from 4.8 mb/d in February.
  • Russian crude-on-water has risen to record levels led by Urals, as crude exports shifted from short-haul to long-haul. Helping this redirection of trade flows has been the offer of Russian Urals at a large discount and easier payment conditions with India imports of Russian crude already nearing 1 mb/d, China’s appetite growing towards H2 as lockdowns ease and the Med steadily ramping up intake of discounted Urals (mainly Italy and Turkey). In response, US and West African Crude (WAF) crude is now shifting from Asia to Europe to fill the supply gap of Russian barrels, while intake from regional domestic producers is also on the rise. This is changing dramatically European refineries’ diet.
  • The EU ban on Russian products adds to the pressure in Europe as distillate stocks remain tight. Russian diesel continues to flow to Europe with markets pricing non-Russian diesel at a premium. Also, the definition of what constitutes non-Russian cargoes has become stricter with more rigorous restrictions on suppliers on the origin of their products.
  • European product markets saw some relief by hiking imports from the US, the Middle East and India, but the products market in the US is also tight due to the refinery closures in 2020/2021 and shortages of key feedstock from Russia due to sanctions. Asia markets are also becoming increasingly tight as regional demand picks up amid export quotas in China and refiners in India are at, or near, maximum capacity. The products market tightness that started, even before Russia’s invasion of Ukraine, is spreading to other products from diesel to jet to gasoline.
  • The supply disruption in Russian supplies remains limited so far and for now we expect crude shut-ins in H2 to reach between 1.5 mb/d and 2.6 mb/d towards year-end with our reference case favouring the high disruption scenario. The risk of bigger disruption is rising by the day due to self-sanctioning, the European ban on Russian seaborne imports, EU operators prohibited from insuring and financing transport of Russian oil (including reinsurance), refusal of many banks to finance Russian-related commodity transactions, and traders not renewing term contracts with Russian producers.
  • Global supplies find little comfort as most OPEC+ struggle to meet their quotas, the prospects of reaching an Iran nuclear deal have diminished, US shale growth remains constrained by surging inflation and supply-chain bottlenecks and companies sticking with plans to keep capital spending in check. In the near-term, the crude market could find relief from the continued SPR releases, but this will be temporary.
  • On the demand side, China’s post-lockdown recovery and pent-up demand in advanced economies support the near-term outlook, but risks are tilted to the downside and the risk of demand responses to higher oil prices and slower economic growth increases in 2023. Our global demand forecast sees y/y growth of 2.2 mb/d in 2022 and 1.4 mb/d in 2023, albeit growth outcome in Q3 will be critical to the outlook.
  • The oil market is still seen at a small surplus in 2022 at 0.38 mb/d but market deficits are expected to re-emerge sooner from Q4-onwards deepening the overall deficit in 2023 to -0.58 mb/d. OECD stocks remain under severe pressure throughout the remainder of the year, before the draws reverse ending-2022 with the deficit easing only slightly in 2023. Our reference Brent forecast stands at $112.8/b in 2022 and $102.8/b in 2023, with the price pressures sustained in Q2 and Q3 before easing towards next year. Oil price volatility remains high throughout, but the balance of risks is tilted to the downside in 2023.
[post_title] => Russia’s invasion of Ukraine and oil market dynamics [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russias-invasion-of-ukraine-and-oil-market-dynamics [to_ping] => [pinged] => [post_modified] => 2022-06-10 13:28:42 [post_modified_gmt] => 2022-06-10 12:28:42 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [5] => WP_Post Object ( [ID] => 44901 [post_author] => 111 [post_date] => 2022-05-12 12:22:21 [post_date_gmt] => 2022-05-12 11:22:21 [post_content] => The completion of the Article 6 rulebook of the Paris Agreement is a necessary step towards building a robust framework in which participants can use collaborative approaches and a market-based mechanism to promote climate and sustainable development goals. There is widespread expectation that the Article 6 rulebook will create the conditions for effective and robust international carbon markets to thrive, including continued, significant growth in private sector investments through voluntary carbon offset projects. Increasing the credibility and integrity of these markets and greater alignment between voluntary and compliance markets can increase the adoption and the efficiency of these markets in achieving their goals. It will also pave the way for cooperative approaches that allow the financing of technologies needed to meet climate targets and raise climate ambitions of participating countries. The mechanism under Article 6.4 could pave the way for the development of a new crediting mechanism that avoid the shortcomings of the Clean Development Mechanism. However, there are still some uncertainties surrounding the wider implications of Article 6 on carbon markets. This paper highlights the potential impact of Article 6 on the diversity of carbon credits available for investors and the uncertainty faced by investors when investing and trading on projects and their underlying credits as well as for corporations, particularly in what claims they can make by purchasing these different carbon offsets. Participants in carbon markets will be closely examining the implications for investors in terms of balancing investments in adjusted versus non-adjusted credits and accessing high quality projects including carbon removal credits. They will also be considering options to manage some of the risks associated with governments’ authorization processes, how corresponding adjustments (CAs) are applied, the governance frameworks in place and assessing the financial and reputational risks of some countries not being able to meet their nationally determined contribution (NDC) while engaging in large transfer of internationally transferred mitigation outcomes (ITMOs). Participants will also be monitoring closely the emission reductions generated under the Article 6.4 mechanism and whether these will gain the credibility and integrity to be permitted to be used in other compliance markets such as the EU-Emission Trading System (ETS), encouraging convergence across markets. Various supervisory efforts are already underway to help reduce uncertainty and provide more clarity for users of these markets. Market participants will be monitoring clarifications from a variety of initiatives and bodies including the United Nations Framework Convention on Climate Change (UNFCCC) Article 6 Supervisory Body (scheduled to meet twice in 2022), the Taskforce for Scaling Voluntary Carbon Markets (TSVCM), the Integrity Council for Voluntary Carbon Markets, the Voluntary Carbon Market Integrity Initiative (VCMI), and the various accreditor organizations such as Gold Standard and Verra. Also, the UN Secretary General has recently launched a high-level expert group with the task of assessing current standards and definitions for setting net-zero targets by non-state actors. There is hope that that as rules, guidance, and frameworks from regulated and market led initiatives consolidate, this would create the regulatory certainty to ensure the environmental integrity that investors seek. [post_title] => Article 6 and Voluntary Carbon Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => article-6-and-voluntary-carbon-markets [to_ping] => [pinged] => [post_modified] => 2022-05-12 12:22:21 [post_modified_gmt] => 2022-05-12 11:22:21 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [6] => WP_Post Object ( [ID] => 44871 [post_author] => 111 [post_date] => 2022-05-06 10:59:30 [post_date_gmt] => 2022-05-06 09:59:30 [post_content] =>
  • This new OIES presentation features our initial empirical assessment of the implications of the proposed EU ban on Russian oil for supply/demand and price dynamics to 2023.
    • Although the degree of uncertainty surrounding the actual size of Russian supply disruptions remains high, March 2022 data show a very small m/m disruption of less than 1% in Russian oil production with our preliminary assessment for April suggesting that disruptions could have risen m/m by 0.5 to 0.9 mb/d with Russian crude output falling between 10 mb/d and 10.5 mb/d from 11 mb/d in March.
    • The disruptions in Russian oil appear to intensify in April mainly due to storage constraints as domestic demand fell and demand for product exports declined. In March, we estimate that Russia’s products demand declined sharply m/m by 11% to 2.8 mb/d, a fall by 0.35 mb/d y/y. At the same time, Russian product exports fell m/m by 25% with Europe and the Americas accounting for the entire decline (-0.8 mb/d m/m). As a result, Russian refiners cut runs by nearly 11% m/m in March with the output of all products being impacted and preliminary estimates suggest that runs dropped further in April to 15%.
    • Russia has been able to redirect some of the decline in oil exports to Europe to other parts of the world with intake from Asia easing the fallout of Russian crude, but product exports have been more difficult to clear. In effect, however, as Russian crude flows are shifting from short- to long-haul it will become increasingly more difficult to clear Russian barrels as time goes by and the impact on Russian crude will be more severe. This is emphatically depicted on Russian crude-on-water that has nearly doubled since the start of the year up by more than 45 per cent reaching to high levels comparable to May 2020 and a rise in floating storage expected to follow suit.
    • The EU-27 proposal on May 4, 2022, to phase out Russia seaborne and pipeline crude imports within 6 months and gradually ban the imports of refined products by year-end has huge implications both for Russian oil but also the global oil markets. In March, EU-27 imports of Russian crude totaled 2.7 mb/d, of which 1.9 mb/d were seaborne and 0.8 mb/d were imported via pipeline, and refined product imports 1.4 mb/d bringing the total (crude and products) EU-27 ban of Russian oil close to 4.1 mb/d. And while it will be challenging to ban all of Russian oil with some landlocked countries that rely heavily on Russian pipeline crude already discussing exceptions (but not opposing the EU ban) and considerable uncertainty remaining about the actual timing of phasing out Russian oil, we assume some 85 per cent of the total EU-27 imports of Russian oil in March (~ 3.5 mb/d) to be halted by year-end.
    • In our Reference case in which the EU-27 ban is excluded, Russia’s crude disruptions mainly due to self-sanctioning reach 1.3 mb/d in May 2022 before gradually rising to 1.9 mb/d ending-2022, around which level they are maintained in 2023. The impacts on oil prices would have been small and the supply gap could be filled considering the supply/demand responses already in effect and the SPR releases. Our Reference case sees the Brent price averaging $105.4/b in 2022 and $99.2/b in 2023, with the supply/demand gap holding near balance in both years.
    • But in our Escalation case in which the disruptions in Russian oil under the EU-27 ban exceed 4 mb/d by August to average at 3.5 mb/d for 2022 as a whole, the impacts are more profound both on price and market dynamics as it is more difficult to fill the supply gap. The SPR releases are expected to ease the near-term pressures, but beyond the near-term some 1.1 mb/d of lost Russian supplies remain uncovered on OPEC+ constraints, the dimmed potential of Iran’s return in 2022 and the capacity constraints outside OPEC+.
    • In response, global oil demand will take a larger hit and y/y growth expected to fall to 1.8 mb/d in 2022 and 0.5 mb/d in 2023, with OECD accounting for 67% (or 1 mb/d) and non-OECD for 33% (or 0.5 mb/d) of the expected losses in total growth by 2023 relative to our Reference case. Fuel demand for industry appears the worst hit accounting for 40% of total demand losses, with massive downgrades seen in diesel and gasoline demand in OECD alone and a combined 1 mb/d of diesel/gasoline demand at risk by 2023.
    • Brent prices in the Escalation case average at $128.2/b in 2022 and $125.4/b in 2023, $22.8/b and $26.3/b higher than our Reference respectively, climbing at $150/b by July 2022 before easing in the $110s in H2 2023. Market deficits are seen re-emerging from H2 2022 onwards and averaging -0.1 mb/d in 2022 and -0.4 mb/d in 2023. With the market failing to build a material surplus after Q2 2022, severe pressure is maintained to the exceptionally tight OECD stocks and in response to market prices.
    • Overall, oil price volatility remains extremely high in both 2022 and 2023 as the outlook is now more than ever sensitive to policy decisions, with Brent ranging between $101.4/b and $130.8/b in 2022 and $85/b and $131.9/b in 2023. This is also reflected in global balance risks, with the supply/demand gap ranging between -0.7 mb/d and 0.8 mb/d in 2022 and -1.8 mb/d and 0.7 mb/d in 2023, favouring more tight markets in both years.
[post_title] => Implication of the proposed EU ban of Russian oil for global oil markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => implication-of-the-proposed-eu-ban-of-russian-oil-for-global-oil-markets [to_ping] => [pinged] => [post_modified] => 2022-05-07 09:47:45 [post_modified_gmt] => 2022-05-07 08:47:45 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [7] => WP_Post Object ( [ID] => 44868 [post_author] => 111 [post_date] => 2022-05-04 17:35:12 [post_date_gmt] => 2022-05-04 16:35:12 [post_content] => This new OIES presentation raises some key questions:
  • How are oil markets coping with the shock so far?
  • What types of trade patterns and trading practices are emerging? Will these shifts be permanent?
  • Russian invasion has raised the ambition for an accelerated energy transition away from hydrocarbons (at least in Europe). Does the Russian invasion ease the removal of the barriers needed for an accelerated energy transition? Or are there new factors that can work in the opposite direction and actually slow or delay the transition for a few years?
  • Are we likely to see more comprehensive energy policies that integrate sustainability, security, affordability and economic development/competitiveness? What are the implications of such a broader energy policy?
Some key points:
  • Russian invasion of Ukraine represents a paradigm shift for European energy markets and EU energy relations
  • Widespread belief that no return to previous order and European energy markets are searching for a new normal (diversification of supply sources, acceleration towards renewables, energy security concerns)
  • But the transition to the ‘new normal’ can be long and bumpy and will not proceed evenly across the globe
  • In oil markets, size of Russian output disruption has been limited so far but this could changing rapidly especially after the EU’s proposal to phase out Russian oil imports into the EU
  • Oil markets more than ever subject to policy levers (embargos, sanctions, unilateral cuts) which is creating high uncertainty and price volatility and reducing liquidity from mature markets
  • Extent of self-sanctioning by the private sector and commodity traders key feature of this shock
  • New patterns of crude and products trade flows emerging (Russian crude towards East, Middle East and US crude towards Europe; Europe has to source products such as diesel from further away places)
  • New trading practices (blending, STS transfers) and segmented markets (Russian origin versus non-Russian origin products)
  • Exposed the reality that despite ambitions for a fast energy transition towards new energy sources, current energy order is still highly reliant on hydrocarbons (oil, gas, coal) limiting foreign policy options
  • Energy security remains at the core of energy policy and energy security comes at a cost and can derail other objectives
  • Transition to new energy order in a smooth and an orderly manner may not even be possible as frictions between key players in the global scene intensify (US-China, Russia-West, slowdown in globalization)
[post_title] => Russia's Invasion of Ukraine: New Oil Order? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russias-invasion-of-ukraine-new-oil-order [to_ping] => [pinged] => [post_modified] => 2022-05-04 17:35:12 [post_modified_gmt] => 2022-05-04 16:35:12 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [8] => WP_Post Object ( [ID] => 44752 [post_author] => 111 [post_date] => 2022-04-04 11:56:36 [post_date_gmt] => 2022-04-04 10:56:36 [post_content] => This new OIES presentation features a comprehensive empirical assessment of the implications of the Ukraine war on oil price and supply/demand dynamics via a number of forecast scenarios examining the size of disruption in Russian supplies, OPEC and non-OPEC supply response, the impact of the latest US announcement of SPR release and other uncertainty scenarios. The analysis considers two principal scenarios: - A Reference case in which self-sanctioning measures and obstacles in redirecting Russian crude flows due to financing and shipping constraints results in a loss of 1.1 mb/d of Russian crude output by May 2022 that persists throughout our forecast horizon. - A Full curtailment case either due to an extension of direct sanctions on Russia or a retaliatory tit-for-tat oil embargo from Russia that results in the loss of 3.9 mb/d of Russian oil production by May 2022 that also persists throughout our forecast horizon. Both scenarios are presented against a no-disruption baseline that corresponds to the latest forecast prior Russia’s invasion of Ukraine to assess the impact of the negative effects of Russia’s disruptions on price and supply/demand dynamics. Under both principal scenarios the near-term price pressure is maintained till year-end on the lack of immediate replacement barrels to fill any potential gap from Russia’s disrupted supplies until at least H2 2022, before prices retreat towards $100/b in 2023 as negative demand responses on higher energy prices and wider macro disruptions begin to dictate the outlook. In the more severe disruption case, oil prices momentarily rise in the $150s, $31/b higher than the price peak of $125/b under our Reference case. Overall, depending on the size of disruption in Russian supplies and supply/demand outcomes in response, Brent price ranges between $95/b and $140/b in 2022 on annual basis and $74/b and $123/b in 2023. Global oil demand loses between 1.1 mb/d and 2.5 mb/d of growth by 2023, with the y/y growth averaging 2.6 mb/d in 2022 and 1.5 mb/d in 2023 under Reference and 2.2 mb/d and 0.5 mb/d in 2023 under the Full curtailment case. OECD demand takes the hardest hit. The impact on non-OECD demand is more profound under the Full curtailment case. In terms of sectors the impact on fuel demand for industry appears the most affected. Our latest analysis sees the first detailed assessment of the impacts on OECD products demand, in which middle distillates and gasoline see massive revisions with their combined disruption under the more severe case reaching 1.2 mb/d. On the supply side, a collective supply response could bring in total 3 mb/d of additional supplies ending 2022, suggesting that the market can manage a small to medium size disruption in Russian supplies, albeit near-term pressures particularly in H1 persist in both scenarios. On the contrary, a severe curtailment of Russian supplies would see the price pressure persisting for most of 2022, with replacement barrels struggling to fill any gap larger than 4 mb/d even in 2023. The US SPR release could offset some of this pressure in the near-term, but the impact on prices appears to be shortlived and largely dependent on the size of the Russian supply disruption. The balance of risks to the global supply/demand balance points towards tight market conditions in 2022 with the prospect of a more balanced market and surpluses reappearing in 2023. Our best-case scenario under the Reference sees the market only balanced in 2022 by 0.15 mb/d and a small surplus of 0.63 mb/d building in 2023, offering some relief to OECD stocks that draw massively for most of 2022. The more severe case under Full curtailment however sees the market deficits persisting in 2022 and averaging -1.1 mb/d for the year, before the market balances in 2023 to 0.05 mb/d. In this scenario, OECD stocks draw massively to multiyear low levels. [post_title] => Russia’s invasion of Ukraine and global oil market scenarios [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russias-invasion-of-ukraine-and-global-oil-market-scenarios [to_ping] => [pinged] => [post_modified] => 2022-04-04 11:56:36 [post_modified_gmt] => 2022-04-04 10:56:36 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [9] => WP_Post Object ( [ID] => 44604 [post_author] => 111 [post_date] => 2022-03-02 16:58:55 [post_date_gmt] => 2022-03-02 16:58:55 [post_content] =>

After weeks of tensions, Russian President Vladimir Putin ordered Russian troops to invade Ukraine, prompting an international sanctions response targeting Russia’s economy but not directly its oil supplies or energy payments. But as sanctions on Russia intensified and as financial institutions started to refuse financing Russia-related transactions, including opening letters of credit or clearing payments and as some companies became reluctant to purchase Russian crude, Brent on March 2 (the time of writing) was trading above $110 for the first time since 2014.

Looking forward the market focus should not only be on whether the oil sector will be directly targeted by sanctions, but also the crescendo effect of self-sanctioning along the oil supply chain all the way from marketing to financing to shipping. Fears over energy sanctions and the ambiguity over the banking sanctions have already seen companies avoid purchasing Russian barrels, pushing prices to new multiyear highs and shaving-off shock mitigation policies such as the SPR releases. Also, it has become clear that traders holding Russian crude on their books are struggling to clear cargoes and this has been reflected in widening differentials and rising shipping and insurance costs. 

The next stages for Russian crude supplies are highly uncertain but some possible impacts include:

- Massive shifts in trade flows and sharp adjustments in price differentials to reflect shifts in Russian crude exports. Particularly, there could be a greater re-redirection of flows from Europe to Asia, but there are limits to such re-direction and not all Urals previously destined to Europe will flow into Asia.

- Russian oil companies could offer sweeteners to buyers to make their barrels more attractive, for instance shifting cargoes from FOB to CFR basis. Also, in response to more extensive self-sanctioning, Urals and ESPO could be offered at discounts so large that cargoes would eventually clear, potentially as masked cargoes or via ship-to-ship transfers. But there are limits to this strategy given the large volumes of Russian exports and the intensification and widening of sanctions.

- Self-sanctioning escalates over the coming weeks leading to a reduction in Russian production and supply disruptions at a larger scale. 

In the current environment of ever rising tensions, one should also not also exclude the possibility that in an escalation situation where Russia struggles to clear its barrels, weaponizing energy becomes the next chapter in Russia’s ongoing standoff with the West. As these are still early days, a scenario in which Russian oil supplies get disrupted in a sudden manner should also be considered. This will exert significant pressure on both market balances and prices in the near-term and for most of 2022. In the short term, potential responses to ease the price pressure are likely to come from the supply side. The current plan of OPEC+ to return withheld supplies back to market, Iran fully returning to the market and non-OPEC production growth particularly in North America accelerating, these combined supply responses can help fill any potential supply gap. The planned SPR releases will offer little support to a potential shortfall. But in such scenario the demand responses will also play their role and become more visible beyond the near-term. In terms of products, the market and refiners appear less flexible faced with constraints both in terms of costs and feedstock availability. Also, the impacts of the current shock will extend beyond the short-term and beyond balances and prices. The recent crisis will elevate energy security (including oil security) in policy makers’ agenda with long-term consequences for governments’ energy policies including their energy transition.

[post_title] => Russia-Ukraine crisis: Implications for global oil markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russia-ukraine-crisis-implications-for-global-oil-markets [to_ping] => [pinged] => [post_modified] => 2022-03-02 16:58:55 [post_modified_gmt] => 2022-03-02 16:58:55 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [10] => WP_Post Object ( [ID] => 44222 [post_author] => 111 [post_date] => 2021-10-11 12:28:25 [post_date_gmt] => 2021-10-11 11:28:25 [post_content] => National commitments to cut greenhouse gas (GHG) emissions currently fall far short of what is needed to meet the goal of the 2015 Paris Agreement to limit global warming to 1.50 C and no more than 20 C.  Meeting this goal will require an estimated 45% reduction in global emissions by 2030, reaching net-zero emissions by 2050 with a continuing decline beyond that date. In response to this imperative, companies in every economic sector, along with national and regional governments, cities, universities, and investors are making their own commitments to reach net-zero emissions. Of the 1,500 companies that have made net-zero commitments, it can be assumed that a substantial number are considering purchase of carbon offsets for at least some portion of their emission reduction targets. This is consistent with the surge in demand for voluntary carbon offsets. Since the first carbon offset project in 1989, global markets for carbon offsets have become valued at more than $5 billion annually, doubling each year since 2018, and are projected to increase by as much as a factor of 15 or more by 2030 as companies and countries set ambitious goals for net-zero CO2 emissions. In parallel, carbon offsets are attracting elevated scrutiny for their role in meeting climate goals. While there has been considerable progress in establishing standards for rigorous monitoring, verification and reporting protocols, there has also been a legitimate debate regarding the role and efficacy of offsets in meeting science-based targets. For example, offsets have been criticized as not consistently delivering climate and other environmental benefits, or as providing a relatively cheap way for companies to meet “net-zero” goals, substituting for, and possibly disincentivizing core investments in operational efficiencies, renewable energy, technology innovations, or procurement of low-carbon inputs into supply chains. This paper provides an overview of key trends in carbon offset markets along with recommendations for buyers and sellers on how to participate effectively in an evolving market landscape. The focus here is on the development of exchanges and spot and futures contracts tradable on these marketplaces to generate reliable price signals and liquidity, drawing on examples from the LNG industry. While ‘bundling’ LNG cargoes or other commodity transactions with carbon offsets can be relatively straightforward via exchanges and spot and futures contracts, the use of carbon offsets in these types of commodity transactions are attracting elevated scrutiny regarding their contribution to meeting climate change targets. [post_title] => Voluntary markets for carbon offsets: Evolution and lessons for the LNG market [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => voluntary-markets-for-carbon-offsets-evolution-and-lessons-for-the-lng-market [to_ping] => [pinged] => [post_modified] => 2021-11-03 10:03:52 [post_modified_gmt] => 2021-11-03 10:03:52 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [11] => WP_Post Object ( [ID] => 44150 [post_author] => 111 [post_date] => 2021-09-24 13:44:59 [post_date_gmt] => 2021-09-24 12:44:59 [post_content] => Carbon capture and storage (CCS) involves the trapping of man-made CO2 underground in order to avoid its release into the atmosphere. Because of the scale with which it could be applied, CCS is identified as a critical technology to reduce CO2 emission to achieve global climate goals. The Intergovernmental Panel on Climate Change (IPCC, 2018) shows that most of the 1.5oC pathways assume significant CCS. Also, in a recent paper, we argued that CCS could play a central role in oil and gas exporters’ low-emissions development strategies. The deployment of CCS could provide them with an opportunity to continue to monetise their reserves while meeting climate goals and retain the competitiveness of their oil and gas sectors and energy intensive industries in a net-zero emissions world. CCS is climate mitigation action which caters to the assets (in terms of geological storage capacities and existing infrastructure) and the technical skills (i.e., expertise in subsurface technology) of oil and gas producers. While investing in CCS reduces margins and increases the complexity of the current business strategies of oil and gas exporters, it also increases the resilience and competitiveness of a strategic sector at times when the world is transitioning to net-zero emissions. Since the benefit of reduced emission accrues to all the stakeholders along the oil and gas supply chain, it is reasonable that the cost for large-scale CCS deployment should be shared. The common global goal of avoiding the dangerous impacts of climate change means that the cost of CCS should be shared between producers and end users, rather than be focused on one or the other resulting in, probably, sub-optimal deployment of the technology. Given the international dimension of the oil and gas business, it is therefore imperative that policies and mechanisms are put in place to generate revenue for CCS deployment that would offset part of the associated costs. A key role here falls to the Paris Agreement which offers many opportunities for collaboration either through bilateral or multilateral initiatives including the creation of clubs with common interests. The challenge is to create effective incentive schemes to turn these opportunities into actions. Podcast - Carbon Capture and Storage: The perspective of oil and gas producing countries [post_title] => Carbon Capture and Storage: The perspective of oil and gas producing countries [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => carbon-capture-and-storage-the-perspective-of-oil-and-gas-producing-countries [to_ping] => [pinged] => [post_modified] => 2021-09-24 13:46:35 [post_modified_gmt] => 2021-09-24 12:46:35 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [12] => WP_Post Object ( [ID] => 43902 [post_author] => 111 [post_date] => 2021-07-28 10:44:13 [post_date_gmt] => 2021-07-28 09:44:13 [post_content] => This new OIES presentation looks at the extension of the OPEC+ deal to the end of 2022 and implications on oil markets:
  • Global oil demand has lost some momentum recently, but the fundamentals remain solid where demand is still expected to grow by 5.6 mb/d in 2021 and further 3.3 mb/d in 2022.
  • OPEC+ to unwind the 5.76 mb/d cut by September 2022. OPEC+ producers agreed to ease their output cuts by 2 mb/d between August and December 2021, adding 400 kb/d each month over this period. If the monthly 400 kb/d reductions per month carry on until April 2022, OPEC+ will add 3.6 mb/d to the market. OPEC+ aims to release the remaining 2.16 mb/d in monthly increments of 432 kb/d between May 2022 and September 2022.
  • Extension of the agreement until end of 2022 implies there is a buffer of up to 3 months in which OPEC+ may decide not to release the 400,000 b/d increment or increase cut by up to 400 kb/d.
  • The baseline adjustment does not affect the monthly increments and OPEC+ total production; it impacts how the monthly increment is distributed among member countries.
  • Assuming all the remaining barrels are released back to the market by September 2022, OPEC+ production can exceed 42 mb/d but the projected additional barrels released from OPEC+ back to the market in 2022 are likely to be less than the headline 5.76 mb/d figure.
  • Considering implied production capacity and maximum historical production levels sustained over a period of 3-6 months we estimate that OPEC+ producers can return only 4.4 mb/d of restrained supplies 1.2 mb/d below target.
  • With the supply path for OPEC+ clear the balance of risks to our price outlook is now limited to demand and geopolitical risks.
  • Despite the increase in production between August 2021 and December 2021 the market is projected to remain in deficit in Q3 and Q4 2021 and for the year as a whole.
  • Depending on global oil demand outcomes and the return of Iranian barrels, the market could switch into surplus in 2022 if OPEC+ stick to their deal showing the importance of OPEC+ balancing role in a uncertain environment.
[post_title] => OPEC+ and Short-Term Oil Market Dynamics [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-and-short-term-oil-market-dynamics [to_ping] => [pinged] => [post_modified] => 2021-07-28 10:44:13 [post_modified_gmt] => 2021-07-28 09:44:13 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [13] => WP_Post Object ( [ID] => 43821 [post_author] => 111 [post_date] => 2021-06-29 10:45:11 [post_date_gmt] => 2021-06-29 09:45:11 [post_content] => In addition to diversifying into new sectors, oil and gas exporters could pursue policies to increase the resilience of their core energy sector in a world transitioning to net-zero emissions by competing on reducing emissions. This Energy Insight argues that technologies related to geological storage of CO2 could play a key role in these countries’ near- and longer-term, low-emissions development strategies. Carbon Capture, Use and Storage (CCUS) is a climate mitigation action through which some oil and gas exporters could establish a competitive advantage given their natural (e.g. geological storage capacities, depleted hydrocarbon reservoirs, existing infrastructure) and technical resources (e.g. the expertise in subsurface technology). Also, the deployment of CCUS could provide oil and gas exporters with an opportunity to continue to monetise their reserves more sustainably and retain the competitiveness of their energy intensive industries in a net-zero emissions world. Although some believe that the combination of clean electrification and green hydrogen can deliver net-zero emissions by 2050, the uncertainty surrounding the speed of the transition coupled to the variations in transition strategies likely to be adopted by different countries means many scenarios still project that oil and gas will remain an important part of the energy mix in many countries for the foreseeable future. Also, from the perspective of achieving net-zero emissions, CCUS is a key mitigation technology needed to achieve governments’ ambitious net-zero targets. For some energy intensive hard-to abate sectors such as steel and cement, technical options to reduce emissions without CCUS are currently limited. Large oil and gas reserve holders, either individually or as a group, may have the interest to implement projects to prove CCUS technology at scale, reduce its costs, and develop sustainable business models. This requires exporters to take a more active role in developing and scaling up CCUS through investments in the sector. However, it should also be recognised that producers’ economies would have to undergo some of the deepest transformations and adjustments and shifting the costs to producers alone is not viable.  Also, if costs are too high or domestic competition from other sectors for the use of hydrocarbon revenues intensifies during the transition, then scaling CCUS to levels that are needed for it to be an effective mitigation strategy will not materialise in these countries. Multilateral agreements such as the Paris Agreement and global policies to incentivise emissions reductions should take these trends into account. Policies should aim to distribute its costs across the supply chain, but also between importers and exporters so the burden is shared more equitably. This requires developing frameworks and mechanisms that complement existing instruments with policies that assign value to CO2 storage. This poses various challenges, but the benefits could be substantial. From the perspective of achieving net-zero emissions, this could enable a key mitigation strategy to help countries achieve their ambitious targets. From a producers’ perspective, it allows producers to play a more active role in climate change negotiations and encourages them to be part of the solution through utilising their own expertise and financial and geological resources. It could also help these countries diversify into new sectors which could ease the burden of the transition. This reinforces certain key principles such as the emphasis on national circumstances, common but differentiated responsibility and just and inclusive energy transition. [post_title] => Transitioning to Net-Zero: CCUS and the Role of Oil and Gas Producing Countries [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => transitioning-to-net-zero-ccus-and-the-role-of-oil-and-gas-producing-countries [to_ping] => [pinged] => [post_modified] => 2021-08-26 13:40:59 [post_modified_gmt] => 2021-08-26 12:40:59 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [14] => WP_Post Object ( [ID] => 43740 [post_author] => 111 [post_date] => 2021-05-25 10:49:13 [post_date_gmt] => 2021-05-25 09:49:13 [post_content] => This paper provides a historical perspective from 1990 to 2018 of the functioning of the world oil market with and without OPEC. Analysis builds on a new methodology simulating counterfactual (i.e. what-if) outcomes in the rich context of state-of-the-art structural VAR models of the world oil market to empirically assess OPEC's contribution to oil markets and the global economy by quantifying the impact of OPEC's balancing role via its spare capacity cushion on the historical evolution of oil production, oil prices and price volatility, the joint evolution of the supply and demand elasticities and global welfare. A counterfactual scenario is constructed of how global oil production would have evolved if OPEC had been producing at maximum capacity, held no spare capacity and did not play any balancing role since 1990. The analysis also employs a general equilibrium approach to determine the global welfare implications of a world without OPEC spare capacity across oil-exporting and oil-importing regions. The welfare effects are calculated based on regional GDP gains and losses following changes in oil production patterns globally. The methodology to determine the impact on GDP is based on a computable general equilibrium (CGE) framework which offers a high level of detail regarding the world economy in terms of economic sectors and regional interdependencies. Andreas EconomouBassam Fattouh, OPEC at 60: the world with and without OPEC’, OPEC Energy Review [post_title] => OPEC at 60: the world with and without OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-60-the-world-with-and-without-opec-2 [to_ping] => [pinged] => [post_modified] => 2021-05-25 10:49:13 [post_modified_gmt] => 2021-05-25 09:49:13 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [15] => WP_Post Object ( [ID] => 43314 [post_author] => 111 [post_date] => 2021-01-07 10:14:41 [post_date_gmt] => 2021-01-07 10:14:41 [post_content] => The crucial position that Saudi Arabia has in global oil markets cannot be overstated. In 2019 its proven crude oil reserves stood at 297.6 billion barrels, representing 17 per cent of the world’s total. In the same year Saudi Arabia produced 11.8 million barrels per day (mb/d) of crude, blended, and unblended condensates, and natural gas liquids. The country produces a wide array of crudes, ranging from Arab Super Light all the way to Arabian Heavy. Despite rising domestic demand in the past few decades, Saudi Arabia exports the bulk of its crude production and thus has a dominant position in international trade. It is the only country that has an official policy of maintaining spare capacity that can be utilized within a relatively short time at a low cost. Saudi Arabia’s reserves are also among the cheapest in the world to find, develop, and produce. In contrast to some neighbouring countries and other OPEC members, such as Iran, Iraq, Libya, and Venezuela, Saudi Arabia has not experienced conflict or political instability and has not been subject to international sanctions. It has thus been able to invest heavily in its energy sector and integrate the upstream sector with refining and downstream assets, both in the kingdom and overseas. The oil and gas sectors are also heavily integrated, given the large volumes of associated gas produced. Saudi Arabia also has also a dominant position in OPEC and historically the organization’s key decisions have been shaped by the kingdom, either those related to cutting output to balance the market or increasing output to offset output disruption within OPEC and elsewhere. Although Saudi Arabia’s output has not been impacted by political or military shocks it has nonetheless been highly variable reflecting the kingdom’s flexibility to increase and decrease output in response to shocks. Given its size and large margins, the oil sector also plays a key role in the Saudi economy. Despite new revenue sources, the government remains highly reliant on oil revenues for its current and capital spending. Also, government spending is a key driver of growth in non-oil and private-sector activity through infrastructure investment, public sector wage bills, and social transfers. All the aforementioned features, from the size of the kingdom’s reserve base and production to the high reliance of government finances on oil revenues, have shaped Saudi oil policy choices and its relations with other producers over the years. The main purpose of this paper is to analyse a range of these policy choices and relations, their determinants, and the evolving role of the oil sector in the context of an energy transition, the speed of which remains highly uncertain and its impact uneven across the globe.   [post_title] => Saudi Oil Policy: Continuity and Change in the Era of the Energy Transition [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-oil-policy-continuity-and-change-in-the-era-of-the-energy-transition [to_ping] => [pinged] => [post_modified] => 2021-08-19 10:46:38 [post_modified_gmt] => 2021-08-19 09:46:38 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [16] => WP_Post Object ( [ID] => 43226 [post_author] => 111 [post_date] => 2020-12-07 12:24:35 [post_date_gmt] => 2020-12-07 12:24:35 [post_content] => In almost every oil cycle, the market is confronted with the problem of ‘missing barrels’, the gap between the change in inventory implied by global supply-demand balances on the one hand and the observed change in inventory levels by commercial and government entities (adjusted for floating storage and oil in transit) on the other hand. Based on IEA global oil balances, the surplus in the first half of 2020 reaching a record level of 7.6 mb/d. Out of the total stockbuild in the first half of the year, total OECD stocks accounted for 344.3 mbbls or 25% of the total increase, floating storage and oil in transit accounted for 105.3 mbbls or 8% of the total increase and the remaining 940.4 mbbls or 68% of the total increase to balance is essentially unaccounted for including changes in non-reported stocks in OECD and non-OECD areas. The volume of missing barrels in H1 2020, is the largest ever recorded gap between observed and implied stocks since at least 1990, being three times larger than previous historical downcycles such as in H1 1998 and more recently the H2 2018 downturn and nearly 10 times larger than the imbalance of H2 2008 in the aftermath of the global financial crisis. The issue of missing barrels is not incidental. Given the severity of the oil shock in 2020, the focus has been on supply-demand balances. But once the dust settles, the focus will shift to the size of available stocks and OPEC+ efforts in drawing down these stocks to ‘reasonable’ levels. If the missing barrels are ‘artificial’, the result of imprecise measuring of supply and demand, then the buffers in the system are thinner than currently estimated and OPEC+ task in reducing stocks is less of a challenge. If the missing barrels are ‘real’, then most of these barrels are to be found in non-OECD particularly in China given its large storage capacity. This may reveal the fact that while Chinese demand has been strong, the country’s high level of imports reflects mainly stockpiling and stocks are already at an elevated level and thus crude import flows may ease representing a bearish factor. We argue that large accumulation of barrels has occurred in China which suggests that ‘artificial’ or ‘imaginary’ barrels, as a result of imprecise measurement of global oil supply-demand balances, are not the only explanation to the missing barrels question. Indeed, even though China’s crude balances are riddled with inconsistencies, the country has amassed large volumes of crude this year which have contributed both to the country’s strategic reserves and commercial forward cover. At the same time, Chinese demand may well be underestimated given refiners’ tax avoidance practices. The complexities of global crude balances highlight the ongoing challenges facing OPEC+ in estimating how long it will take to rebalance the market. Going forward, can OPEC+ afford ignoring non-OECD stocks? But if these stocks are being stored for strategic purposes and the bulk of these stocks will not be released back into the market, does targeting non-OECD stocks really matter for oil policy purposes? Should we exclude years of elevated stocks from the averages or have these become main features of the new cycles and the adjustment process? As we go into 2021, these questions will become more pressing. [post_title] => The COVID-19 Shock and the Curious Case of Missing Barrels [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-covid-19-shock-and-the-curious-case-of-missing-barrels [to_ping] => [pinged] => [post_modified] => 2020-12-07 12:24:35 [post_modified_gmt] => 2020-12-07 12:24:35 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [17] => WP_Post Object ( [ID] => 42716 [post_author] => 111 [post_date] => 2020-11-16 11:30:53 [post_date_gmt] => 2020-11-16 11:30:53 [post_content] =>

While the market is shifting its attention to OPEC+ dynamics and the return of Libyan and Iranian barrels, the reality remains that this is first and foremost a demand shock and ultimately the evolution of demand will be the key factor shaping oil market outcomes. This demand shock is special in many ways compared to previous shocks: in addition to its size and the speed at which global oil demand contracted, its impact has been highly uneven across geographies (Asia versus the rest of the world) and across fuels (jet fuel and distillate demand versus other parts of the barrel). This has created a challenge for refineries and their margins have been under severe pressure. The combination of OPEC+ cuts and the return of Libyan barrels have created unevenness in terms of crude quality, with light sweet crudes in abundant supply compared to heavy-medium and sour crudes. The size of the shock and the unevenness of its impacts imply a recovery process which is far from smooth.

As the OPEC+ meeting approaches, all eyes are on the Group’s next move. The main choices facing OPEC+ are taper the cut as planned, extend the current cut (and its duration) by deferring the taper, or deepen the cut. Ultimately, the effectiveness of the OPEC+ response will be shaped by demand conditions. Our results show that by extending the current cut for 3 months under reference growth, OPEC+ will be able to keep oil prices well supported in the $40/b-$45/b price range in H1 2021, lifting the Brent price by nearly $4/b on average compared to our base case of no extension and by $2/b for 2021 overall. What is interesting is that in both scenarios (tapering the cut or extending the cut for 3 months), market deficits persist throughout our outlook (barring a rapid deterioration in global oil demand including Asian oil demand). A shift in expectations of improved fundamentals in the second half of 2021 following the positive news on the vaccine may render the option of withholding barrels today and releasing them when the better times arrive attractive. If demand recovers quicker than expected due to the wide availability of an effective vaccine, the oil price is projected to increase moderately up to $4/b annually under the extension scenario as any rally will still be capped by existing buffers of inventory. In the less likely scenario that OPEC+ decides to deepen the cut by 1.9 mb/d, essentially returning to the first phase of the agreement, the price would break the $50/b mark and average $52.9/b in Q1 2021, again assuming that demand does not suffer from a new virus-induced shock. However, there is a fundamental trade-off with this option, as deeper cuts increase the risk of non-compliance. Our results show that if compliance deteriorates the oil prices in 2021 could lose as much as $7/b on annual terms, compared to our scenario of full compliance. Thus, whatever decision OPEC+ takes, maintaining high compliance is key.

[post_title] => Oil Market Recovery and the Balance of Risks [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-recovery-and-the-balance-of-risks [to_ping] => [pinged] => [post_modified] => 2020-11-16 11:44:15 [post_modified_gmt] => 2020-11-16 11:44:15 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [18] => WP_Post Object ( [ID] => 42527 [post_author] => 111 [post_date] => 2020-11-09 12:18:57 [post_date_gmt] => 2020-11-09 12:18:57 [post_content] => After achieving month-on-month gains in every month between May and August, the Brent price shed some of these gains in September and October. While the main risks facing the oil market are still being dominated by demand factors, the risks on the supply side have also been on the rise. On the demand side, the recovery of oil demand has been slower than expected back in May and June, while global oil demand is now expected to take longer to reach its pre-crisis level. The pace of oil demand recovery has also been highly uneven both in terms of geography and fuels. In terms of geography, Asian demand remains robust led by China and India but in Europe where the reimposition of restrictions is already having its toll particularly on gasoline and jet fuel demand, demand seems to have stalled. In terms of fuels, jet fuel remains the weakest link by far, with diesel consumption impacted by the economic contractions, although rising trucking and freight is offering some respite. This unevenness in demand is causing refineries, particularly in Europe, massive headaches and alongside the ability to ramp up refinery runs and large product stocks it will continue to keep refining margins under pressure. The downside risks from the supply side have also been on the rise. To start with, there has been the return of Libyan barrels to the market. Libya’s crude production is now expected to rise above 1 mb/d by year end. The Alberta government has announced that it will stop setting monthly oil production limits for producers by December 2020 allowing producers to use available pipeline capacity. Also, there is a belief that with Biden now winning the election, the US will return to the Joint Comprehensive Plan of Action (JCPOA) fairly quickly and this implies around 1.2-1.5 million b/d could hit the market as soon as 2021. This scenario is being increasingly incorporated into the 2021 and 2022 balances. As the OPEC+ meeting approaches, the Group finds itself in an uncertain and harsh environment with the balance of risks tilted to the downside. In addition to the size of the cut and the high compliance, another key feature of the OPEC+ deal is that the agreement extends all the way to end of April 2022. This gives OPEC+ the potential to ‘tweak’ the deal to changing demand conditions and the potential 3 return of disrupted supplies. This requires a proactive and flexible approach and keeping compliance high under the different scenarios. Executive Summary [post_title] => Oil Market Recovery under Pressure [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-recovery-under-pressure [to_ping] => [pinged] => [post_modified] => 2020-11-09 14:54:25 [post_modified_gmt] => 2020-11-09 14:54:25 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [19] => WP_Post Object ( [ID] => 41866 [post_author] => 111 [post_date] => 2020-10-16 13:55:03 [post_date_gmt] => 2020-10-16 12:55:03 [post_content] =>

Following the sharp price recovery in May/June which saw daily Brent rebounding above $40/b in June 5 from $19/b in April 21, before holding remarkably steady in the $40/b and $45/b in the course of July/August, September saw prices breaking on the downside of this range and trading below $40/b for the first time since June for few days. This was due to a combination of bearish factors both on the demand and the supply side. Concerns about the second wave of the coronavirus pandemic have led many to revise their demand forecasts downwards. Furthermore, China’s crude imports which have been a key equilibrium mechanism began to ease. On top of all this, there is much talk about peak oil demand with some suggesting that oil demand has already peaked. On the supply side, OPEC+ started easing their cuts and shut-in non-OPEC production in North America started making its way back to the market in response to higher prices. UAE undercompliance in August/September raised concerns over OPEC+ producers maintaining their high compliance levels. But despite the bearish headwinds, the $40/b oil price floor held firm in September and so far in October, and Brent remains well supported at the mid $40/b-$45/b range.

This presentation explores the key factors shaping the outlook for market fundamentals and oil prices ahead. The oil demand recovery has shifted into a lower gear and is highly uneven in terms of geography and different parts of the barrel and this unevenness will continue to shape prices and refining margins. Most importantly, there is wide recognition that the recovery of oil demand to its pre-crisis levels will take longer than many originally expected. But the wide uncertainty surrounding demand implies that the role of the supply side in supporting the oil price becomes even more important. High OPEC+ compliance has been a key feature in the current cycle and compliance will remain key throughout the entire duration of the agreement. Another unique feature has been the compensation mechanism and regardless if laggard producers compensate for their overproduction, the compensation scheme has an important signaling role. The effectiveness of the OPEC+ response however will be shaped by demand factors and the extent and pace of the global economic and oil demand recovery. Outside OPEC+, US shale is a key factor shaping non-OPEC supply but as in the case of oil demand, US shale recovery is also entering a slow and lengthy phase, due to the unprecedented fall in drilling activity, barriers to external finance and cash flow pressures. Putting these different moving parts into our model, the short-term price outlook sees the oil recovery persisting though the demand/supply risks to the outlook remain tilted to the downside.

[post_title] => Short-term Oil Market Outlook [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => short-term-oil-market-outlook [to_ping] => [pinged] => [post_modified] => 2020-10-16 13:55:03 [post_modified_gmt] => 2020-10-16 12:55:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [20] => WP_Post Object ( [ID] => 41478 [post_author] => 111 [post_date] => 2020-10-02 09:53:28 [post_date_gmt] => 2020-10-02 08:53:28 [post_content] => A renewed sense of urgency has arisen around diversification in Arab oil-exporting countries, driven by a paradigm shift around the future prospects of global oil demand, and whether the oil industry will continue to generate sufficient rents into the future to sustain oil exporters’ economies and their extensive welfare systems. Regardless as to when oil demand will eventually peak, the current debate marks a break with history as it signifies a shift of perception from scarcity to abundance, which is already affecting the behaviour of all oil market players. In this chapter, we argue that the broader characteristics of the current energy transition, from hydrocarbons to low-carbon energy sources, are of greater relevance to economic diversification rather than when oil demand will peak. The diversification strategy adopted by oil-exporting countries will be conditioned by the speed of the transition, during which the oil sector will continue to play a key strategic role in these economies, as a means to diversification and generator of income. In a more competitive world, oil policy will continue to matter, and cooperation between producers will be imperative, yet challenging, as a cooperative strategy will be less effective in a carbon-constrained world. Although the global energy transition will influence diversification in Arab oil-exporting countries, the global transition itself will be influenced by the speed and success of diversification in these countries. Fattouh B., Sen A. (2021) Economic Diversification in Arab Oil-Exporting Countries in the Context of Peak Oil and the Energy Transition. In: Luciani G., Moerenhout T. (eds) When Can Oil Economies Be Deemed Sustainable?. The Political Economy of the Middle East. Palgrave Macmillan, Singapore [post_title] => Economic Diversification in Arab Oil-Exporting Countries in the Context of Peak Oil and the Energy Transition [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => economic-diversification-in-arab-oil-exporting-countries-in-the-context-of-peak-oil-and-the-energy-transition [to_ping] => [pinged] => [post_modified] => 2020-10-02 09:53:28 [post_modified_gmt] => 2020-10-02 08:53:28 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [21] => WP_Post Object ( [ID] => 41400 [post_author] => 111 [post_date] => 2020-09-29 10:57:34 [post_date_gmt] => 2020-09-29 09:57:34 [post_content] => Oil exporting countries are exposed to long-term challenges related to the energy transition and increased uncertainty about the prospects of oil demand. A key challenge for oil-exporting countries is the potential loss of a key source of revenues, which is essential for the smooth functioning of their economies. Another challenge is the ability to monetize their large reserve base. In the face of these uncertainties, oil exporters should pursue strategies to reduce these long-term risks and increase their resilience and fitness. This presentation at the 3rd OPEC Technical Workshop on ‘the impacts of the implementation of climate response measures’ sets out to examine a few of the risk reduction strategies. Historically, oil exporters’ focus has been on economic diversification as the main adaptation strategy. However, they face real challenges to realise a meaningful economic and fiscal diversification strategy. This is because diversification is only successful if it offers risk reduction by pooling uncorrelated income streams. Furthermore, achieving diversification requires building human capital and improving education systems as well as extensive reforms to improve the business environment, transparency and economic governance, while fiscal diversification requires introducing taxes, both direct and indirect. It also needs streamlining procedures, reduction of excess monopoly rents in non-tradable sectors and removing barriers to private sector participation. There is uncertainty about how fast or even whether such extensive economic and institutional reforms can be implemented in many of these countries. To expect oil exporters to diversify away from the oil sector, which constitutes their core competitive advantage, and for this strategic sector to play a lesser role in the transition process is not only unrealistic, but also is sub-optimal, as oil exporters will be limiting their risk reduction strategies by not leveraging on their core strengths and their portfolio of assets. After all, the oil sector remains very profitable and enjoys higher margins than any new industries/sector that governments aim to establish. Thus, in addition to diversifying bet hedging strategy, oil exporters should pursue a conservative bet hedging strategy, the essence of which is reflected in the old saying that ‘a bird in the hand is worth two in the bush’. The core of a conservative bet hedging strategy is to retain and enhance the competitiveness of the energy sector and increase its resilience against potential risks of disruption. The return on a conservative bet hedging strategy is lower than the current default strategy of exporting oil and gas given the costs involved in decarbonization and the lower margins in the new low carbon businesses. But such a strategy lowers the risk profile and improves the resilience of a key sector in oil exporters’ economies. Executive Summary - The Energy Transition & Adaptation Strategies for Oil Exporters [post_title] => The Energy Transition & Adaptation Strategies for Oil Exporters [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-energy-transition-adaptation-strategies-for-oil-exporters [to_ping] => [pinged] => [post_modified] => 2020-09-29 10:57:34 [post_modified_gmt] => 2020-09-29 09:57:34 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [22] => WP_Post Object ( [ID] => 40621 [post_author] => 111 [post_date] => 2020-09-01 12:10:07 [post_date_gmt] => 2020-09-01 11:10:07 [post_content] => Following the sharp recovery in the oil price, which saw Brent increase by more than $16/b during the months of May and June 2020, the Brent price has been stuck in the narrow $40/b-$45/b range since July and despite the heightened uncertainty, volatility has been exceptionally low. On the one hand, this reflects the fact that the recent price recovery was driven by improved market fundamentals both on the demand and the supply side and hence the current price range is well supported. On the other hand, the narrow price range and low volatility reflect a market that is not yet ready to move to a higher price range as the V-shaped recovery in demand seems to have now stalled as concerns over the recent resurgence in Covid-19 cases have resurfaced in many parts of the world. Given the wide uncertainty surrounding the medium and long-run prospects of oil demand and the slowdown in the momentum behind short-term oil demand, the role of the supply side in supporting the oil price becomes even more important in the current context. The historic OPEC+ agreement in April to cut output has been the key factor shaping the supply side. But the historic size of the cut would not have had its desired impact on prices and balances without the high compliance shown by OPEC+ (in the first phase of the agreement between May and July, OPEC+ producers achieved a high compliance rate of 97%). Achieving such high compliance without accounting for losses due to geopolitical disruptions and without GCC3 (Saudi Arabia, UAE and Kuwait) cutting above their quota and thus compensating for the rest of OPEC+ non-compliance has been a key feature of the recovery phase so far. This success could be attributed to Saudi Arabia’s clear signal that it will not tolerate any non-compliance as the cost of Saudi Arabia achieving full compliance on its own while the rest not fully complying is high enough to induce a shift in its output policy. The break-up of the OPEC+ agreement in March showed in a dramatic way that without a collective action on cuts, Saudi Arabia is willing to shift oil policy until players are ready to enter into an agreement. Once the agreement has been reached, Saudi Arabia offered to cut additional 1 mb/d in June, but this additional cut was temporary and limited in duration to one month and in July Saudi Arabia restored its output to the agreed quota level signaling that these additional measures should not be considered as permanent or be counted on to balance the market as was the case previously. The monthly meetings of the JMMC and the introduction of the compensation regimes are additional signals of the importance that Saudi Arabia attaches to compliance and its determination to lead on this front. Looking ahead, the pace of demand recovery and OPEC+ responses are the key dynamics that would shape market outcomes and will determine in which direction and how fast the oil price will break away from the current range. Our model indicates that the breakout will occur in Q4, but it will be gradual and limited on the upside. Also, the market seems more prepared to move to a higher rather than to a lower price range and has been waiting for some positive signals on the demand side, particularly from the US and India. A key reason for this ‘upward’ bias is that there is a belief that generalised lockdowns similar to what we have seen in March and April are not likely and therefore demand will recover even though at a slower pace. In the background, the view that the oil industry cannot increase investment and bring new supplies in this price environment and it will take time for US shale output to recover to its previous peak are also gaining traction. Also, the market has a pessimistic view on the return of some of the disrupted supplies from countries such as Iran, Venezuela and even Libya. But a key premise underlying the upward bias is that OPEC+ cohesiveness and high compliance will be maintained, and this represents a fundamental shift from previous cycles. [post_title] => After the Initial Oil Rebound: What Next for Market Fundamentals and Prices? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => after-the-initial-oil-rebound-what-next-for-market-fundamentals-and-prices [to_ping] => [pinged] => [post_modified] => 2020-09-01 12:10:07 [post_modified_gmt] => 2020-09-01 11:10:07 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [23] => WP_Post Object ( [ID] => 40257 [post_author] => 111 [post_date] => 2020-08-17 11:49:14 [post_date_gmt] => 2020-08-17 10:49:14 [post_content] => Russia’s renewed interest in hedging its oil export revenues has sparked an old debate on whether macroeconomic policies to mitigate the consequences of commodity price volatility, such as establishing revenue stabilization funds to smooth government expenditure over time, should be augmented (or even substituted) by the use of financial instruments such as futures and options. Mexico’s experience in hedging its oil exports is often used as an example of a successful case that other producers could follow. This is not only related to the issue of macroeconomic stabilization, but also as to whether the use of such financial instruments can enhance producers’ competitive advantage in oil markets and provide them with added flexibility and additional tools to manage the market. For instance, many have argued that Mexico’s hard stance during the OPEC+ talks in April is directly related to the fact that it had a hedging programme in place. Also, while the world’s biggest producers such as Saudi Arabia, Russia and other OPEC producers possess a comparative advantage in terms of their lower cost of production and hence ability to compete in a low price environment, North American producers have a different kind of advantage in their ability to hedge production forward and potentially lock in higher prices than OPEC+ members could get for spot barrels when the market is in contango. Thus, there have been some suggestions that OPEC+ should consider new tools to influence the shape of the curve, including selling oil forward to push prices downward along the futures curve and discourage small US shale producers from hedging. In this short Comment, we review the results of the main case study in this area, the large-scale put option buying programme administered by the Government of Mexico and assess whether such a programme can be replicated in Russia. We also discuss whether other low-cost producers could potentially also consider participating in the growing market for oil derivatives and in what ways. We argue that Mexico’s experience is unique in many respects and that Russia and other oil producers with large volumes of production and pricing power face serious limitations in replicating Mexico’s experience. We also find that any direct replication of the Mexican hedging programme at today’s market prices does not make much economic sense for Russia. Buying the hurricane insurance the day after the hurricane is unlikely to be good idea. This does not imply though that Russia and other oil producers should not develop their capabilities and participate more actively in derivatives markets. However, this takes time and requires building institutional, legal, financial, and trading capabilities and developing unique strategies that complement (and do not disrupt) their existing policies and are reflective of their size and influence in the oil market. [post_title] => Can Russia and OPEC draw any lessons from Mexico's oil hedge? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => can-russia-and-opec-draw-any-lessons-from-mexicos-oil-hedge [to_ping] => [pinged] => [post_modified] => 2020-08-17 11:49:14 [post_modified_gmt] => 2020-08-17 10:49:14 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [24] => WP_Post Object ( [ID] => 39167 [post_author] => 111 [post_date] => 2020-07-06 12:09:43 [post_date_gmt] => 2020-07-06 11:09:43 [post_content] => In October 2018, Saudi Aramco changed the pricing formula it uses to price its long-term crude oil sales to Asia. Rather than using the equally weighted average prices for Dubai and Oman as assessed by the Price Reporting Agency (PRA) S&P Global Platts (referred to in this article as Platts Dubai and Platts Oman), Saudi Aramco replaced Platts Oman in the formula with the marker price of the Oman Crude Futures Contract traded on the Dubai Mercantile Exchange (referred to as DME Oman). Until recently, the market barely felt the difference, as historically Platts Oman and DME Oman have been closely aligned and the price difference was very small (a few cents) on most days. However, the current crisis has exposed the vulnerabilities of existing benchmarks, leading to very different price outcomes, with the divergence between DME Oman and Platts Oman assessment reaching $6.56 per barrel on 22nd April 2020. While this divergence could prove to be only a temporary phenomenon, caused by the massive oil demand shock due to the pandemic, it exposed the structural differences between the two benchmarks, methodologies, and the crudes they represent. Recent events have generated a healthy debate on the usefulness and limitations of existing benchmarks in the Gulf region, whether the PRAs need to adjust their underlying assessment methodologies, and whether the producers need to revisit their pricing formulas. This Energy Comment analyses some key aspects of this debate and explores the potential shifts in crude pricing systems. Given the tensions in the region’s existing medium sour benchmarks, the desire of a key regional player to introduce a new futures contract and a light sour benchmark, alongside the rise of China as the major importer of Gulf crude and its desire to shift pricing to its own futures contract, we expect the changes to the Gulf crude oil pricing system, which have already been occurring before the current crisis, to accelerate. [post_title] => Middle East Benchmarks and the Demand Shock [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => middle-east-benchmarks-and-the-demand-shock [to_ping] => [pinged] => [post_modified] => 2020-07-06 12:09:43 [post_modified_gmt] => 2020-07-06 11:09:43 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [25] => WP_Post Object ( [ID] => 38973 [post_author] => 111 [post_date] => 2020-06-29 11:28:11 [post_date_gmt] => 2020-06-29 10:28:11 [post_content] => The Middle East and North Africa’s (MENA) resource-rich economies are pursuing two parallel strategies in their electricity sectors: (i) increasing and integrating renewables into their power generation mix to mitigate the impact of rising domestic oil and gas demand on their economies and boost hydrocarbon export capacities; and (ii) undertaking power sector reforms to attract investment in generation capacity and networks, remove subsidies, and improve operational efficiency. These goals imply that the design of reforms needs to be carried out with a view to a rising share of non-dispatchable resources. The lack of an integrated approach to simultaneously address these two strategies is likely to lead to several misalignments between renewables and various components of future electricity markets, as the share of intermittent resources increases in the generation mix. The key challenge is that the ‘ultimate model’ capable of reconciling these two goals is as yet unknown, and is still evolving, due to uncertainties around the development of technologies, institutions, and consumer preferences. Failure to find the right model is likely to frustrate reform efforts and governments may find themselves in need of making significant changes to the electricity market at later stages. For example, inadequate tariff structure design , following the removal of subsidies, could lead to difficulty in recovering the power systems’ fixed costs, and also to the regressive distribution of costs among ratepayers. Furthermore, introducing significant renewables without a proportionate increase in power system flexibility (both in generation and in the grid) typically leads to curtailment and/or lower system reliability. Moreover, integrating demand-side resources faces a significant hurdle when ownership and operation of the national electricity grid are not decoupled. The tension between liberalization and decarbonization in pioneering electricity markets, such as in the EU, has arisen partly because renewables were imposed upon a market designed for conventional fossil fuel electricity. Resource-rich MENA countries, by contrast, could design their electricity markets around the incorporation of renewables at the outset and tap into years of international experience gained through trial and error. Poudineh, R., A. Sen and B. Fattouh, ‘Electricity Markets in the Resource-Rich Countries of the MENA: Adapting for the Transition Era’, Economics of Energy & Environmental Policy. [post_title] => Electricity Markets in the Resource-Rich Countries of the MENA: Adapting for the Transition Era’ [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => electricity-markets-in-the-resource-rich-countries-of-the-mena-adapting-for-the-transition-era [to_ping] => [pinged] => [post_modified] => 2020-06-29 11:32:46 [post_modified_gmt] => 2020-06-29 10:32:46 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [26] => WP_Post Object ( [ID] => 38815 [post_author] => 111 [post_date] => 2020-06-23 10:30:56 [post_date_gmt] => 2020-06-23 09:30:56 [post_content] => This presentation provides an historical perspective from 1990 to 2018 of the functioning of the world oil market with and without OPEC. Analysis builds on a new methodology simulating counterfactual (i.e. what-if) outcomes in the rich context of state-of-the-art structural VAR models of the world oil market to empirically assess OPEC’s contribution to oil markets and the global economy by quantifying the impact of OPEC’s balancing role via its spare capacity cushion on the historical evolution of oil supply and demand, oil prices, volatility, the joint evolution of the supply and demand elasticities, global stocks and global welfare. A counterfactual scenario is constructed of how global oil production would have evolved if OPEC had been producing at maximum capacity, held no spare capacity and had held no balancing role since 1990. The analysis also employs a general equilibrium approach to determine the global welfare implications of a world without OPEC spare capacity across oil-exporting and oil-importing regions. The welfare effects are calculated based on regional GDP gains and losses following changes in oil production patterns globally. The methodology to determine the impact on GDP is based on a computable general equilibrium (CGE) framework which offers a high level of detail regarding the world economy in terms of economic sectors and regional interdependencies. The overarching aim is to assess the historical benefits and costs of OPEC for global oil market stability. Executive Summary [post_title] => OPEC at 60: The World With and Without OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-60-the-world-with-and-without-opec [to_ping] => [pinged] => [post_modified] => 2020-06-23 10:32:43 [post_modified_gmt] => 2020-06-23 09:32:43 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [27] => WP_Post Object ( [ID] => 38712 [post_author] => 111 [post_date] => 2020-06-19 10:49:23 [post_date_gmt] => 2020-06-19 09:49:23 [post_content] => While most of the recent analysis has focused on the impact of supply and demand shocks on futures prices, the impact of these shocks on the shift in oil trade flows and on the dynamics of physical differentials has received much less attention. This is despite the fact that physical differentials provide valuable information about oil market conditions and about key shifts in its dynamics. In the complex web of differentials and shifts in trade flows Nigerian crudes play an important role as the swing barrels both to the east and the west of the Atlantic basin. Nigerian grades also have many features, particularly their tradability on a spot basis, which make them a bellwether of changes in market fundamentals. The predominance of spot trading is rewarding in tight market conditions as traders compete to bid up the quality differentials. But in the face of an adverse demand shock, Nigerian cargoes are the first to be distressed (i.e. the cargoes remained unsold) with unsold barrels ending up in over-ground storage both on-land and floating storage. In this Comment, we discuss some of the key characteristics of Nigerian crudes, then explain the market adjustment mechanisms in physical differentials, Dated Brent relative to futures, the spread between Dubai and Brent, and freight rates that allow the clearance of Nigerian barrels in an over-supplied market, and how understanding these mechanisms could prove useful in assessing the strength of the current recovery. [post_title] => Nigerian Barrels and the Demand Shock: Differentials and Changing Oil Trade Flows [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => nigerian-barrels-and-the-demand-shock-differentials-and-changing-oil-trade-flows [to_ping] => [pinged] => [post_modified] => 2020-06-19 13:15:16 [post_modified_gmt] => 2020-06-19 12:15:16 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [28] => WP_Post Object ( [ID] => 38413 [post_author] => 111 [post_date] => 2020-06-08 13:09:59 [post_date_gmt] => 2020-06-08 12:09:59 [post_content] => While exposing some of the fragilities in the current international oil pricing system and oil benchmarks, the massive demand shock hitting the oil market also revealed the increasing sophistication and complexity of oil markets and the interconnectedness of the various layers surrounding the benchmarks. Perhaps this was best illustrated in the Brent complex, when at the apex of the crisis in April 2020, the layer connecting the forward/ futures Brent to the Dated Brent, i.e. the Contracts for Difference, did most of the stretching, sending signals to market players about the stresses in the physical markets and storage facilities while the futures market was reflecting expectations of a faster demand recovery and a large supply response from producers. For the various financial layers, including the Contracts for Difference, to perform their functions of risk management and price discovery efficiently, ensuring that these markets attract sufficient liquidity is of vital importance. Nigerian and WAF crudes play a key role in the Brent complex. One key feature in the marketing of these crudes is the pricing optionality, which adds to the attractiveness of term contracts, especially in volatile market conditions and when the market changes structure from backwardation to contango (or vice versa). The main objective of this Energy Comment is to explain why, and how, pricing options are used, their links to the CFDs and how, in the current environment of high volatility, pricing optionality can contribute to market liquidity as traders position themselves on the Forward Dated Brent curve to manage their risk. We use the pricing options offered by Nigerian National Petroleum Corporation (NNPC) as an example. [post_title] => Crude Oil Pricing Optionality and Contracts for Difference [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => crude-oil-pricing-optionality-and-contracts-for-difference [to_ping] => [pinged] => [post_modified] => 2020-06-08 13:09:59 [post_modified_gmt] => 2020-06-08 12:09:59 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [29] => WP_Post Object ( [ID] => 37659 [post_author] => 111 [post_date] => 2020-05-11 11:39:40 [post_date_gmt] => 2020-05-11 10:39:40 [post_content] => April 2020 will be remembered as the bleakest month in the history of oil markets in terms of balances and prices. But looking ahead, there are signs of improvement both on the supply and demand fronts, though from a very low base. Many countries have started to ease the coronavirus-induced lockdowns which is expected to have positive impact on oil demand. On the supply-side, OPEC+ cuts will come into effect, while the supply responses outside the OPEC+ producers have been fast and severe. The impact of these factors is already being felt on oil prices and physical markets. In this Energy Comment we explore the range of uncertainties surrounding the post-crisis recovery of market balances and prices and assess the key factors that will shape oil market outcomes in 2020 and 2021. We identify the shape of the recovery of oil demand as the key factor dictating the rebalancing process. The oil market balances are also sensitive to OPEC+ compliance. If OPEC+ producers fail to abide fully by their quotas, the market rebalancing will be delayed till the end of 2020. The final factor determining the sensitivity of oil balances is the extent of supply reductions outside OPEC+. Unlike the 2014-2016 cycle, which came at the back of a sustained period of Brent prices above $100/b, the scale of the current demand shock is much bigger, and the financial position of all players is relatively weaker and therefore the supply contractions/production shut-ins will be deeper and faster in this cycle. The current oil shock and the transformation of the supply curve as a result, will present some opportunities to low cost producers with ability to increase production, particularly to Saudi Arabia. If the demand recovery proves to be stronger than expected, the Kingdom may find itself in a position to increase production and capture market share by substituting for production losses elsewhere (high output / low price).  But this may require that prices remain in a range of $40-50/b so as not to encourage rapid supply growth in other parts of the world and to support the demand recovery. With higher production and more importantly higher exports, this strategy may result in similar payoff to a strategy of lower output and higher prices say in the $60-70/b range (low output / high price). But the higher output/lower price strategy has additional advantages. First, this is consistent with an array of existing domestic policies aimed at improving efficiency of energy consumption, energy pricing reforms, and increasing the share of gas and renewables in the power sector which will reduce domestic demand and free crude for exports. Second, by increasing production, the Kingdom can engage in faster monetization strategy at times when there are concerns that the energy transition will result in lower long-term demand for oil. Third, given that oil production still constitutes a significant part of GDP, higher production can support overall Saudi GDP growth. Fourth, when the next cycle arrives, Saudi Arabia can negotiate cuts with other producers from a much higher base. Finally, if the US shale supply response turns out to be weaker than in previous cycles because investors require higher price in order to be attracted again to US shale, especially in the aftermath of the shock of negative prices, then Saudi Arabia can increase both its exports and revenues. [post_title] => Is the Worst of the Oil Crisis Behind Us? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => is-the-worst-of-the-oil-crisis-behind-us [to_ping] => [pinged] => [post_modified] => 2020-05-11 15:42:50 [post_modified_gmt] => 2020-05-11 14:42:50 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [30] => WP_Post Object ( [ID] => 37497 [post_author] => 111 [post_date] => 2020-05-05 11:08:48 [post_date_gmt] => 2020-05-05 10:08:48 [post_content] => MENA oil exporting countries have been hit by a double shock: Covid-19 and the oil price collapse. Their short-term strategy to offset the impact of these shocks will focus simultaneously on fiscal adjustment and coordinating on oil supply cuts with other producers to support oil prices and revenues. While the degree of fiscal adjustment is constrained by its social, political and macroeconomic implications, effective output cut faces several challenges including coordination among producers and the scale of the global oil demand shock. Achieving a meaningful and sustained price increase through collusive supply response is contingent about some key uncertain factors such as the extent of the supply reductions in response to lower oil prices and the extent and duration of global oil demand contractions and the speed and shape of global oil demand recovery. MENA oil exporting countries also face long-term challenges and Covid-19 shock gives new urgency to adjusting their long-term strategy to reduce risks and improve their resilience. These countries face two major long-term issues.  First, there is no single successful strategy to shield against the long-term risks of oil price crash. Diversification works only when it offers risk reduction by the pooling of uncorrelated income streams. If these countries diversify only into sectors where inputs rely on hydrocarbon infrastructures and where both tangible and intangible relationships exist across fossil and non-fossil fuel businesses, they may not achieve sufficient risk reduction. On the other hand, if they diversify into substantively different areas that have little in common with their current primary industry, which constitute the core of their comparative advantage, they run the risk of not being competitive. Second, irrespective of the strategy taken, in the face of disruptive forces, there is a fundamental trade-off between expected return and the variance of return, i.e. the cost of reducing the long-term risks and increasing resilience is to accept lower expected return on existing assets, for instance, by investing in measures that align their hydrocarbon sector with low carbon scenarios. This lowers the overall return but reduces the risk of disruption in the long run. [post_title] => Diversification Strategy Under Deep Uncertainty for MENA Oil Exporting Countries [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => diversification-strategy-under-deep-uncertainty-for-mena-oil-exporting-countries [to_ping] => [pinged] => [post_modified] => 2021-05-03 14:47:46 [post_modified_gmt] => 2021-05-03 13:47:46 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [31] => WP_Post Object ( [ID] => 37299 [post_author] => 111 [post_date] => 2020-04-28 10:45:48 [post_date_gmt] => 2020-04-28 09:45:48 [post_content] => This Comment analyses how the various oil benchmarks are coping with the unprecedented shock hitting the oil market. The collapse of the futures May WTI price and the negative pricing on April 20 epitomizes the extent of the stresses in the oil system but also exposes the vulnerabilities of some of the oil benchmarks to the current shock, the pricing assessment methods, and our understanding of what these benchmarks really represent. It also reveals a deeper fundamental issue related to the relationship between the futures and physical prices. While some of these vulnerabilities have short term fixes, others may take a long time to emerge. But regardless of its underlying causes, the extreme dislocation of the May WTI contract in its last two days of trading is an early warning of the extreme volatility and the sharp price movements that are still to come. [post_title] => Oil Benchmarks Under Stress [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-benchmarks-under-stress [to_ping] => [pinged] => [post_modified] => 2020-04-28 10:45:48 [post_modified_gmt] => 2020-04-28 09:45:48 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [32] => WP_Post Object ( [ID] => 36735 [post_author] => 111 [post_date] => 2020-04-06 11:44:26 [post_date_gmt] => 2020-04-06 10:44:26 [post_content] =>

A combination of unprecedented demand and supply shocks are testing the oil market and its physical infrastructure to the limits. While the sharp fall in the futures price of benchmarks such as Brent and WTI over the last few weeks reflects the severity of the crisis, the recent movements in price levels and their volatility capture only part of the picture and do not fully reveal the extent of the large imbalances building in the system. To capture these imbalances, it is important to look at the evolution of some of the key differentials and spreads; as in the extreme market conditions that we are currently witnessing, it is the differentials which do most of the adjustment to reflect the underlying changes in the physical market and the shift in trade flows. Although price levels have exhibited extreme movement and high volatility in recent weeks, movements in price differentials and spreads have been even more acute, breaking most records set in previous cycles. In fact, one could argue that currently there is a disconnect between the futures prices and the physical differentials which is pointing towards a more distressed market.

Last week President Trump while advocating ‘free market’ principles in correcting the market imbalance, also called on Russia and Saudi Arabia to reach an agreement to restrict their supplies and in case they don’t, implicitly threatened to impose tariffs on crude imported from those countries. He also kept raising expectations by indicating that a deal is imminent and Russia and Saudi Arabia ‘will be cutting back approximately 10 Million Barrels, and maybe substantially more’ which was followed by another comment only a few minutes later that this ‘could be as high as 15 Million Barrels’. In response to President Trump’s tweets, futures Brent and WTI rallied, at a time when most of the physical prices and differentials are pointing in the opposite direction. In addition to the massive volatility that such tweets create, raising expectations will only increase the extent of dislocations and the disconnect between paper and physical markets, which means that differentials and spreads have to do even more stretching to send the correct signals to the physical players and operators and to allocate crude and products through the globe in the face of the most severe demand shock. These disconnections however are not sustainable and the alignment between physical and paper markets will eventually happen. Trump’s tweets risk making such an alignment abrupt and severe, introducing unnecessary volatility and extreme price movements, especially if the proposed producers’ meeting later this week fails to deliver an agreement on an output cut. The oil market is not broken; it is still functioning well, and this is despite some misguided interventions. [post_title] => Shocks and Differentials: How are the oil markets coping? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => shocks-and-differentials-how-are-the-oil-markets-coping [to_ping] => [pinged] => [post_modified] => 2020-04-07 11:11:49 [post_modified_gmt] => 2020-04-07 10:11:49 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [33] => WP_Post Object ( [ID] => 36466 [post_author] => 111 [post_date] => 2020-03-30 11:43:40 [post_date_gmt] => 2020-03-30 10:43:40 [post_content] => The large contraction in oil demand due to the spread of COVID-19 and the dissolution of the OPEC+ agreement has combined to generate large shockwaves through oil and financial markets. The impact on prices and balances has been severe with Brent and WTI falling by more than 50% over two weeks in March 2020. Daily Brent tumbled to $24.9/b on March 18 from $51.9/b on March 2, while at the same time WTI fell to $20.4/b from $46.8/b. Volatility has heightened and the market has seen some extremely volatile price movements. The market has flipped from backwardation to deep contango with time spreads reaching levels wider than those during the 2008 global financial crisis. According to our structural VAR model, the supply-demand imbalance is projected to reach 5.7 mb/d in 2020 and 3.3 mb/d in 2021 which will further deepen the contango as inventories continue to build and traders increasingly resort to floating storage. Combined with the increase in exports from OPEC+ producers, this has already caused a large increase in Very Large Crude Carriers (VLCC) rates. Concerns about availability of storage will continue to put severe pressure on front prices and the shape of the forward curve. Physical differentials have also come under severe pressure and there are reports that prices for some US crudes in physical markets have turned negative. The ramping up of exports by OPEC+ producers in the face of collapsing demand is already causing a massive shift in trade flows with oil exporters such as West African producers finding it increasingly difficult to clear their loading programs, forcing them to slash differentials and offer their crude at large discounts. In short, this is a market that is being tested to its limits and all previous records in terms of price movements and physical indicators are being, or are set to be, broken. This presentation sets out to examine some of the recent dynamics and producers’ behaviour shaping the oil market and their likely evolution in the next few months. Executive Summary  [post_title] => Oil Supply Shock in the time of the Coronavirus [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-supply-shock-in-the-time-of-the-coronavirus [to_ping] => [pinged] => [post_modified] => 2020-03-30 13:36:29 [post_modified_gmt] => 2020-03-30 12:36:29 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [34] => WP_Post Object ( [ID] => 34354 [post_author] => 111 [post_date] => 2020-01-08 10:41:30 [post_date_gmt] => 2020-01-08 10:41:30 [post_content] => This paper argues that MENA resource-rich economies must go beyond simply replicating the “standard model” of electricity market liberalisation. They need to not only adapt the standard model to their unique contexts but also integrate it with other elements of their energy systems through harnessing complementarities between existing policies. The integrated model therefore includes additional modules: rationalising end user prices, improving energy efficiency, integrating renewables, and collapsing the “silos” between different energy vectors. The success of the extended reform model, however, is crucially contingent upon taking into account three particular factors in its implementation. First, reforming energy prices requires a better understanding of the underpinning logic of subsidies beyond popular justifications around the “social contract” or “political compact”. Second, energy efficiency is a challenging initiative in the MENA region, which the correction of price signals can only partially resolve, due to other factors that influence it, such as path dependency, market failures and consumer behaviour. And third, incentivising investments in renewable energy requires careful design of the balance of roles between the market and government, as renewable support schemes may lead to an increased role for centralised coordination, thereby contradicting the originally intended objectives of electricity market reform. Poudineh, R., Sen, A., Fattouh, B., (2020), 'An integrated approach to electricity sector reforms in the resource rich economies of the MENA', Energy Policy, 138 [post_title] => An integrated approach to electricity sector reforms in the resource rich economies of the MENA [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 34354 [to_ping] => [pinged] => [post_modified] => 2020-01-08 10:42:02 [post_modified_gmt] => 2020-01-08 10:42:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [35] => WP_Post Object ( [ID] => 33840 [post_author] => 111 [post_date] => 2019-12-18 10:26:36 [post_date_gmt] => 2019-12-18 10:26:36 [post_content] => The energy landscape is changing rapidly with far-reaching implications for the global energy industry and actors, including oil companies and oil-exporting countries. These rapid changes introduce multidimensional uncertainty, the most important of which is the speed of the transition. While the transformation of the energy system is rapid in certain regions of the world, such as Europe, the speed of the global energy transition remains highly uncertain. It is also difficult to define the end game (which technology will win and what the final energy mix will be), as the outcome of transition is likely to vary across regions. In this context, oil companies are facing a strategic dilemma: attempt the risky transition to low-carbon technologies by moving beyond their core business or just focus on maximising their return from their hydrocarbon assets. We argue that, due to the high uncertainty, oil companies need to develop strategies that are likely to be successful under a wide set of possible future market conditions. Furthermore, the designed strategies need to be flexible and evolve quickly in response to anticipated changes in the market. For oil-exporting countries, there is no trade-off involved in renewable deployment as such investments can liberate oil and gas for export markets, improving the economics of domestic renewables projects. In the long run, however, the main challenge for many oil countries is economic and income diversification as this represents the ultimate safeguard against the energy transition. Whether or not these countries succeed in their goal of achieving a diversified economy and revenue base has implications for investment in the oil sector and oil prices and consequently for the speed of the global energy transition. Authors: Fattouh, B., Poudineh, R. & West, R. The rise of renewables and energy transition: what adaptation strategy exists for oil companies and oil-exporting countries? Energy Transitions, December 2019, Volume 3, Issue 1–2, pp 45–58 [post_title] => The rise of renewables and energy transition: what adaptation strategy exists for oil companies and oil-exporting countries? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-rise-of-renewables-and-energy-transition-what-adaptation-strategy-exists-for-oil-companies-and-oil-exporting-countries [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:26:36 [post_modified_gmt] => 2019-12-18 10:26:36 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [36] => WP_Post Object ( [ID] => 32655 [post_author] => 111 [post_date] => 2019-11-04 11:27:30 [post_date_gmt] => 2019-11-04 11:27:30 [post_content] => OPEC is faced with a wide range of uncertainties, which are perhaps best reflected in the gulf in narratives between the bulls and the bears. For the bulls, OPEC is in a strong position: the declines in non-OPEC supply are structural while the slowdown in global economic growth is temporary. Based on this view, a mini super-cycle is just around the corner: as demand rebounds, OPEC would be operating close to its maximum sustainable capacity at times when the geopolitical backdrop may reduce spare capacity further—a perfect combination for a sustained rise in oil price. Paradoxically, many of the bulls are the ones calling for deeper OPEC cuts. For the bears, it is the other way around: non-OPEC (US shale) supply would rebound strongly in response to higher oil prices and deeper OPEC cuts and the slowdown in the global economy could persist for longer as there is no end in sight for the US-China trade war. Also, according to this view, there is enough supply held off the market and thus concerns about spare capacity are exaggerated. The reality is likely to lie between these polar views and OPEC should resist being pushed into a corner. If either of these views does eventually materialize, the costs associated with maintaining and extending the current cuts into 2020 are low, with the potentially upside benefit that some of the views about the end of US shale growth could be put to the test. OPEC should leave part of the rebalancing to market mechanisms and resist reacting to noisy daily signals. OPEC+ is in a good position to do so especially its dominant players Saudi Arabia and Russia have succeeded in managing market expectations so far and have not infused the view that they would pursue deeper cuts and that they would do whatever it takes, at any cost, to support the oil price (interestingly, signals that the Kingdom would rebalance the market at any cost have emerged from other OPEC members, that have not been complying with their quotas, and are determined to defend prices by cutting Saudi barrels). For the first time in several years, Saudi Arabia is, so far, approaching the December meeting by not reacting to immediate market pressures and by not over-promising and hyping market expectations, which may give it the chance to over-deliver in 2020.     [post_title] => The Dilemma Continues: OPEC choices amid high uncertainty [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dilemma-continues-opec-choices-amid-high-uncertainty [to_ping] => [pinged] => [post_modified] => 2019-11-04 11:31:58 [post_modified_gmt] => 2019-11-04 11:31:58 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [37] => WP_Post Object ( [ID] => 32369 [post_author] => 111 [post_date] => 2019-10-24 10:37:54 [post_date_gmt] => 2019-10-24 09:37:54 [post_content] => In a series of recent speeches and interviews, a consistent message coming from Saudi Aramco is that ‘future profit growth will be more from diversification into integrated oil refining and petrochemicals, besides natural gas production and supply for both the domestic and international markets’. But what about opportunities in the upstream oil sector and the potential expansion of oil productive capacity? How does upstream oil fit within the future portfolio of Aramco and the Kingdom’s role as the ‘central bank of oil’ as some describe it? These are key questions, which don’t only have implications for Saudi Aramco’s capex budget and how the budget is allocated across the various business segments and the company’s future sources of profitability growth, but also on oil market dynamics and the future of the Kingdom’s revenue paths. Much of the recent discourse has focused on the upside potential of Saudi Arabia’s oil productive capacity and every time Saudi Aramco announces plans to expand an existing field or develop a new field, there is much speculation whether this would represent a net capacity addition. Also, at times when expectations about global oil demand peaking soon are rife, many have argued that this would induce a shift in the output strategies of large resource owners. Those who recommend a fast monetization strategy however fail to appreciate the constraints that Saudi Arabia faces in pursuing such a strategy given the heavy reliance of the government’s income on oil revenues. For Saudi Arabia to pursue a strategy of fast monetization, it needs to diversify its sources of income away from oil exports, for instance by heavily taxing its businesses and individuals, without jeopardizing political and social stability. This requires deep economic and political structural transformations, which will take a long time to implement with no guarantee of success. Rather than pursing an aggressive monetization strategy, the question perhaps should be posed differently. In the current context of wide uncertainties about global oil demand and the speed of the energy transition and the limited diversification of government’s income, is there a case for Saudi Arabia to reduce its capacity to lower levels and/or let its spare capacity erode? It is argued that the strategy to manage a reduction of its output capacity could maximise revenues over the medium-term especially given that the capital costs are low in implementing such a strategy. However, there are adverse consequences for the Kingdom as a result of this strategy. For instance, Saudi Arabia would become a price taker; it would end up with a lower market share; it would undermine the Kingdom’s geopolitical status; and it would lose an important discipline mechanism. These are all significant costs. It may also require coordination with other low cost producers that would be eager to increase capacity. Such coordination is extremely difficult if not impossible. But it is important to make a few points. The alternative strategy of fast monetization of reserves is also associated with a high cost in terms of lower revenues. Also, Saudi Arabia cannot afford to be reactive in the event that the impacts of energy transition fully materialize, as the costs of absorbing such a shock are too high, not only in absolute terms, but also relative to other options. [post_title] => Saudi Arabia's Oil Productive Capacity - The Trade-Offs [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-oil-productive-capacity-the-trade-offs [to_ping] => [pinged] => [post_modified] => 2019-10-24 10:37:54 [post_modified_gmt] => 2019-10-24 09:37:54 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [38] => WP_Post Object ( [ID] => 31931 [post_author] => 111 [post_date] => 2019-10-02 10:38:16 [post_date_gmt] => 2019-10-02 09:38:16 [post_content] => The need for a new marker for East of Suez crude oil pricing has dominated debate in oil trading circles over the past several years. The latest opening salvo has been launched by Abu Dhabi National Oil Company (ADNOC), currently in the process of laying out a roadmap to launch a light crude reference marker of its own – both to price its own exports and to develop a regional benchmark in the Middle East, to reflect shifting Asian fundamentals and shifts in global crude oil flows. Underpinning this ambition is the role of Murban – a light high-sulphur crude oil (40° API gravity and 0.7% sulphur) produced onshore in Abu Dhabi. What is driving the move? How has Middle East crude pricing evolved and is Murban a viable candidate for regional benchmark status? This Comment seeks to answer these questions and to examine the challenges and next steps required for ADNOC to promote the grade to benchmark status. As this Comment argues, the Middle East is not a region that changes its pricing system quickly: the road to establishing Murban as a viable benchmark is still long and many challenges lie ahead. Nevertheless, the desire to establish a Murban benchmark clearly shows that the pricing regimes in the Gulf and in Asia cannot be immune to the structural shift in trade flows and the rising power of Asia. Furthermore, if the Gulf producers want to avoid pricing power shifting to Asian consumers, they have no choice but to continue to innovate and offer attractive solutions to their key customers. [post_title] => Murban: A benchmark for the Middle East? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => murban-a-benchmark-for-the-middle-east [to_ping] => [pinged] => [post_modified] => 2019-10-02 10:38:16 [post_modified_gmt] => 2019-10-02 09:38:16 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [39] => WP_Post Object ( [ID] => 33456 [post_author] => 111 [post_date] => 2019-09-19 14:39:16 [post_date_gmt] => 2019-09-19 13:39:16 [post_content] => What is the future of the oil and gas sector in Lebanon? Following the recent discovery of these valuable resources in the southern Mediterranean, including in the Cypriot and Israeli offshore reserves, the possibility of Lebanon also becoming a petroleum-producing country has been raised. This collection of essays addresses the major challenges and opportunities that accompany the country’s hope to join the petroleum club. Covering the key policy issues—from Lebanon’s susceptibility to the oil curse, to the environmental risks of production—this book brings together expert analysis to offer answers at the institutional level. For Lebanon to benefit from the discovery of petroleum, the contributors argue, it must first reform its institutions with the full support of the voting public and civil society. Combining rigorous quantitative and qualitative research, the Lebanese Center for Policy Studies has produced an essential book that puts petroleum in Lebanon, and the important questions that come with it, within a global perspective. Attallah, S. and Fattouh, B., eds. (2019). Future of Petroleum in Lebanon: Energy, Politics and Economic Growth, I.B. Tauris. [post_title] => Future of Petroleum in Lebanon: Energy, Politics and Economic Growth [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => future-of-petroleum-in-lebanon-energy-politics-and-economic-growth [to_ping] => [pinged] => [post_modified] => 2019-12-05 14:40:04 [post_modified_gmt] => 2019-12-05 14:40:04 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [40] => WP_Post Object ( [ID] => 31851 [post_author] => 111 [post_date] => 2019-08-12 12:09:03 [post_date_gmt] => 2019-08-12 11:09:03 [post_content] => The sharp decline in the Brent price to below $60/barrel and the weakening of the oil demand outlook due to the US-China trade war has brought to the fore the issue of Saudi Arabia’s next move. There have been multiple media reports indicating that Saudi Arabia would not tolerate the latest price slide and that the Kingdom has approached other OPEC members to discuss possible steps to arrest the decline in the oil price. To most analysts and investors, this signals that Saudi Arabia is willing to cut its output further to try to maintain a floor under the oil price regardless of the nature of shocks hitting the market. Given that demand shocks are more persistent and that the trade war could take a long time to resolve with resulting repercussions being felt for many years, the required cuts may have to be deeper and maintained for longer. Saudi Arabia also faces the challenge of convincing other OPEC+ members to implement deeper cuts, especially given that the pool of those countries that can cut is small. Cutting unilaterally risks distorting other OPEC+ members’ incentives, shifting the entire burden of rebalancing to Saudi Arabia. But even if Saudi Arabia does cut output unilaterally, the oil price response may be muted in which case the Kingdom may end up with lower revenues. But if cutting output may not necessarily lead to higher revenues in the current context, could a policy of increasing output result in higher revenues in the medium term? In other words, could the revenue calculus facing the Kingdom change in the face of a negative demand shock? If the numerous reports that US shale is on its last legs and ‘the time for US shale is up’ are correct, and given that most of the growth in non-OPEC supply originates from the US, then it is straightforward to construct a scenario in which higher Saudi output would accelerate the slowdown in US shale and Saudi Arabia’s medium term revenues would rise as the Kingdom could increase its market share without negatively impacting the price. The reality however is that the US shale response is not yet understood and as recent history has shown, its performance can’t be predicted with any accuracy and it could be that many of the reports highlighting the extent of the current weaknesses and the decline in productivity of US shale are exaggerated. As such, the costs of undertaking such a strategy could be high while the benefits are highly uncertain. Given the risks and costs associated with each of the above options and the wide uncertainty regarding the size of the shocks and their persistence, the most likely scenario is for Saudi Arabia will not to deepen its cut further nor seek a new OPEC+ agreement for deeper cuts, in the hope that slower US shale growth and geopolitical outages will outweigh demand weakness and stocks will fall in the second half of the year. Looking at current market fundamentals alone, there is no urgent need to shift gears for now: the overall compliance within OPEC+ is robust, supply outages remain high, and US shale production growth has been showing signs of deceleration. Thus, on the supply side, almost everything is going in the Kingdom’s favour. The problem lies elsewhere and supply measures alone can’t counter the broad macro factors. Sometimes the best course of action is to do nothing. However, looking ahead into next year, the challenge of balancing the market gets more difficult if demand weakens further and Saudi Arabia may need to reconsider its policy. If expectations of a sharp fall in demand growth do materialise, it should consider all options as the trade-offs and the revenue calculus could change. However, until the divergence in expectations narrows and the macro sentiment stabilises, OPEC may find that its best option is to ‘stay on the sidelines’ but prepare for the increasing possibility of harder times ahead. [post_title] => Saudi Arabia's Next Oil Move [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-next-oil-move [to_ping] => [pinged] => [post_modified] => 2019-08-12 12:09:03 [post_modified_gmt] => 2019-08-12 11:09:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [41] => WP_Post Object ( [ID] => 33482 [post_author] => 111 [post_date] => 2019-08-06 11:43:38 [post_date_gmt] => 2019-08-06 10:43:38 [post_content] => Investment in renewable energy sources is a no-regret strategy for hydrocarbon-exporting economies of the Middle East and North Africa. It is also in line with some of the pre-renewable energy-sector reforms in the region. Indeed, much of the ongoing energy-sector reforms—such as the removal of fossil fuel subsidies—complement the move to a strong renewables policy. But the region’s electricity markets, which are currently skewed in favour of hydrocarbons, will need to be carefully designed to support renewables. A holistic approach to energy policy—including establishing stable regulatory frameworks, robust independent institutions, and effective risk mitigation measures—will be critical to advancing renewables in the region. Poudineh, R., Sen, A., and Fattouh, B. (2019). ‘Creating an enabling environment for renewable energy in resource-rich MENA countries’, The World Financial Review. [post_title] => Creating an enabling environment for renewable energy in resource-rich MENA countries [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => creating-an-enabling-environment-for-renewable-energy-in-resource-rich-mena-countries [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:12:07 [post_modified_gmt] => 2019-12-18 10:12:07 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [42] => WP_Post Object ( [ID] => 31716 [post_author] => 111 [post_date] => 2019-07-01 11:09:17 [post_date_gmt] => 2019-07-01 10:09:17 [post_content] => In this Energy Insight, we explore the challenges of the energy transition for international oil companies (IOCs). We argue that energy demand forecasts are inconsistent with meeting Paris Agreement targets using currently available and economic technologies and that, barring a radical change in tendencies, significant volumes of oil and gas will be required well after 2050. However, there will be growing political, societal and financial market pressure to accelerate decarbonization. This poses a major challenge for IOCs, whose current business models and technologies are incompatible with full decarbonization, but whose future depends on them being part of the solution. The paper analyzes a set of investment opportunities that the IOCs are pursuing within the decarbonization space and identifies some of the opportunities and risks they face. [post_title] => The Energy Transition and Oil Companies' Hard Choices [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-energy-transition-and-oil-companies-hard-choices [to_ping] => [pinged] => [post_modified] => 2019-07-23 09:54:05 [post_modified_gmt] => 2019-07-23 08:54:05 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [43] => WP_Post Object ( [ID] => 31704 [post_author] => 111 [post_date] => 2019-06-26 14:08:53 [post_date_gmt] => 2019-06-26 13:08:53 [post_content] => Nowadays, oil market observers often start their analysis by pointing to two sets of factors pushing the oil price in opposite directions. On the one hand, supply outages from Iran and Venezuela and the rising geopolitical risks in the Middle East as US-Iran tensions escalate are keeping an upward pressure on the oil price. On the other hand, the US-China trade war and a general deterioration in global macroeconomic indicators are preventing prices from moving higher. In the background, the usual factors, such as whether OPEC will extend its cuts to the end of 2019, or even beyond, and the performance of US shale, will continue to shape market expectations and price outcomes. While it is relatively easy to construct ‘bullish’ scenarios in which oil market balances remain constructive and OECD stocks fall in the second half of 2019 - with the impact (in barrel terms) of supply outages from Iran and Venezuela and potentially Libya more than offsetting the impact of lower oil demand growth due to a weaker global economy, this type of analysis is too simplistic given that the shocks that hit the oil market are not alike. There is plenty of evidence to suggest that the nature of the shock matters and that demand shocks and supply shocks do not have the same impact on oil prices, with demand shocks being more persistent and having a bigger impact on oil price movements. In a similar vein, not all supply shocks are alike and historically the impact of exogenous supply shocks due to geopolitical outages has been shown to be short-lived, while demand shocks in the face of capacity constraints can have a persistent impact. Thus, building a case for a sustained rise in oil prices based on geopolitical outages and the ‘war risk’ premium on their own is not realistic in the current context of weaker demand prospects and when key OPEC members are cutting output to levels below their agreed quotas. In contrast, any deterioration in global oil demand prospects remains the biggest drag on oil prices. In fact, one could argue that in so far as geopolitical tensions act as a dampener on global growth by undermining investors’ confidence and pushing oil prices higher, as demand for precautionary purposes rises and the ‘war risk’ premium becomes more important, the recent rise in geopolitical tensions are not necessarily supportive of oil prices in the medium term. In this presentation, we provide evidence on the importance of identifying the nature of shocks when analysing oil market dynamics and oil prices and what these shocks imply for OPEC’s next move. Executive Summary  [post_title] => Demand Shocks, Supply Shocks and Oil Prices: Implications for OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => demand-shocks-supply-shocks-and-oil-prices-implications-for-opec [to_ping] => [pinged] => [post_modified] => 2019-06-26 14:08:53 [post_modified_gmt] => 2019-06-26 13:08:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [44] => WP_Post Object ( [ID] => 31698 [post_author] => 111 [post_date] => 2019-06-25 12:21:27 [post_date_gmt] => 2019-06-25 11:21:27 [post_content] => The context surrounding East Med gas has fundamentally changed over the past few years in terms of the geopolitics, the gas market fundamentals, market structure, pricing structure, and the challenges facing the oil and gas industry and utilities. This short presentation discusses the changing global context for gas markets and the impact on the development and monetisation of East Med gas reserves and the prospects for an active regional gas trade hub. Executive Summary  [post_title] => The Geopolitics of East Med Gas: Hyped Expectations and Hard Realities [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-geopolitics-of-east-med-gas-hyped-expectations-and-hard-realities [to_ping] => [pinged] => [post_modified] => 2019-06-25 12:21:27 [post_modified_gmt] => 2019-06-25 11:21:27 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [45] => WP_Post Object ( [ID] => 31675 [post_author] => 111 [post_date] => 2019-06-18 10:56:57 [post_date_gmt] => 2019-06-18 09:56:57 [post_content] => The sharp increase in US shale production since 2011 has resulted in structural shifts in regional and global oil trade flows. In turn, this is having a major impact on oil benchmarks inside and outside the US. Brent, the major benchmark for international oil trade, is likely to be impacted the most. While the volume of US crude delivered to Europe has been rising since the US lifted the ban on crude exports in 2016, production of North Sea oil grades deliverable into the Brent basket has been falling for some time. The Brent complex must adapt to these transformations or risk its position being undermined, but changing an established benchmark with manifold layers is not a straightforward process and would require changes to the various layers in the Brent complex and their interrelationships. This comment examines a key layer of the Brent system: Contracts for Difference or CFDs.     [post_title] => Contracts for Difference and the Evolution of the Brent Complex [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => contracts-for-difference-and-the-evolution-of-the-brent-complex [to_ping] => [pinged] => [post_modified] => 2019-06-18 10:56:57 [post_modified_gmt] => 2019-06-18 09:56:57 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [46] => WP_Post Object ( [ID] => 31592 [post_author] => 1 [post_date] => 2019-05-22 10:29:28 [post_date_gmt] => 2019-05-22 09:29:28 [post_content] => The recent movements in the oil price complex indicate some deep dislocations between the physical and futures markets and in market expectations about current and future oil market fundamentals. Despite the various supply shocks hitting the oil market, the general deterioration in the geopolitical backdrop and the rise in US-Iran tensions, the Brent price has continued to trade within a very narrow price range since early April 2019. In contrast, time spreads are pointing towards very tight market conditions. In fact, the oil market finds itself in an almost opposite position to the same time last year when futures prices rose sharply in the expectation that market fundamentals would tighten, while the time spreads and physical differentials were pointing towards a well-supplied market. The divergence was eventually resolved in 2018 H2 by flat prices falling sharply. Looking ahead into 2019 H2, the oil market faces the key issue of how this divergence in expectations and the mixed signals from the physical and futures markets will eventually be resolved and, as ever, Saudi Arabia's output decision will play a key role in shaping market outcomes. In this respect, Saudi Arabia finds itself in a very similar position to last year where it has to make some hard choices and play a balancing act to try to achieve multiple objectives: Not risk pushing the market out of balance causing oil prices to fall, while at the same time preventing prices from getting too high and harming consuming countries and oil demand. Pressures from Russia to ease the supply curb and from the US to keep prices lower are not very different from last year’s, perhaps with one major difference, President Trump may be willing to live with slightly higher oil prices, recognizing that in a low oil price environment, US shale production growth would stall and that his key allies in the Middle East need a higher oil price to maintain government spending. Saudi Arabia would also be sensitive to the dynamics within OPEC+, aiming towards maintaining the deal that it has engineered and reinforcing the message that Saudi Arabia’s oil policy is driven purely by market fundamentals. Saudi Arabia’s deep cuts since December 2018, with current output at levels below its agreed quota, gives the Kingdom some flexibility to increase output without exiting the deal.  But, as in 2018, this balancing act is hard to maintain given the wide uncertainties engulfing the market. [post_title] => Has Saudi Arabia's Balancing Act Gotten Any Easier? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => has-saudi-arabias-balancing-act-gotten-any-easier [to_ping] => [pinged] => [post_modified] => 2019-06-06 10:32:27 [post_modified_gmt] => 2019-06-06 09:32:27 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [47] => WP_Post Object ( [ID] => 31524 [post_author] => 111 [post_date] => 2019-04-25 15:21:02 [post_date_gmt] => 2019-04-25 14:21:02 [post_content] => Before the recent announcement on Iran sanction waivers, the base case for most analysts was that the US would renew the waivers allowing a few buyers to continue importing limited quantities of Iranian oil. The logic behind this thinking was very simple: the Trump administration would not risk an oil price spike that could endanger US growth prospects and hurt motorists by tightening sanctions on Iran and disrupting oil exports further. Thus, President Trump’s latest decision not to reissue waivers caught the market off guard and caused a mini rally in the oil price with Brent prices reaching a six month high of near $75/b. Trump has been keen to emphasize that the US secured offset commitments from Saudi Arabia and the UAE, and that these countries ‘along with other friends and allies, have committed to ensure that global oil markets remain adequately supplied ... and that global demand is met as all Iranian oil is removed from the market’. This latest decision comes on the back of a quarter which saw market fundamentals tighten due to deep output cuts from Saudi Arabia, which exceeded the pledged target, the sharp deterioration of Venezuelan output, and demand remaining relatively healthy despite widespread pessimism about global growth prospects. As the Brent price consolidated at above $70/b in early-April, market focus quickly shifted to whether OPEC+ will relax its output cuts or even exit the deal altogether in June. The US campaign of ‘maximum pressure’ on Iran has added another layer of uncertainty to an already complex web of events; Saudi Arabia’s response, the future of the OPEC+ agreement, the success of the US in driving Iran exports to ‘zero’, as well as demand prospects on both the upside and the downside. This comment assesses these risks and discusses the market outcomes under the different choices facing OPEC and Saudi Arabia. [post_title] => Iranian Sanctions 2.0: Oil Market Risks and Price Stakes [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => iranian-sanctions-2-0-oil-market-risks-price-stakes [to_ping] => [pinged] => [post_modified] => 2019-04-25 15:21:02 [post_modified_gmt] => 2019-04-25 14:21:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [48] => WP_Post Object ( [ID] => 44619 [post_author] => 111 [post_date] => 2019-04-10 15:53:06 [post_date_gmt] => 2019-04-10 14:53:06 [post_content] => The Russian refining system still has a significant legacy from its Soviet past, when refineries were located in relatively remote regions to serve the military and industrial complex and output of fuel oil was encouraged to supply heavy industry. However, this focus on the lower end of the barrel left a significant need for upgrading as Russia entered the post-Soviet era and demand for lighter products increased. The government has tried to provide a series of incentives to encourage Russia’s major oil companies to invest in upgrading. Differentiated tax rates, adjust of export tariffs, re-alignment of upstream and downstream taxes and even a command by the then Prime Minister Vladimir Putin that the industry must act to improve its performance have produced some results, particularly since 2015. Since then fuel oil output has declined rapidly, but with demand also falling Russia continues to produce a surplus. Plans for further additions of more complex refining units have been made, thanks to yet more tax incentives, but it would still appear that not all the players will respond as the government hopes. A number of small players may continue to focus on the simpler and less expensive processes, and companies that are the subject of international sanctions have also been given an effective dispensation to slow their upgrading efforts. Many independent refineries are likely to continue using the tactics of selling surrogate refined products without paying excise taxes, to remain afloat. Lower margins for those refineries that are part of Russian vertically integrated companies are likely to be cross-subsidized by profitable upstream operations. Also, the adjustment could take longer than expected due to the social risks of shutting down inefficient facilities.  As a result, it would seem that the planned decline in Russian fuel oil output will be at the slow end of the planned range. This is a concern because the global market for fuel oil is set to be further constrained by the introduction of tighter IMO rules on the use of high sulphur fuel oil in the maritime sector from 2020. As shipping companies are forced to use more environmentally friendly fuel and reduce emission, Russian refiners which produce excess fuel oil could find their margins significantly squeezed. [post_title] => Russia’s heavy fuel oil exports: challenges and changing rules abroad and at home [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russias-heavy-fuel-oil-exports-challenges-and-changing-rules-abroad-and-at-home [to_ping] => [pinged] => [post_modified] => 2022-03-07 15:57:06 [post_modified_gmt] => 2022-03-07 15:57:06 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [49] => WP_Post Object ( [ID] => 31501 [post_author] => 111 [post_date] => 2019-04-02 12:11:48 [post_date_gmt] => 2019-04-02 11:11:48 [post_content] => In the second half of 2018, the oil market exhibited high volatility not only in terms of price levels but also time spreads and quality spreads. After reaching highs of $81/b and $71/b in October, monthly Brent and WTI prices ended the year in December at $57/b and $49/b respectively. At the same time, time spreads switched from backwardation to contango, as inventories rose above their 5-year average and the prospects for global demand worsened amid supplies increasing. The spreads between light sweet-medium sour crude also exhibited wide volatility, with the Brent-Dubai and WTI-Dubai spreads collapsing signalling a shortage of heavier sour crude globally. Brent and WTI prices have gained significantly since December 2018, ending-March 2019 near $67/b and $60/b respectively (about $10/b higher), and time spreads are once again in backwardation. That said, while the Brent price in the front of the curve has increased sharply since the last quarter, the back end of the forward curve remains relatively sticky at around $60/b, suggestive of the fact that the dominant narrative remains relatively bearish. This presentation provides an overview of the oil market and price dynamics in early 2019, discussing the key challenges in the year ahead and examining possible outcomes. Executive Summary [post_title] => An Overview of the Crude Oil Market in 2019 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => overview-crude-oil-market-2019 [to_ping] => [pinged] => [post_modified] => 2019-04-02 12:30:46 [post_modified_gmt] => 2019-04-02 11:30:46 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [50] => WP_Post Object ( [ID] => 31468 [post_author] => 111 [post_date] => 2019-03-13 16:06:03 [post_date_gmt] => 2019-03-13 16:06:03 [post_content] =>

President Trump’s tweet on February 25 urging OPEC to ‘relax’ and to take it ‘easy’ with their cuts, and that a ‘fragile’ global economy can’t tolerate a higher oil price, did have an immediate price impact, with the Brent price declining by 4 per cent on the day, from nearly $67/b down to $64/b. But the ‘Trump tweet’ impact faded fairly quickly with oil prices gaining again towards the end of the same week. A clear signal from the Saudi energy minister Mr. Khalid Al-Falih in which he confirmed that OPEC and its partners would continue with their output cuts with the objective of achieving a more balanced market was a key factor behind the fast recovery. Extrapolating Saudi Arabia’s behavior in 2018 into 2019 is risky and the assumption that Saudi policy will reverse its current strategy under Trump’s pressure does not reflect the shift in Saudi thinking and the current uncertainties and weaknesses engulfing the oil market. This Energy Comment sheds some light on the current market uncertainties pertaining to the drivers and prospects of global demand growth in 2019, the clearing of the stocks overhang and the dilemma that OPEC and its partners currently face.

[post_title] => OPEC Policy in the Age of Trump [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-policy-age-trump [to_ping] => [pinged] => [post_modified] => 2019-03-13 16:06:03 [post_modified_gmt] => 2019-03-13 16:06:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [51] => WP_Post Object ( [ID] => 31455 [post_author] => 111 [post_date] => 2019-03-06 11:03:06 [post_date_gmt] => 2019-03-06 11:03:06 [post_content] => The current sweet-sour crude oil imbalance is creating challenges for producers and refineries alike. While OPEC+ is striving to balance the market by the first half of 2019, unplanned outages from countries such as Venezuela, Iran and Canada and OPEC+ cuts have contributed to a large deficit in medium/heavy sour crudes. This is having a big impact on key market outcomes including trade flows, the dynamics of crude price differentials, and refining margins. The crude imbalance is also complicating planning and risk management decisions, especially at times when the International Maritime Organization (IMO) will enforce a new 0.5% global sulphur cap on bunker fuel from the 1st of January 2020. This Energy Comment examines the dynamics of the sweet-sour crude price differentials, represented by the Brent-Dubai (BD) price spread and assesses how supply factors can impact the crude quality imbalance between light/heavy oil and sweet/sour crude and hence the crude price spreads in 2019. The results show that the current supply outages and OPEC+ cuts do not only impact price levels, but also the price differentials between the key sweet-sour benchmarks. Since most of the recent supply losses are concentrated in the medium/heavy sour category, while most of the supply gains are concentrated in the light sweet category in big part due to the strong growth in US shale, the light sweet-medium sour crude spread has collapsed and at certain instances was trading at negative values. Looking ahead, our paper predicts that, other things being equal, the downward pressure on light sweet - medium sour crude spreads will persist throughout this year as losses from countries like Iran and Venezuela due to sanctions may accelerate and as Saudi Arabia and its partners are expected to maintain the cuts until the end of 2019. This may have come as a surprise to some market analysts. A few months ago, the conventional wisdom was that the Brent-Dubai spread would widen as IMO rules start taking effect and the shipping industry shifts towards consuming cleaner fuels including Marine Gasoil (MGO) and compliant low sulphur fuel oils. This should have the impact of increasing demand for light sweet crudes while lowering demand for sour crudes. What our results show is that the IMO is only one of the many factors impacting spreads and supply factors are as important (if not more important) in determining movements in price differentials. In other words, the widening of the sweet-sour spreads may still occur, but this is far from a forgone conclusion. Our results also show that the current sweet-sour imbalance presents a challenge for OPEC+ and may complicate its efforts to balance the market. On the one hand, OPEC+ cuts are contributing to balancing the market in terms of volumes; on the other hand, the surplus in light sweet crude persists. By cutting output, OPEC+ is tightening an already very tight medium/heavy sour market with potential implications on refining margins and eventually on global oil demand if complex refining margins weaken significantly. The key question facing OPEC+ producers is whether they should or can take any measures to resolve this quality imbalance or should they just leave it to the market mechanisms to resolve it. [post_title] => The Light Sweet-Medium Sour Crude Imbalance and the Dynamics of Price Differentials [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => light-sweet-medium-sour-crude-imbalance-dynamics-price-differentials [to_ping] => [pinged] => [post_modified] => 2019-03-06 15:09:23 [post_modified_gmt] => 2019-03-06 15:09:23 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [52] => WP_Post Object ( [ID] => 31409 [post_author] => 111 [post_date] => 2019-02-13 12:03:30 [post_date_gmt] => 2019-02-13 12:03:30 [post_content] => After a sharp fall towards the end of 2018, oil prices in 2019 started on a positive note recovering some of their losses. From the low point of $50/b reached on 28 December, the daily Brent price has increased to above $60/b with many analysts now expecting another year of sustained price volatility driven by a wide uncertainty pertaining to global supply and demand trends. But unlike 2017 and 2018, the woes engulfing the oil market in 2019 have extended to the demand-side. The prospects of the global economy and its potential impact on global oil demand, as well as the ability of OPEC+ producers to successfully enforce the agreed or even implement future deeper cuts (if necessary) to rebalance the market in the face of negative demand shocks are at the core of the current debate. Also, the unfolding geopolitical developments in Iran and Venezuela are expected to play a pivotal role in shaping oil market outcomes in 2019. In this Energy Insight, we revisit the main factors that shaped oil market dynamics in 2018 and analyse how the oil price path could evolve in 2019 by evaluating the prevailing risks underlying the world oil market using real-time forecast scenarios of the Brent price. Executive Summary


[post_title] => Oil Price Paths in 2019: Navigating Volatile Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2019-navigating-volatile-markets [to_ping] => [pinged] => [post_modified] => 2019-02-14 15:56:40 [post_modified_gmt] => 2019-02-14 15:56:40 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [53] => WP_Post Object ( [ID] => 33485 [post_author] => 111 [post_date] => 2019-02-06 11:46:13 [post_date_gmt] => 2019-02-06 11:46:13 [post_content] => For decades, economic diversification has been a key goal for the Gulf oil exporting countries, as evidenced by their various national development plans. For countries that are highly reliant on oil export revenues, achieving this goal is seen by policymakers as essential both for political and economic security and for sustainability. Some Gulf oil exporters have made progress in diversifying their economic base away from the oil sector over the past few decades. Nevertheless, most indicators of economic complexity, diversity, and export quality continue to be lower in oil-exporting Gulf economies than in many emerging market economies, including other commodity exporters. For the Gulf economies, the biggest challenges have been to diversify the sources of government income, for instance through raising additional revenues by taxing individuals and businesses, and to generate non-oil export revenues by building export-oriented industries. This article explores the reasons for economic diversification’s increasing prioritization in the Gulf States, their current levels of diversification, and options for achieving more meaningful diversification. Fattouh, B. and Shahabi, M. (2019). ‘The Gulf economies’ long road towards better diversification’, World Energy. [post_title] => The Gulf economies’ long road towards better diversification [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-gulf-economies-long-road-towards-better-diversification [to_ping] => [pinged] => [post_modified] => 2019-12-06 11:56:22 [post_modified_gmt] => 2019-12-06 11:56:22 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [54] => WP_Post Object ( [ID] => 31363 [post_author] => 111 [post_date] => 2019-01-24 12:26:30 [post_date_gmt] => 2019-01-24 12:26:30 [post_content] => Energy transition risk is often viewed as a long-term risk, the impacts of which will not be felt for decades to come. However, this view is an imprecise presentation of reality. This is because although completion of transition might take decades, the increased uncertainty around the transition impacts the energy markets on a much shorter time scale than the transition itself. This article presents the results of a survey of institutional investors on hurdle rates for new energy projects and compares it with information available in the public domain about discount rates on completed projects.  The survey shows that uncertainties associated with energy transition have already started to alter the risk preferences of investors in fossil fuel projects. Investors are demanding a much higher hurdle rate in order to invest in long cycle oil and coal projects. We contend that such changes in risk preferences will have several key implications for fossil fuel markets. First, the payback period of discounted investment costs is extended dis-incentivising long cycle projects, therefore concentrating upstream investment around short-term projects with shorter payback periods. Second, it impacts asset valuation of fossil fuel companies with consequences for firms' cash flows and asset payoffs. Third, it encourages the oil and gas companies to adopt a low risk operation model, focus on the harvesting phase of their oil assets, and move away from exploration, appraisal and development. Fourth, it could affect the volume of available supplies if there is not enough investment into the sector with potential consequences on prices depending on demand projections. Fifth, it could affect the long-term price of oil when energy markets start to price in transition related risks. Sixth, the energy transition process could be accelerated as higher long-term oil prices improve the economics of alternative resources. [post_title] => Energy Transition, Uncertainty, and the Implications of Change in the Risk Preferences of Fossil Fuels Investors [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => energy-transition-uncertainty-implications-change-risk-preferences-fossil-fuels-investors [to_ping] => [pinged] => [post_modified] => 2019-01-24 12:26:30 [post_modified_gmt] => 2019-01-24 12:26:30 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [55] => WP_Post Object ( [ID] => 31282 [post_author] => 111 [post_date] => 2018-11-28 12:19:41 [post_date_gmt] => 2018-11-28 12:19:41 [post_content] => Oil market sentiment has turned very bearish over the last few weeks. The Brent price has fallen from highs of above $80/barrel in October to currently trading close to $60/barrel, global economic prospects have become highly uncertain, Saudi Arabia’s production is at record level of above 11.1 mb/d in November, Russia and other OPEC+ members that could increase production are producing at or close to maximum capacity, the range of estimates of Iranian losses remain very wide, OECD liquids stocks have returned to above their 5-year average, net-length financial positioning has fallen sharply, US shale output keeps surprising on the upside, and President Trump’s tweets about OPEC and oil prices have become a regular occurrence. Thus, when OPEC+ members meet next in December, they find themselves in a very different environment than the June 2018 meeting when the market’s main concern at the time was whether Saudi Arabia has enough spare capacity to put a cap on the oil price. In contrast, in the forthcoming OPEC meeting, the market concern is whether OPEC and its partners will implement deep enough cuts to reverse the recent decline in the oil price. This short presentation assesses the various choices that OPEC and its key player Saudi Arabia face. Executive Summary [post_title] => OPEC Choices are Getting Harder and Harder [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-choices-getting-harder-harder [to_ping] => [pinged] => [post_modified] => 2018-11-28 12:19:41 [post_modified_gmt] => 2018-11-28 12:19:41 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [56] => WP_Post Object ( [ID] => 31240 [post_author] => 111 [post_date] => 2018-10-22 11:15:36 [post_date_gmt] => 2018-10-22 10:15:36 [post_content] => One of the major features of the latest oil price cycle has been the strengthened relationship and close coordination between two of the world’s largest oil producers: Russia and Saudi Arabia. This presentation analyses the evolution of Russia-Saudi Arabia oil relations and the prospects of this relationship from a Saudi perspective, by answering the following set of questions:
  • What is this relationship all about? Does it extend beyond oil related areas?
  • Has the relationship contributed to shaping market outcomes?
  • Is the relationship between the two producers symmetric?
  • How did the relationship evolve?
  • Why did this relationship emerge over this cycle? What were the driving forces?
  • Has the relationship been successful?
  • Would this relationship continue or will it crack under market pressures?
  • Will this renewed relationship reduce the importance of OPEC for Saudi Arabia?
[post_title] => The Evolution and Prospects of Saudi Arabia - Russia Oil Relations: A Saudi Perspective [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => evolution-prospects-saudi-arabia-russia-oil-relations-saudi-perspective [to_ping] => [pinged] => [post_modified] => 2018-10-22 11:15:36 [post_modified_gmt] => 2018-10-22 10:15:36 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [57] => WP_Post Object ( [ID] => 31237 [post_author] => 111 [post_date] => 2018-10-19 12:36:55 [post_date_gmt] => 2018-10-19 11:36:55 [post_content] => This presentation given at the Centre for Strategic and International Studies (CSIS) discusses OPEC output cycles over the period 2008-2018 and how they have shaped the oil market outlook. It also outlines the main factors behind the rebalancing of the oil market and analyses the main trends shaping oil price outcomes in the short-term. The presentation concludes with an analysis of the balance of risks facing the oil market. It argues that to predict the oil price will rise in the face of a supply shock is not particularly inspiring. Other things being equal, a negative supply shock causes the supply curve to shift left and the oil price to increase (the magnitude of the price increase depending on multiple factors such as the size of the supply shock, the elasticity of the supply curve, available spare capacity, and stock levels at the time of the negative supply shock). More important is to predict what caused the shock in the first place. For most analysts that have been predicting a sharp rise in the oil price, the big story has been an investment-supply one: Deep cuts in investment means that there are very few projects in the pipeline and in a low-price environment decline rates will accelerate constraining supply further (i.e. the shock is generated within the system or is endogenously-driven). In contrast, the current shock is an exogenous one. This raises the question: Where would oil prices and OPEC+ output be without the Iran sanctions? [post_title] => OPEC Cycles and Crude Oil Market Dynamics [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-cycles-crude-oil-market-dynamics [to_ping] => [pinged] => [post_modified] => 2018-10-19 12:36:55 [post_modified_gmt] => 2018-10-19 11:36:55 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [58] => WP_Post Object ( [ID] => 31217 [post_author] => 111 [post_date] => 2018-10-02 11:42:07 [post_date_gmt] => 2018-10-02 10:42:07 [post_content] => This presentation and speech, was given by Bassam Fattouh at the Eleventh Arab Energy Conference, Marrakesh, Morocco, 1-4 October 2018, on Arab oil exporters' diversification strategies in the context of the global energy transition. Speech - Economic diversification in the context of the energy transition [post_title] => Arab Oil Exporters' Diversification Strategies in the Context of the Energy Transition [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => arab-oil-exporters-diversification-strategies-context-energy-transition [to_ping] => [pinged] => [post_modified] => 2018-10-02 11:47:53 [post_modified_gmt] => 2018-10-02 10:47:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [59] => WP_Post Object ( [ID] => 31199 [post_author] => 111 [post_date] => 2018-09-21 11:12:02 [post_date_gmt] => 2018-09-21 10:12:02 [post_content] =>

As OPEC’s Declaration of Cooperation with non-OPEC producers draws to a close (ending-2018), the future of this historic joint effort of 24 (now 25) OPEC and non-OPEC oil-producing countries has moved to the top of the producers’ agenda. The next Joint Ministerial Monitoring Committee’s meeting on September 23rd in Algiers, could provide some hints regarding the future of the cooperative framework between the producers. Although OPEC and non-OPEC producers have collaborated in the past, albeit on a smaller scale, the Declaration of Cooperation has been a landmark agreement due to its success in meeting the many challenges faced in its planning, coordination and monitoring – at least in the short-term. Assessing its effectiveness beyond compliance levels and evaluating the dynamics underlying the success of the Agreement’s current framework as well as its members’ need for institutionalising a long-term cooperative framework, is of paramount importance for understanding what lies ahead and why oil policy will continue to matter in years to come. This Energy Comment discusses 5+1 key facts about the Declaration of Cooperation that shed light on the prospects and challenges in OPEC/NOPEC producers’ pursuit of cooperation.

[post_title] => 5+1 Key Facts about the OPEC Declaration of Cooperation [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 51-key-facts-opec-declaration-cooperation [to_ping] => [pinged] => [post_modified] => 2018-09-21 11:12:02 [post_modified_gmt] => 2018-09-21 10:12:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [60] => WP_Post Object ( [ID] => 31174 [post_author] => 111 [post_date] => 2018-09-04 11:08:41 [post_date_gmt] => 2018-09-04 10:08:41 [post_content] => This presentation discusses the oil market outlook for 2018 and 2019. It outlines the main factors behind the rebalancing of the oil market, including stronger than expected global oil demand growth and strong OPEC cohesion (caused in part due to involuntary cuts). The presentation then analyses the main trends shaping oil price outcomes in the short-term, including  prospects for the global economy amidst growing concerns about escalating trade tensions and the health of emerging economies, US shale supply dynamics in the face of infrastructure constraints, OPEC behaviour, the recent shifts in crude oil trade flows and geopolitical disruptions. The presentation concludes with an analysis of the balance of risks facing the oil market and how the disconnections between short-term and long-term expectations are clouding the oil price outlook. [post_title] => The Crude Oil Market in 2018 & 2019 - How Did We Get Here & What Next? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => crude-oil-market-2018-2019-get-next [to_ping] => [pinged] => [post_modified] => 2018-09-04 11:08:41 [post_modified_gmt] => 2018-09-04 10:08:41 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [61] => WP_Post Object ( [ID] => 31158 [post_author] => 111 [post_date] => 2018-08-21 12:21:05 [post_date_gmt] => 2018-08-21 11:21:05 [post_content] => After a sharp rise in April/May this year, which saw Brent trading at above $80/barrel for several days, the upward pressure on the oil price eased in July with the Brent structure flipping into contango. This may have come as a surprise to many analysts who were expecting oil prices to continue on their upward trajectory. Because, after all, with OECD stocks falling below the five-year average, spare capacity at very thin levels, oil demand still growing robustly, production in Venezuela continuing its decline, supply losses from Iran projected to exceed 1 million b/d, and general deterioration of the geopolitical backdrop, surely the Brent price should have broken the $80/barrel ceiling? Instead, the oil price has held in the $70-$75/barrel range for most of July and into August 2018. While fears of trade wars and growing concerns about the health of emerging markets have impacted sentiment, it is the recent shift in OPEC, and particularly its dominant player Saudi Arabia’s, output policy which has had the biggest impact on physical balances, prices and the term structure to date. This reflects in part changing market fundamentals and a more uncertain environment, but also changes in the weight attached to the various objectives pursued by the Kingdom. This comment examines the causes of the most recent shift in Saudi oil policy, its adjustment in output in July, and the implications of recent behaviour on its signaling power.   [post_title] => What to Make of Saudi Arabia's Recent Shift in its Output Policy? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => make-saudi-arabias-recent-shift-output-policy [to_ping] => [pinged] => [post_modified] => 2018-08-21 12:27:43 [post_modified_gmt] => 2018-08-21 11:27:43 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [62] => WP_Post Object ( [ID] => 31143 [post_author] => 111 [post_date] => 2018-08-15 11:57:29 [post_date_gmt] => 2018-08-15 10:57:29 [post_content] => Economic diversification has been a key developmental goal for the Middle East and North Africa (MENA) oil producers for decades as evidenced in their various national development plans. Some countries have made progress over the last few decades in diversifying their economic base and their sources of income. But despite these efforts, most indicators of economic complexity, diversity, and export quality continue to be lower in oil-exporting Arab economies than even in many emerging market economies, including commodity exporters in other regions. Of late, a renewed sense of urgency has arisen around the issue of economic diversification. The conventional wisdom that dominated oil market behaviour over the past few decades has been based around the idea of ‘peak oil supply’ and ‘scarcity rents’, and that preserving resources for the future by rationing supplies provided a sensible way of managing a country’s oil fairly across generations. The pendulum has swung to the notions of ‘peak oil demand’ and ‘oil abundance’ – where the pace of oil demand growth is expected to slow over time and eventually plateau/decline, resulting in stranded assets. It is generally thought that the world is on the brink of another ‘energy transition’ in which conventional energy sources such as oil will eventually be substituted away in favour of low or zero carbon energy sources. Rather than debating its definition or measurement, this presentation adds context to the debate on economic diversification, by analysing it against the arguments around peak oil demand and the energy transition – it looks at three questions: how soon can we expect ‘peak oil demand’ to occur, or alternatively, how fast is the current ‘energy transition’? What kind of economic future should MENA countries be planning for? And, how does the emergence of renewables as a competitive energy source impact economic diversification strategies in these countries? The presentation argues that the starting point of any analysis of MENA oil exporting countries should not be based on an approach solely predicated upon the premise that oil will no longer be in demand and that the oil sector will play a marginal role. The diversification strategy adopted by oil exporting countries will be conditioned by the speed of the energy transition, during which the oil sector will continue to play a key role in these economies including in their diversification efforts. At the same time, oil producers will need to be far more strategic in their use of the energy sector to diversify their economies. In a more competitive world, oil policy will also continue to matter; cooperation between oil producers will be imperative, yet challenging. Executive Summary [post_title] => Economic Diversification in the Context of Peak Oil and the Energy Transition [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => economic-diversification-context-peak-oil-energy-transition [to_ping] => [pinged] => [post_modified] => 2018-08-15 11:57:29 [post_modified_gmt] => 2018-08-15 10:57:29 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [63] => WP_Post Object ( [ID] => 33488 [post_author] => 111 [post_date] => 2018-08-06 12:08:38 [post_date_gmt] => 2018-08-06 11:08:38 [post_content] => As much of the world pushes ahead with the deployment of renewable energy, resource-rich economies of the Middle East and North Africa are lagging behind. This article contends that while the main obstacles to deployment of renewables are grid infrastructure inadequacy, insufficient institutional capacity, and risks and uncertainties, the investment incentives lie on a policy instrument spectrum with two polar solutions: (1) the incentive is provided entirely through the market (removing all forms of fossil fuel subsidies and internalizing the cost of externalities), or (2) the incentive is provided through a full government subsidy programme (in addition to the existing fossil fuel subsidies). However, there is a trade-off between the two dimensions of the fiscal burden and political acceptance across the policy instrument spectrum, which implies that the two polar solutions themselves are not easily and fully implementable in these countries. The authors propose a new, dynamic, combined approach (partial subsidy programme and partial fossil fuel price adjustment) that gradually moves towards market-based incentive provision over the medium to long term and eventually phases out energy subsidies. The approach balances fiscal sustainability with political stability, enabling the gradual scaling up and development of markets for renewables. Poudineh, R., Sen, A., and Fattouh, B. (2018). ‘Advancing renewable energy in resource rich economies of the MENA’, Renewable Energy, 123: 135–149. [post_title] => Advancing renewable energy in resource rich economies of the MENA [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => advancing-renewable-energy-in-resource-rich-economies-of-the-mena [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:21:34 [post_modified_gmt] => 2019-12-18 10:21:34 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [64] => WP_Post Object ( [ID] => 31116 [post_author] => 111 [post_date] => 2018-07-17 09:20:07 [post_date_gmt] => 2018-07-17 08:20:07 [post_content] =>

Earlier this month, Saudi Aramco announced that from October 2018 it will be changing the pricing formula it uses to price its long-term crude oil sales to Asia. Rather than using the equally weighted average prices for Dubai and Oman as assessed by pricing agency S&P Global Platts (referred to in this article as Platts Dubai and Platts Oman), Saudi Aramco will replace Platts Oman in the formula with the marker price of the Oman Crude Futures Contract traded on the Dubai Mercantile Exchange (referred to as DME Oman). In terms of pricing, the market will barely feel the difference, as historically Platts Oman and DME Oman have been closely aligned with very little difference on a daily basis. Nevertheless, this recent change could still represent a major shift, as it is the first time that Saudi Arabia, the Middle East’s biggest crude producer and exporter, has shown willingness to implement a change to its Official Selling Price (OSP) to Asia since the mid-1980s, in an attempt to reassert some influence over the crude pricing mechanism and the oil price discovery process. This article puts the recent change in context and discusses some of the main drivers behind this change arguing that Saudi Arabia’s recent adjustment to its pricing formula reflects, in part, recent structural transformations in the oil market and trade flows, together with a growing interdependency between Asia and the Middle East, and thus may indicate that more radical changes could be on the way, though the timing of any potential changes remains highly uncertain.

[post_title] => What Next for Asian Benchmarks? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => next-asian-benchmarks [to_ping] => [pinged] => [post_modified] => 2018-07-17 09:26:59 [post_modified_gmt] => 2018-07-17 08:26:59 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [65] => WP_Post Object ( [ID] => 31095 [post_author] => 111 [post_date] => 2018-06-25 10:45:16 [post_date_gmt] => 2018-06-25 09:45:16 [post_content] => Resource-rich economies in the Middle East and North Africa (MENA) are pursuing two parallel strategies with regard to their electricity sectors: (i) increasing the role of renewables and integrating them into their power generation mix to mitigate the impact of rising domestic oil and gas demand on their economies and to boost their hydrocarbon export capacities; and (ii) conducting power sector reforms to attract investment in generation capacity and networks, remove subsidies, and improve operational efficiency. These goals imply that the design of power sector reforms (including regulations governing wholesale and retail markets and networks) needs to be carried out with a view to the possibility of a rising share of non-dispatchable resources. The lack of an integrated approach to simultaneously address these two strategies is likely to lead to several misalignments between renewables and the various components of future electricity markets, when the share of intermittent resources increases in the generation mix. The key challenge is that the ‘ultimate model’ that will reconcile these two goals (liberalization and integrating renewables) is as yet unknown, and is still evolving due to uncertainties around the development of technologies, institutions, and consumer preferences. We argue in this paper that resource-rich MENA countries can, however, move towards adopting a transition model of electricity markets, the individual elements of which can eventually be adapted to suit either centralized or decentralized future electricity sector outcomes. We outline the key components of this model for the wholesale market, retail market, and network regulation, considering the objectives of governments and the specific contexts of the region.​   [post_title] => Electricity Markets in MENA: Adapting for the Transition Era [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => electricity-markets-mena-adapting-transition-era [to_ping] => [pinged] => [post_modified] => 2018-06-21 13:01:32 [post_modified_gmt] => 2018-06-21 12:01:32 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [66] => WP_Post Object ( [ID] => 31087 [post_author] => 111 [post_date] => 2018-06-18 11:24:55 [post_date_gmt] => 2018-06-18 10:24:55 [post_content] => As the OPEC oil ministers prepare to meet for their bi-annual Ordinary Meeting on 22 June, they are faced with some difficult choices. On the one hand, by extending the output cutbacks amidst a higher risk of output disruptions, OPEC risks overtightening the oil market and pushing oil prices higher, leading to an inevitable demand response. Moreover, involuntary cuts originating mainly from Venezuela, Angola, and Mexico mean that the oil market is tightening more quickly than anticipated. On the other hand, by exiting the agreement too early OPEC runs the risk of prices falling if such a decision is not supported by favourable market conditions, especially as ‘the clouds over the global economy are getting darker by the day’, and risks dismantling a historic coalition of OPEC/NOPEC producers which took massive diplomatic efforts to put together and the coordination of which proved critical for the rebalancing effort. In this Energy Insight, we consider the hard realities of oil market and price dynamics for 2018 and 2019 to derive, analyse, and assess, oil output policy scenarios that are likely to drive discussions during the upcoming OPEC Ministerial Meeting, through the lens of a structural VAR model of the global oil market. The decision for OPEC members that have the capacity to increase production is not only whether or not to increase output, but also by how much to increase production and whether to do it incrementally. Our results call for a cautious approach in which OPEC increases output gradually and reassess its options in November as this will help keep a solid floor on the oil price, which remains a key objective for all producers. We also find that future oil demand growth (especially in 2019) hinges heavily on the outcome of the upcoming OPEC+ meeting, just as the success of its oil output policy hinges heavily on the prospects of global oil demand remaining healthy. Finally, how OPEC decides to implement the output increase also matters. If the decision is to increase output, then it is in the best interest of OPEC+ to reach a collective decision, however this may not be feasible in the current context as the producers who don’t have the capacity to increase production and those who are subject to US sanctions are likely to refuse a recommendation to increase output. If it is not possible to reach a collective agreement on increasing output, the producers who have the capacity, and who could really influence market outcomes are then faced with three options: either to extend the current agreement of output cuts in order to maintain the cohesiveness of the coalition and risk the impact of higher oil prices on demand; exit the deal altogether and announce that they will increase their output regardless of the actions of other producers, bringing to an end the framework of cooperation; not dismantle the OPEC+ deal in the next meeting and postpone the difficult negotiations until November, while still going ahead and increasing output individually. While the last two options are not very different in terms of their impact on market balances, the choice of exit will affect sentiment and prices at least in the short-term. This shows the balancing role that OPEC has to play and the importance the key players should attach to retaining their flexibility. Executive Summary [post_title] => OPEC at the Crossroads [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-the-crossroads [to_ping] => [pinged] => [post_modified] => 2018-06-18 11:24:55 [post_modified_gmt] => 2018-06-18 10:24:55 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [67] => WP_Post Object ( [ID] => 33494 [post_author] => 111 [post_date] => 2018-06-06 12:23:51 [post_date_gmt] => 2018-06-06 11:23:51 [post_content] => Caught between the need to free their economies from reliance on oil revenues alone and the obligation to comply with a now burdensome social contract, Gulf countries are considering how and when to implement a transition that may not be entirely painless. Fattouh, B., Poudineh, R., and West, R. (2018). ‘The unknowns of the transition’, World Energy. [post_title] => The unknowns of the transition [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-unknowns-of-the-transition [to_ping] => [pinged] => [post_modified] => 2019-12-06 12:25:49 [post_modified_gmt] => 2019-12-06 12:25:49 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [68] => WP_Post Object ( [ID] => 31065 [post_author] => 111 [post_date] => 2018-05-29 10:58:01 [post_date_gmt] => 2018-05-29 09:58:01 [post_content] => The energy landscape is changing rapidly with far-reaching implications for global energy industries and actors, including oil companies and oil-exporting countries. These rapid changes introduce uncertainty in multiple dimensions, the most important of which is the speed of transition.  While the transformation of energy systems is rapid in certain regions of the world, such as Europe, the speed of global energy transition remains uncertain. It is also difficult to define the end game (which technology will win and what the final energy mix will be), as the outcome of transition will vary across regions. A key issue facing oil companies and oil-exporting countries is how they should now position themselves and how best to be part of the renewables ‘revolution’. For oil companies, moving beyond their core business is risky, but a ‘wait-and-see' strategy could be costly, therefore oil companies need to gradually ‘extend’ their business model and rather than a complete shift from hydrocarbons to renewables, they should aim to build an integrated portfolio which includes both hydrocarbon and low-carbon assets. The strategies designed to make this happen need to be flexible and able to evolve quickly in response to anticipated changes in the market. For oil-exporting countries, with subsidized prices and rising domestic energy consumption, there is no conflict between investing in renewables and in hydrocarbons as these countries can liberate oil and gas for export markets, improving the economics of renewables projects. In the long run, however, the main challenge for many oil exporting countries is economic diversification as it is the ultimate safeguard against the energy transition. Whether or not these countries succeed in their goal of achieving a diversified economy has implications for global energy markets and the speed of global energy transformations. In other words, the global energy transition will not only shape political and economic outcomes in oil-exporting countries, but the transformations in these major oil-exporting countries will, in turn, shape the global energy transition - adding another layer of uncertainty to the already complex phenomenon of energy transition. [post_title] => The rise of renewables and energy transition: what adaptation strategy for oil companies and oil-exporting countries? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => rise-renewables-energy-transition-adaptation-strategy-oil-companies-oil-exporting-countries [to_ping] => [pinged] => [post_modified] => 2018-06-05 14:00:22 [post_modified_gmt] => 2018-06-05 13:00:22 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [69] => WP_Post Object ( [ID] => 31054 [post_author] => 111 [post_date] => 2018-05-22 13:10:36 [post_date_gmt] => 2018-05-22 12:10:36 [post_content] => Recent movements in oil prices, time spreads, and physical differentials have been sending some mixed signals both about current and long-term market fundamentals. This may reflect heightened uncertainty as well as a wide divergence of expectations about key factors shaping the oil market, both in the short-term and the medium-term, including the size of potential output losses from Iran following the US withdrawal from the nuclear deal, how low Venezuelan oil production may go, whether OPEC+ will exit the deal anytime soon, the potential impact of the recent oil price increases on oil demand growth, and whether the market will face a supply crunch in the next couple of years due to lack of investment. Over time, some of these key uncertainties will be resolved and the price signals may converge towards a more ‘coherent’ story with movements in price levels, the back end of the futures curve, time spreads and physical differentials all pointing in the same direction. This, however, may take time and the adjustment mechanism remains unclear and so for now the various market players have little choice but to navigate through mixed price signals, some sharp disconnections between price levels, time spreads and physical differentials and between short-term and long-term expectations. [post_title] => The Oil Market's Mixed Price Signals [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-markets-mixed-price-signals [to_ping] => [pinged] => [post_modified] => 2018-05-22 16:15:27 [post_modified_gmt] => 2018-05-22 15:15:27 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [70] => WP_Post Object ( [ID] => 31044 [post_author] => 111 [post_date] => 2018-05-15 11:27:28 [post_date_gmt] => 2018-05-15 10:27:28 [post_content] => President Trump’s recent decision to exit the Joint Comprehensive Plan of Action (JCPOA) and the expectation therefore of the loss of Iranian barrels has brought the fate of the OPEC+ deal to the fore. For some analysts, this signifies that ‘the current OPEC deal will end by end-2018’ while for others the impact may be felt as soon as the next OPEC meeting in June this year, as it will  ‘no longer be about extending the production cuts, but rather about when to start raising output gradually’. At the other end of the spectrum, some argue that ‘there is no pressure from within the group to bring their cooperation to an end’ and the ‘deal will run until the end of 2018 and could be extended again if participants don’t believe that the market has been rebalanced’. These very different views reflect the hard choices that OPEC, and its dominant player Saudi Arabia, faces in a more uncertain and geopolitically charged market. On the one hand, Saudi Arabia welcomed Trump’s decision to scrap the Iran nuclear deal and showed its willingness to meet any supply shortages, assuring the market that it has enough oil production to ‘maintain oil market stability’. On the other hand, Saudi Arabia is committed to ‘rebalancing’ the market (which in OPEC’s view has not yet been achieved) and would continue to do so in cooperation with other producers (some of whom are opposed to Trump’s decision to exit the Iran deal) and therefore will not act unilaterally to offset any shortage. Given these multiple objectives, Saudi Arabia needs to engage in a delicate balancing act and hence the decision to terminate the OPEC+ deal is not as straightforward and binary as it is often portrayed. Issues such as the timing of any potential response to Iranian output loss, the type of the response (unilateral or collective), and the way producers decide to exit the deal (assuming that they decide to terminate the output cut agreement) are all important in shaping oil market and price outcomes. This comment explores some of the key factors that may shape OPEC+ decisions in the next few months. [post_title] => Is this the end of the OPEC+ deal? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => end-opec-deal [to_ping] => [pinged] => [post_modified] => 2018-05-15 11:27:28 [post_modified_gmt] => 2018-05-15 10:27:28 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [71] => WP_Post Object ( [ID] => 33491 [post_author] => 111 [post_date] => 2018-05-06 12:17:22 [post_date_gmt] => 2018-05-06 11:17:22 [post_content] => Hydrocarbon-rich countries in the Middle East and North Africa have been slow to adopt and scale up renewables. In addition to significant disincentives posed by general barriers to renewables deployment, countries in this region also face factors specific to their economic and political-economy contexts. Renewables have been ‘locked out’ of many of the region’s resource-rich energy systems as a result of plentiful low-priced hydrocarbon fuels and the simultaneous presence of risk and uncertainties, weak institutions, and inadequate grid infrastructure. Given these distinctive characteristics, this chapter argues that the design of longer-term policies to promote renewables should carefully consider the balance of market and government roles in providing investment incentives for renewables, while simultaneously taking into account the barriers to renewables investment that are prevalent in these countries. Poudineh, R., Sen., A., and Fattouh, B. (2018). ‘Policies to promote renewables in the Middle East and North Africa’s resource-rich economies’, in Akhonbay, H. (ed.), The Economics of Renewable Energy in the Gulf, Routledge. [post_title] => Policies to promote renewables in the Middle East and North Africa’s resource-rich economies [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => policies-to-promote-renewables-in-the-middle-east-and-north-africas-resource-rich-economies [to_ping] => [pinged] => [post_modified] => 2019-12-06 12:19:39 [post_modified_gmt] => 2019-12-06 12:19:39 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [72] => WP_Post Object ( [ID] => 31020 [post_author] => 111 [post_date] => 2018-05-02 11:17:42 [post_date_gmt] => 2018-05-02 10:17:42 [post_content] => In this presentation, Bassam Fattouh and Andreas Economou analyse the choices facing OPEC+ in light of OECD stocks falling, recent gains in oil prices, alongside concerns that OPEC may be over-tightening the market and with commentators warning that current high oil prices will have a negative impact on oil demand and suggesting that OPEC+ should release withheld barrels back into the market to put a cap on the oil price. While OPEC+ should always be wary about the potential supply/demand responses in a higher oil price environment and should show willingness to act both on the upside and the downside, we argue that indicators based on stocks should not be its only guide for output policy and that stock movements should be seen merely as symptoms of underlying oil supply and oil demand shocks hitting the market. The fact that the market, and the media, as well as producers themselves would prefer to rely on ‘simple’, ‘measurable’ and ‘observable’ indicators, and that indicators based on shocks are highly uncertain as well as difficult to measure, does not mean that OPEC+ should not consider alternative and more complex metrics in their decision making. We consider OPEC+ exit strategy under different scenarios with price outcomes ranging from $80/b year-end to an average price of $50/b. It is perhaps this wide range of price outcomes, which may explain OPEC+ reluctance to exit the deal, especially given the time taken and the difficulties faced in concluding the output cut agreement and what makes it even more difficult for OPEC+ is that their decisions are endogenous and how they decide to act now will, in turn, shape market outcomes adding another layer of uncertainty. Executive Summary [post_title] => Oil Price Signals: What Next for OPEC+? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-signals-next-opec [to_ping] => [pinged] => [post_modified] => 2018-05-02 12:01:11 [post_modified_gmt] => 2018-05-02 11:01:11 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [73] => WP_Post Object ( [ID] => 30974 [post_author] => 111 [post_date] => 2018-04-06 11:06:01 [post_date_gmt] => 2018-04-06 10:06:01 [post_content] => OPEC exit strategy has been one of the key uncertainties engulfing the oil market. Most market focus has been on the level of inventories, as this is seen by many as a key indicator as to when OPEC may shift its current output policy. In this presentation, it is argued that the level of inventories, however measured, is a backward looking indicator, and hence is of little use for guiding OPEC’s next steps. Instead, through thorough analysis of the previous cycles we show that in the presence of a new source of supply, which is highly responsive to price signals, demand related shocks become much more important in shaping OPEC behaviour. The high output strategy adopted in 2015 was undermined by a negative demand shock. The current strategy of cutting output has succeeded in large part due to a strong positive demand shock, which caused inventories to continue to decline despite strong US shale response. Thus, the risks of potential ‘trade wars’ and the potential negative impact on the global economy and on oil demand if these risks do materialise should constitute a serious concern for OPEC. OPEC’s current strategy hinges heavily on the prospects of future demand growth. If demand continues to surprise on the upside (positive demand shock), then OPEC will most likely maintain its strategy and may decide to release some of the withheld crude back to the market. If demand surprises on the downside (negative demand shock), then OPEC’s choices become very stark: OPEC could either decide to cut output to support prices or shift toward a higher output strategy. Both choices carry hefty risks reflecting the delicate situation that OPEC finds itself in as a result of the shift in policy back in November 2016. Executive Summary [post_title] => Oil Supply Balances: The Four Cycles of the OPEC Oil Output Policy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-supply-balances-four-cycles-opec-oil-output-policy [to_ping] => [pinged] => [post_modified] => 2018-04-06 11:18:20 [post_modified_gmt] => 2018-04-06 10:18:20 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [74] => WP_Post Object ( [ID] => 30881 [post_author] => 111 [post_date] => 2018-02-22 10:29:03 [post_date_gmt] => 2018-02-22 10:29:03 [post_content] => In this presentation, given at IP Week, Bassam Fattouh discusses the heightened geopolitical risks in the Middle East and North Africa (MENA) and the potential impacts, both short-and long-term, on oil and gas markets. He argues that the nature of geopolitical risks in the region has changed dramatically and that despite the defeat of the so called Islamic State (IS), overall there has been a general deterioration in the geopolitical backdrop as old conflicts resurface and new risks emerge, including the fragmentation of some states, the rise of non-state actors and local power centers, consolidation of power and more assertive foreign policy from the world’s top oil exporter, and heightened confrontation between regional and international powers. Despite this general deterioration in the geopolitical backdrop, the short-term impacts on oil and gas markets have been muted. Unplanned outages from MENA have been limited in the last two years, and the recovery of Libyan output (though from very low levels), as well as the resumption of Iranian exports after the lifting of sanction meant that despite the high compliance from key Middle East oil exporters to the OPEC/NOPEC deal, supply from MENA declined only marginally in 2017. The deteriorating geopolitical backdrop did not preclude OPEC, and its members, and Russia from reaching an agreement to cut oil output and pursue further cooperation. At times when stocks were high, and given the limited output losses so far, the market has barely reacted to geopolitical flashpoints from the region in the last few years. Having said that, the geopolitical backdrop is having a more subtle longer-term impact on MENA’s long-term oil capacity, preventing some countries from expanding their oil and gas productive capacity (Iran, Libya, KRG), which raises a key question as to whether some of the lowest cost producers in the region will be in a position to develop their reserves faster than higher cost producers. Heightened regional confrontation has also meant higher defense and military expenditure and hence the need for higher oil prices at times when most countries are embarking on very ambitious plans to reform, diversify, and open their economies. Looking ahead, as the crude and products overhang gets eroded and as spare capacity becomes thinner (especially when compared to global oil consumption), geopolitical flashpoints in the Middle East will have a bigger impact on markets, though the short-term impact on prices is expected to remain small in the current market context in the absence of a supply disruption from a large oil exporter. [post_title] => Heightened Geopolitical Risks in the Middle East and Potential Impacts on Oil Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => heightened-geopolitical-risks-middle-east-potential-impacts-oil-markets [to_ping] => [pinged] => [post_modified] => 2018-02-22 10:29:03 [post_modified_gmt] => 2018-02-22 10:29:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [75] => WP_Post Object ( [ID] => 30863 [post_author] => 111 [post_date] => 2018-02-13 11:41:06 [post_date_gmt] => 2018-02-13 11:41:06 [post_content] => 2018 started on a positive note for oil markets with Brent prices breaking through $70 a barrel for a few days and all the key international crude oil benchmarks flipping into backwardation. Yet, there is still a wide uncertainty engulfing the oil market, with very divergent views among market observers about how the oil price path could evolve in 2018, with some revising upwards their forecasts to higher than $80/b while others are less convinced that the market fundamentals can sustainably support a price above $70/b, expecting a lower path in the mid $60/b. The key uncertainties behind these divergent views mainly pertain to different views about:
  • The OPEC/NOPEC exit strategy from the output cut agreement reached in November 2016;
  • US shale supply response to the recent oil price rise;
  • The potential impact of higher oil prices on global oil demand;
  • The extent of supply disruptions amid a fragile geopolitical environment.
In this Energy Insight, we analyse how the oil price path could evolve in 2018 by evaluating the aforementioned risks underlying the world oil market using a structural model of the oil market and considering various forecast scenarios. Forecast scenarios are not predictions of what will happen, but rather modelled projections of various oil price risks conditional on certain events that are known at the time of the forecast or some other hypothetical events. Our reference forecast scenario projects for Brent to trade within a narrow price range, with a price floor at above $60/b and a ceiling of below $75/b, with a 2018 average price of $67/b. The baseline forecast suggests that the momentum of stronger than expected oil demand and the OPEC/NOPEC output cuts have tightened the oil market in 2017 and even with no change in current market dynamics, the oil price will continue to be supported at around $65/b. Our results show that for 2018, US shale output growth will be the key factor putting a ceiling on the oil price, while supply disruptions could provide some support to the oil price, with a sharp fall in Venezuelan output constituting the biggest geopolitical risk that could push prices well above our baseline or reference forecasts. The results also show the paramount importance for the strong oil demand momentum experienced in 2017 to continue in 2018 for rebalancing the market and supporting the oil price. Finally, our results show that for OPEC/NOPEC to maintain the recent price gains, they have to extend their output cut until the end of 2018; releasing the withheld barrels under the current agreement would result in a sharp fall in oil prices, suggesting that OPEC/NOPEC should be very wary about unwinding the output cut agreement when they next meet in June 2018. [post_title] => Oil Price Paths in 2018: The Interplay between OPEC, US Shale and Supply Interruptions [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2018-interplay-opec-us-shale-supply-interruptions [to_ping] => [pinged] => [post_modified] => 2018-02-13 11:41:06 [post_modified_gmt] => 2018-02-13 11:41:06 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [76] => WP_Post Object ( [ID] => 30852 [post_author] => 111 [post_date] => 2018-02-06 10:24:08 [post_date_gmt] => 2018-02-06 10:24:08 [post_content] => While the market has been focused on short-term issues such as OPEC’s success in rebalancing the market in 2018; its exit strategy after the expiry of the deal; and the risk that the market over-tightens, OPEC and its dominant player Saudi Arabia have been keen to shift the market focus towards the longer term. The key message that emerged from the latest OPEC/Non-OPEC Joint Ministerial Monitoring Committee is that producers shouldn’t limit their efforts to 2018 and instead should aim to extend the declaration of cooperation beyond 2018 in order to assure ‘stakeholders, investors, consumers and the global community that this is something that is here to stay’, and that producers ‘are going to work together’ within a longer framework for cooperation. The latest signal is a very powerful one as it signifies that Saudi Arabia is not only interested in the short-term rebalancing of the market, but is also keen to stabilise long-term expectations about long-run oil prices; and producer behaviour at times of increased supply and demand uncertainty and during structural transformation in the market. In a world in which many are expecting oil demand to peak in the next few decades, the monetization of oil reserves as quickly as possible is being presented as the only ‘rational’ policy for low-cost producers, if they are to avoid holding stranded assets or failing to maximize their long term revenues. This scenario, in which producers compete for market share, is extremely bearish for oil markets both in the long and the short term, as long-term expectations will eventually feed into short-term expectations. It is in this context that Al-Falih’s signal is important: it charts an alternative route in which oil producers would continue to cooperate and restrain output, even as the oil market becomes more competitive. While Saudi Arabia is charting for the market an alternative story based on cooperation with other producers lasting ‘decades and generations’, the challenges it faces are immense: maintaining cooperation in a more competitive world is very challenging and while producers have the incentive to cooperate, the cooperation between producers needs to take a different shape. For instance, producers should not only be concerned with low oil prices, but also be proactive when prices are too high, as high oil prices induce strong supply and demand responses. But this does not imply that cooperation is not possible or sustainable: As long as their economies are not diversified, the alternative of non-cooperation is also not sustainable. The market is yet to fully internalize the signal and will be looking closely as to whether the Kingdom will follow up with concrete steps to turn the signal into a credible strategy. [post_title] => Saudi Arabia: Shifting the Goal Posts [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabia-shifting-goal-posts [to_ping] => [pinged] => [post_modified] => 2018-02-06 10:24:08 [post_modified_gmt] => 2018-02-06 10:24:08 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [77] => WP_Post Object ( [ID] => 30835 [post_author] => 111 [post_date] => 2018-01-24 10:29:38 [post_date_gmt] => 2018-01-24 10:29:38 [post_content] => It is often implied that economic adjustments and structural reforms are very difficult in the context of rentier economies. Yet recent experience shows that in response to the declines in oil price and uncertainties surrounding oil markets, GCC countries have been able to introduce some limited reforms with relative ease and, so far, without much public opposition. Perhaps most visible are the recent energy price increases in Saudi Arabia. While low energy prices are associated with wide distortions, inefficiencies and inequities, increasing domestic energy prices without introducing compensation measures has both direct and indirect adverse impacts on households’ welfare. In Saudi Arabia, low energy prices have another dimension, as they have been central to the country’s industrialization strategy, which is based on the competitiveness of energy intensive industries such as petrochemicals, aluminum and steel. In this presentation given at the Oxford Centre for Islamic Studies, Bassam Fattouh addresses the following key questions:
  •  How deep have the recent energy price increases in Saudi Arabia been?
  • Can these reforms be accelerated without the government facing serious public opposition? What are some of the policies that governments can pursue to increase the acceptability of energy price reforms?
  • Will energy price reforms reverse the long-term industrialization strategy based on developing energy intensive industries?
  • Can energy price reforms (and economic reforms more generally) be implemented without greater accountability and openness?
The presentation addresses these questions in the context of changing international and domestic scenes and makes the following observations. First, the sustainability of energy pricing reforms is highly dependent on developing effective social safety nets and cash transfer schemes, which in turn depends on the quality of the implementation of these schemes and the institutions involved. Second, the energy sector will continue to play a key role in the Saudi economy and therefore energy intensive industries are key in shaping the energy pricing reform agenda going forward, with the price of industrial fuels expected to rise gradually and to levels that ensure industrial competitiveness.  Finally, the relationship between economic and political opening is complex: economic reform may not necessarily bring political reform; and social openness is not necessarily a substitute for successful economic reforms which are needed to generate wealth and jobs for young people, the new power base for the new leadership. [post_title] => Saudi Arabia's Energy Pricing Reform in a Changing Domestic and Global Context [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-energy-pricing-reform-changing-domestic-global-context [to_ping] => [pinged] => [post_modified] => 2018-01-24 10:29:38 [post_modified_gmt] => 2018-01-24 10:29:38 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [78] => WP_Post Object ( [ID] => 30822 [post_author] => 111 [post_date] => 2018-01-15 12:00:17 [post_date_gmt] => 2018-01-15 12:00:17 [post_content] => The prospect that global oil demand will gradually slow and eventually peak has created a cottage industry of executives and commentators trying to predict the point at which demand will peak. In this Energy Insight, we argue that this focus seems misplaced.  The date at which oil demand will stop growing is highly uncertain and small changes in assumptions can lead to vastly different estimates.  More importantly, there is little reason to believe that once it does peak, that oil demand will fall sharply.  The world is likely to demand large quantities of oil for many decades to come. Rather, the significance of peak oil is that it signals a shift in paradigm – from an age of (perceived) scarcity to an age of abundance – and with it is likely to herald a shift to a more competitive market environment.  This change in paradigm is also likely to pose material challenges for oil producing economies as they try both to ensure that their oil is produced and consumed, and at the same time diversify their economies fit for a world in which they can no longer rely on oil revenues to provide their main source of revenue for the indefinite future. We argue that the extent and pace of this diversification is likely to have an important bearing on oil prices over the next 20 or 30 years.  It seems likely that many low-cost producers will delay the pace at which they adopt a more competitive “higher volume, lower price” strategy until they have made material progress in reforming their economies.  In particular, in reducing the “social costs” of oil production associated with using oil revenues to finance many other aspects of their economy, such as health care provision or public sector employment. More generally, it seems unlikely that oil prices will stabilise around a level in which many of the world’s major oil producing economies are running large and persistent fiscal deficits.  As such, the average level of oil prices over the next few decades is likely to depend more on developments in the social cost of production across the major oil producing economies than on the physical cost of extraction. [post_title] => Peak Oil Demand and Long-Run Oil Prices [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => peak-oil-demand-long-run-oil-prices [to_ping] => [pinged] => [post_modified] => 2018-01-15 12:00:17 [post_modified_gmt] => 2018-01-15 12:00:17 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [79] => WP_Post Object ( [ID] => 30761 [post_author] => 111 [post_date] => 2017-12-07 09:50:22 [post_date_gmt] => 2017-12-07 09:50:22 [post_content] => Using novel measures that decompose oil supply shocks into its exogenous supply (driven by exogenous geopolitical events in OPEC countries) and endogenous supply (driven by investment dynamics within the oil sector) components, this paper offers a fresh perspective on the role of supply, flow demand and speculative demand shocks in explaining the changes in the real price of oil over the last three decades. We show that while exogenous supply shocks are non-negligible, endogenous supply shocks have generated larger and more persistent price responses than previously thought. Earlier studies have consistently shown that positive shifts in the flow demand for oil were responsible for most of the oil price surge between 2002-2008. But this paper shows that endogenous production capacity constraints, which restricted the ability of producers to ramp up production to meet the unexpected increase in demand, added at least $50/barrel to the real price of oil during that period. More recently, endogenous oil supply shocks alone accounted roughly for twice as much as any other supply or demand shock in explaining the 2014 oil price collapse. Specifically, of the $64 per barrel cumulative decline in the real price of oil from June 2014 to January 2015, our model estimates that $29 have been due to endogenous oil supply shocks, $13 have been due to exogenous oil supply shocks, and $12 have been due to flow demand shocks. The paper concludes by demonstrating that forecasting models that are able to distinguish between exogenous and endogenous supply shocks generate more realistic out-of-sample estimates of the sequences of the structural shocks, thus resulting in higher real-time predictive accuracy than forecasting models that use a collective measure of a flow supply shock. Full paper [post_title] => A Structural Model of the World Oil Market: The Role of Investment Dynamics and Capacity Constraints in Explaining the Evolution of the Real Price of Oil [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => structural-model-world-oil-market-role-investment-dynamics-capacity-constraints-explaining-evolution-real-price-oil [to_ping] => [pinged] => [post_modified] => 2017-12-07 09:55:31 [post_modified_gmt] => 2017-12-07 09:55:31 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [80] => WP_Post Object ( [ID] => 30755 [post_author] => 111 [post_date] => 2017-11-29 10:34:21 [post_date_gmt] => 2017-11-29 10:34:21 [post_content] => Oil market sentiment has shifted considerably over the last few weeks. Brent is trading above $60 per barrel, the major benchmarks are in backwardation, stocks have been falling towards the five-year average, global oil demand remains strong, financial positioning is at record length, OPEC and non-OPEC compliance has been high, the additional Nigerian and Libyan barrels have been absorbed into the market, geopolitical risks have heightened, multiple disruptions have occurred recently, and OPEC supply risks outside the core Middle East are tilted to the upside. So OPEC seems to be in the controlling seat, or is it? It is at these critical junctures that OPEC and its most important player, Saudi Arabia, face some very hard choices. While OPEC has reasserted some control of the market in the last few months, the room for manoeuvring is getting tighter and tighter. The context in which OPEC operates has been dramatically transformed. One key question that OPEC has to continuously grapple with is whether there is a ‘sweet’ oil price range that does not endanger the prospects of global oil demand while at the same time keeping a lid on oil supply growth, so the market remains in balance. This short article discusses the challenges that OPEC faces in identifying such a sweet price range. [post_title] => OPEC's Hard Choices [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opecs-hard-choices [to_ping] => [pinged] => [post_modified] => 2017-11-29 10:34:21 [post_modified_gmt] => 2017-11-29 10:34:21 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [81] => WP_Post Object ( [ID] => 30658 [post_author] => 111 [post_date] => 2017-10-04 11:12:53 [post_date_gmt] => 2017-10-04 10:12:53 [post_content] => Oil rents have been central to shaping the political economy of the Gulf Corporation Council (GCC) countries. The basic analytical framework for analyzing the impacts of rents remains the Rentier State Theory (RST) despite some important refinements to this theory over the years. However, an area that has received little attention in the literature is the process of economic adjustment and reforms in the context of a rentier economy, where it is often argued that governments cannot embark on reforms without undermining the social contract between the ruling families and the citizens, increasing the risk of social and political unrest. Yet recent experience shows that in response to the recent sharp decline in the oil price, the GCC countries have introduced some limited reforms/adjustment measures such as increasing energy prices with relative ease and without much public opposition so far. This may suggest that social contract is more resilient than originally thought and extends beyond what is implied by RST. This presentation tries to answer following three questions:
  • How deep have these recent reforms been?
  • Can these reforms be accelerated without the governments facing serious public opposition? Can compensation schemes make the reforms more acceptable?
  • Can these reforms be implemented without greater accountability?
[post_title] => Economic Adjustment and Reform in the Context of a Rentier State [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => economic-adjustment-reform-context-rentier-state [to_ping] => [pinged] => [post_modified] => 2017-10-04 11:12:53 [post_modified_gmt] => 2017-10-04 10:12:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [82] => WP_Post Object ( [ID] => 30652 [post_author] => 111 [post_date] => 2017-09-28 09:25:08 [post_date_gmt] => 2017-09-28 08:25:08 [post_content] => Bassam Fattouh presents on the Middle East Refining Scene & Oil Product Balances at Platts Refining Summit, September 2017. [post_title] => The Middle East Refining Scene and Oil Product Balances [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => middle-east-refining-scene-oil-product-balances [to_ping] => [pinged] => [post_modified] => 2017-09-28 09:25:08 [post_modified_gmt] => 2017-09-28 08:25:08 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [83] => WP_Post Object ( [ID] => 33498 [post_author] => 111 [post_date] => 2017-07-06 12:34:06 [post_date_gmt] => 2017-07-06 11:34:06 [post_content] => Energy subsidies are among the most pervasive and controversial fiscal policy tools used in the Middle East and North Africa. In a region with few functioning social welfare systems, subsidized energy prices continue to form an important social safety net, albeit a highly costly and inefficient one. In the region’s oil- and gas-producing countries, low energy prices have also historically formed an important element of an unwritten social contract, where governments have extracted their countries’ hydrocarbon riches in return for citizens’ participation in sharing resource rents. While it is clear that energy subsidy reform will not be the only variable at play, its potential socioeconomic dividends are important factors for enabling the achievement of some common regional objectives—sustainable fiscal policies, fiscal space to invest in key areas, and a more efficient and equitable distribution of scarce resources—helping to promote a more stable political status quo in the long term. If accommodated by effective mitigation measures, reforming energy subsidies in the region’s middle-income economies could be a powerful tool for governments—addressing the profound socioeconomic grievances that have contributed to the outbreak of political protest and, in some cases, to an intensification of domestic infighting over political control. This article looks at some of the region’s potential avenues for reform. While the past has demonstrated the political difficulty of reforming energy prices, recent experience also shows that the reform of energy subsidies can be achieved, if accompanied by a set of enabling factors. El-Katiri, L. and Fattouh, B. (2017). ‘A brief political economy of energy subsidies in the Middle East and North Africa’, International Development Policy | Revue internationale de politique de développement. [post_title] => A brief political economy of energy subsidies in the Middle East and North Africa [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => a-brief-political-economy-of-energy-subsidies-in-the-middle-east-and-north-africa-2 [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:15:33 [post_modified_gmt] => 2019-12-18 10:15:33 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [84] => WP_Post Object ( [ID] => 30433 [post_author] => 111 [post_date] => 2017-06-07 14:58:51 [post_date_gmt] => 2017-06-07 13:58:51 [post_content] => Earlier this week, Saudi Arabia, the UAE, Bahrain and Egypt cut diplomatic and economic ties with Qatar, accusing Qatar of supporting extremism. The measures are of unprecedented severity in modern GCC diplomacy with adverse consequences for Qatar, not least for its reputation as a business and international and regional transit hub and as host for international events, including the 2022 World Cup. While efforts at mediation are underway, it will be difficult to bridge the gap between Qatar and Saudi Arabia and its closest allies. At the root of the dispute is a fundamental difference in foreign and regional policy. Further escalation is unlikely, but the dispute will not be resolved anytime soon - unless Qatar makes some very painful concessions. Therefore, oil and gas markets should prepare for a flow of headline news, which could induce erratic volatility, despite the impact of the current escalation on oil and gas market fundamentals being rather limited. We expect no impact on oil market balances and there is no indication that Qatar’s exports of LNG, oil or NGLs will be impeded, though we could witness some redirection of LNG trade flows. While the impacts of the current escalation on energy markets are likely to be limited, the same can’t be said for the stability of the Middle East. The region is already undergoing a ‘regional’ civil war, which has fragmented countries, created new geographical boundaries, weakened the authority of central governments and increased the power of non-state actors. The current rift within the GCC, if not contained, will only amplify the ‘regional’ civil war, increasing the risk of further fragmentation, more intense proxy conflicts, and higher instability, which, whilst it may not have a direct impact on immediate oil and gas supplies, may well impact the long-term productive potential of the region. [post_title] => Feud Between Brothers: the GCC rift and implications for oil and gas markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => feud-brothers-gcc-rift-implications-oil-gas-markets [to_ping] => [pinged] => [post_modified] => 2017-06-07 16:29:09 [post_modified_gmt] => 2017-06-07 15:29:09 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [85] => WP_Post Object ( [ID] => 33512 [post_author] => 111 [post_date] => 2017-05-06 13:10:47 [post_date_gmt] => 2017-05-06 12:10:47 [post_content] => Is the Saudi local-market oil demand winding down? Since 2015 it has slowed, culminating in the large 2016 recession, and the motives are both cyclical and structural. Fattouh, B. (2017). ‘Saudi Arabia: the operative word is austerity’, World Energy. [post_title] => Saudi Arabia: the operative word is austerity [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabia-the-operative-word-is-austerity [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:17:26 [post_modified_gmt] => 2019-12-18 10:17:26 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [86] => WP_Post Object ( [ID] => 30217 [post_author] => 111 [post_date] => 2017-03-28 13:50:24 [post_date_gmt] => 2017-03-28 12:50:24 [post_content] => In the last few months, there has been a flurry of articles about the Initial Public Offering (IPO) of Saudi Aramco. While such articles offer a fresh perspective on the complexities involved in the IPO of Saudi Aramco, key issues are still missing in the debate. This short paper tries to fill some of these gaps. First, it emphasizes that the IPO can’t be isolated from the range of recent reforms and adjustments taking place in Saudi Arabia and the pace of these reforms will be key in determining the valuation of Saudi Aramco. At the same time, the IPO will determine the pace and success of these reforms. So a bet on Saudi Aramco is a bet on how successfully one thinks that Saudi Arabia, in an era of lower oil prices will adjust its economy and diversify its economic base. Second, it raises the question as to the main underlying motivation behind the IPO. The answer to that question is often taken for granted: an effort ‘to wean the kingdom off oil through Vision 2030 which aims to diversify the Saudi economy and create jobs’. But the IPO is mainly about income diversification and boosting the resources of the Public Investment Fund. This is fundamentally different from ‘real’ economic diversification, which is often associated with expanding the economic base and job creation. As the experience of neighboring countries has shown, sovereign wealth funds predominantly diversify their assets by investing in foreign markets rather than in diversification of the domestic economy into employment creating sectors. Finally, this comment attempts to clarify some confusion regarding the IPO, particularly in relation to the ownership of the reserve base with some arguing that ‘there are reasons to be cautious about expecting much more transparency’ because ‘it is far from clear that any share sale would include ownership of the reserves in the ground’. As argued in this paper, the issue of ownership of reserves is not that relevant as Saudi Aramco, in which investors will have an ownership stake, has and will continue to have an exclusive concession to exploit the underground reserves including the right to monetize any potential growth in these reserves. [post_title] => The IPO of Saudi Aramco: Some Fundamental Questions [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => ipo-saudi-aramco-fundamental-questions [to_ping] => [pinged] => [post_modified] => 2017-03-30 16:34:44 [post_modified_gmt] => 2017-03-30 15:34:44 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [87] => WP_Post Object ( [ID] => 33513 [post_author] => 111 [post_date] => 2017-03-06 13:12:24 [post_date_gmt] => 2017-03-06 13:12:24 [post_content] => Undertaking the biggest economic transformation in its history while attempting to gauge the constantly shifting dynamics of the oil and energy markets, the Saudi Kingdom faces key decisions in the year to come. Fattouh, B. (2017). ‘The next move’, World Energy. [post_title] => The next move [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-next-move [to_ping] => [pinged] => [post_modified] => 2019-12-06 13:13:41 [post_modified_gmt] => 2019-12-06 13:13:41 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [88] => WP_Post Object ( [ID] => 30048 [post_author] => 111 [post_date] => 2017-01-25 10:57:56 [post_date_gmt] => 2017-01-25 10:57:56 [post_content] => This presentation, delivered at Chatham House, looks at the dynamics of investment in the Middle East’s oil and gas upstream sector following the recent fall in oil price. In contrast to most regions in the world that saw sharp cuts in capital expenditure, investment in the upstream oil and gas sector in the Middle East declined only marginally in nominal terms. Given the cost deflation in the supply chain this meant that activity was maintained and even increased in some countries as reflected in the sharp rise in the rig count, with key GCC producers still on track to achieve their ambitious plans to increase productive capacity (though delays to some projects are possible). But this is a tale of two regions: While GCC producers continue to invest and increase their productive capacity, Iraq has suffered from cuts in investment especially in much needed large infrastructure, adversely impacting oil output growth and plans to increase long-term productive capacity. In Iran, progress has been slow and despite the flurry of deals announced, these are still very preliminary and without foreign investment and technology, Iran’s upside potential from current production levels is rather limited. It is argued that IOCs’ strategies in the Middle East differ fundamentally, with few IOCs regarding chasing low cost Middle East barrels, and increasing their exposure to the region’s large reserve base, as a cornerstone of their strategy in a more uncertain world. The opening of Iran will offer opportunities for IOCs to increase their exposure to a large reserve base, but given the risks involved, such opportunities will be captured by only a few companies that have the patience and capability to manage these risks. The presentation concludes by arguing that during this downturn, the core GCC OPEC producers (Saudi Arabia, Kuwait, and the UAE) consolidated their position by continuing to invest in their upstream sector reflecting their long-term thinking and hence benefiting the most from an upturn in the market; the rest of OPEC and most of the non-OPEC producers will have to play catch up. [post_title] => Upstream Investment in the Middle East: Challenges and Opportunities in a Lower Price Environment [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => upstream-investment-middle-east-challenges [to_ping] => [pinged] => [post_modified] => 2017-01-25 10:57:56 [post_modified_gmt] => 2017-01-25 10:57:56 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [89] => WP_Post Object ( [ID] => 30041 [post_author] => 111 [post_date] => 2017-01-24 10:25:18 [post_date_gmt] => 2017-01-24 10:25:18 [post_content] =>

This paper explores how the oil price path could evolve in 2017 by assessing the various oil price risks under alternative forecast scenarios pertaining to future market conditions. It is shown that even without the OPEC-non-OPEC output cut agreement in November 2016, the three-year long price fall would eventually have come to a halt and stabilized at close to $41/b in 2017 based solely on market forces. The agreement, however, helped accelerate the price recovery by stabilising the oil price near $50/b. That said, the current price at above $50/b already incorporates the bulk of the expected gains from the full enforcement of the production cuts and reflects the positive shift of market sentiment that has been building-up in anticipation of the implementation of the output cut agreement. Thus, for the next year, the oil price path is more sensitive to downside risks depending on the discipline of OPEC and non-OPEC oil producers. In fact, for the price recovery to be sustained in 2017, OPEC efforts must be met by favourable market conditions in the form of an unexpected surge in global oil demand amid a moderate expansion of US shale supply. On the contrary, a deterioration of global economic activity, or an aggressive expansion of US shale supply, or both, could reverse the current momentum. Moreover, a return of oil production from conflict inflicted countries Libya and Nigeria could undermine the OPEC agreement from within. Eventually, whatever scenario plays out, OPEC will continue to assess the market conditions and in the second half of 2017, it can decide on whether to extend the agreement to offset any losses to the anticipated oil price recovery that may arise from changes in oil market conditions or to drop the agreement all together. But regardless which way the decision goes, the latest output cut agreement is critical to resolving fundamental uncertainties about the shock hitting the oil market and OPEC behaviour in a more uncertain world.

[post_title] => Oil Price Paths in 2017: Is a Sustained Recovery of the Oil Price Looming? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2017-sustained-recovery-oil-price-looming [to_ping] => [pinged] => [post_modified] => 2017-01-24 10:25:18 [post_modified_gmt] => 2017-01-24 10:25:18 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [90] => WP_Post Object ( [ID] => 30026 [post_author] => 111 [post_date] => 2017-01-17 13:48:02 [post_date_gmt] => 2017-01-17 13:48:02 [post_content] => This presentation delivered at the Department of Business, Energy & Industrial Strategy (BEIS) analyses the main factors shaping Saudi oil policy and the various phases of the Kingdom’s oil policy since the 2008 financial crisis. It is possible to identify four such phases: 1) In the aftermath of the 2008 financial crisis, Saudi Arabia decided to cut output in the face of a temporary demand shock sending a strong signal about its preferred price of $75/barrel; 2) In the face of supply disruptions following the Arab Spring and the sanctions on Iran in 2011—12, Saudi Arabia increased its output to fill the supply gap and adjusted its preferred price upwards to $100/barrel; 3) Towards the end of 2014, in the face of the large supply-demand imbalance caused by a prolonged period of high and stable oil prices, non-cooperation from other producers, and structural uncertainties hitting the oil market, Saudi Arabia opted not to cut output and instead boosted its production in an attempt to maintain market share; 4) In 2016, Saudi Arabia signaled a change in stance and took the leading role in engineering a cut within OPEC and with non-OPEC. This presentation examines the main factors that could explain the recent change in Saudi Arabia’s behavior; analyses the costs and uncertainties associated with maintaining market share strategy; and explores some of the potential scenarios that could play out in 2017. As argued elsewhere, Saudi oil policy is shaped by multiple factors and as these factors change and/or as new information becomes available, Saudi Arabia’s oil policy will also change. It is also argued that, as in 2016, OPEC behavior will be the key factor shaping oil market dynamics in 2017. [post_title] => The Phases of Saudi Oil Policy: What Next? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => phases-saudi-oil-policy-next [to_ping] => [pinged] => [post_modified] => 2017-01-17 13:48:02 [post_modified_gmt] => 2017-01-17 13:48:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [91] => WP_Post Object ( [ID] => 29761 [post_author] => 111 [post_date] => 2016-10-28 11:11:50 [post_date_gmt] => 2016-10-28 10:11:50 [post_content] => This comment argues that while Saudi Arabia has shown willingness to cooperate, this does not imply that the fundamentals of Saudi oil policy have necessarily changed nor that the kingdom would accept any deal irrespective of the key principles that have been guiding Saudi oil policy so far. Based on its historical record, it is possible to identify four such fundamental principles, which need to be upheld for the success of the negotiations in the OPEC November meeting:
  • Saudi Arabia will not act unilaterally and any agreement should be part of a collective effort within OPEC and with other key non-OPEC producers;
  • There is a certain production level that Saudi Arabia is not willing to go below;
  • Any potential deal should be politically acceptable to the Saudi leadership;
  • Most importantly, the deal should have a real impact on the oil price and result in higher revenues for the kingdom.
On each of these counts, the challenges facing Saudi Arabia are immense and the probability that these barriers will be overcome by November remains low. However, there is a realization within OPEC that failure to reach any sort of agreement in November will be very bearish for the oil market with the potential to erase all recent price gains. This would continue to put pressure on OPEC to try to reach some sort of agreement, though such a potential deal may not be as neat as many in the market are expecting and OPEC may just decide to postpone some of the difficult decisions on individual quotas to a later date and agree on a collective cut in the hope that the market will be as forgiving as after the Algiers meeting, which is highly unlikely. Should there be no clear agreement on cutting output and how to allocate individual quotas, Saudi signaling about cooperation will most likely continue, as it has no interest in talking prices down. But in terms of actual volumes it may be a different story altogether, with the possibility of output being maintained at high levels, or even increased until a collective agreement is reached, delaying the rebalancing process. This is a risk that both producers and the market should not ignore. [post_title] => OPEC Deal or No Deal? This is Not the Question [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-deal-no-deal-not-question [to_ping] => [pinged] => [post_modified] => 2016-10-28 11:11:50 [post_modified_gmt] => 2016-10-28 10:11:50 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [92] => WP_Post Object ( [ID] => 29712 [post_author] => 111 [post_date] => 2016-10-13 12:51:13 [post_date_gmt] => 2016-10-13 11:51:13 [post_content] => In 2015, oil demand growth, which surprised on the upside, was responsible for most of the adjustment in the oil market imbalance. In 2016, oil demand growth started slowing down and the baton of adjustment passed to non-OPEC supply, particularly US shale, which has declined sharply in recent months. So far, the OPEC cut feedback mechanism has been absent in this current downturn, and instead, Middle East-OPEC (led by Iraq and Saudi Arabia and joined recently by Iran) has been a major contributor to oil supply growth. This OPEC behaviour is fundamentally different from some of the previous cycles. This presentation given at the Bank of England analyses the various OPEC adjustment mechanisms in this low oil price environment; agreement on cuts, the investment-output mechanism, and the fiscal crisis-disruption mechanism. It is argued that these adjustment mechanisms are highly uncertain and the adjustment lags are different from those for high cost producers and US shale, hence their impacts on the oil market are very difficult to predict. The presentation also analyses the three phases of Saudi oil policy since the 2010 oil market recovery and questions whether there is a new phase in the making. The presentation concludes that Saudi oil policy is being shaped by multiple considerations; internal factors (limited diversification and high reliance on oil revenues); external factors (the nature of the shock hitting the oil market); and OPEC dynamics (the ability to reach and implement an agreement with other producers especially at times when many producers are seeking to increase their productive capacity). As these factors change and/or as new information about the shock becomes available, Saudi oil policy will also adapt. Potential shifts in Saudi oil policy and/or signals about these shifts will continue to shape oil market outcomes. [post_title] => The Low-Cost OPEC Cycle: The Big Elephant in the Room [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => low-cost-opec-cycle-big-elephant-room [to_ping] => [pinged] => [post_modified] => 2016-10-13 12:51:13 [post_modified_gmt] => 2016-10-13 11:51:13 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [93] => WP_Post Object ( [ID] => 29685 [post_author] => 111 [post_date] => 2016-10-03 13:24:47 [post_date_gmt] => 2016-10-03 12:24:47 [post_content] =>

As much of the world pushes ahead with the deployment of renewable energy, resource-rich MENA economies are lagging behind. For the region to catch up, new policies are required to remove barriers of entry to the industry and create investment incentives. This paper contends that while the main obstacles to deployment of renewables are grid infrastructure inadequacy, insufficient institutional capacity, and risks and uncertainties, the investment incentives lie on a policy instrument spectrum with two polar solutions: (i) the incentive is provided entirely through the market (removing all forms of fossil fuel subsidies and internalising the cost of externalities); or (ii) the incentive is provided through a full government subsidy programme (in addition to the existing fossil fuel subsidies). However, there is a trade-off between the two dimensions of the fiscal burden and political acceptance across the policy instrument spectrum, which implies that the two polar solutions themselves are not easily and fully implementable in these countries. Therefore, we propose a combinatorial approach in which the incentive for renewables deployment is provided through a partial renewable subsidy program and partial fossil fuel price reform in a way that balances the fiscal pressure on the government against political acceptability. Additionally, the paper argues that the fact resource-rich countries are behind advanced economies in electricity sector reform gives them a last-mover advantage in the sense that they can tap into years of international experience to avoid design mistakes and create a sustainable solution that is compatible with renewables deployment and their own context.

Executive Summary

[post_title] => Advancing Renewable Energy in Resource-Rich Economies of the MENA [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => advancing-renewable-energy-resource-rich-economies-mena [to_ping] => [pinged] => [post_modified] => 2017-11-16 13:39:10 [post_modified_gmt] => 2017-11-16 13:39:10 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [94] => WP_Post Object ( [ID] => 29395 [post_author] => 111 [post_date] => 2016-07-19 09:34:38 [post_date_gmt] => 2016-07-19 08:34:38 [post_content] => Structural reforms outlined in Vision 2030 are much needed to shift the economy to a more sustainable path and even if only a small part of Vision 2030 is being implemented, the Saudi economy will look very different in 2030 than it does now. The key question is whether these changes will have a substantial impact on oil policy and the evolution of the energy sector. In this comment, we argue that while the recent announcements and organisational changes are substantial, and the overall objectives of Vision 2030 are very ambitious, the impact on oil policy and the energy sector is likely to be more subtle than current expectations.  Despite expectations of a diminished role, the Saudi energy sector (and particularly the oil and gas sector) remains key to a smooth transition to the vibrant economy envisioned and will continue to play a vital role in the country’s future. Furthermore, the overall direction of Saudi oil policy in terms of its production and investment policy, maintaining spare capacity, integrating down the value chain through investing in refining and petrochemicals, increasing the role of gas in the energy mix, introducing efficiency measures and deploying renewables in the power mix to free crude oil for exports are not likely to change in the next few years as has been confirmed by the National Transformation Programme. In fact, one could argue that the Saudi energy sector would benefit from a more integrated energy policy that takes a holistic view about the energy challenges facing the kingdom. But the Saudi energy sector will not be immune from the changes in other parts of the economy as the recent restructuring of the energy ministry, the recent increase in energy price, the emphasis on local content policies, and plans for a partial public listing of Saudi Aramco have shown. The restructuring and reorganisation of such a vital sector and the acceleration of some policies may bring benefits and achieve efficiency gains, but they will also generate uncertainties and risks, which need to be carefully assessed and managed so policymakers don’t end up killing the goose that lays the golden eggs. [post_title] => Saudi Arabia’s Vision 2030, Oil Policy and the Evolution of the Energy Sector [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-vision-2030-oil-policy-evolution-energy-sector [to_ping] => [pinged] => [post_modified] => 2016-07-19 09:34:38 [post_modified_gmt] => 2016-07-19 08:34:38 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [95] => WP_Post Object ( [ID] => 29309 [post_author] => 111 [post_date] => 2016-05-31 15:48:40 [post_date_gmt] => 2016-05-31 14:48:40 [post_content] => The sharp fall in the oil price has divided views about the nature of the latest oil price cycle. Some argue that the oil market has been subject to structural shocks that have created a ‘new global oil order’ and that we have entered a world of ‘low oil prices for much longer’. Others are of the view that oil prices will rise sooner than currently expected and the current price fall has many of the characteristics of previous cycles. These two views reflect the high degree of uncertainty engulfing the oil market. This raises some key questions: Has there been a structural shift in the oil market adjustment mechanisms? Is the cycle different this time? And if different, how? This short comment tries to tackle these questions by analysing the nature of the adjustment mechanisms both on the supply (non-OPEC outside the US shale, US shale and OPEC) and on the demand side and by examining the internal consistency of ‘the lower oil price for longer’ scenario and the cyclical view of oil prices. [post_title] => Adjustment in the Oil Market: Structural, Cyclical or Both? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => adjustment-oil-market-structural-cyclical [to_ping] => [pinged] => [post_modified] => 2016-05-31 15:48:40 [post_modified_gmt] => 2016-05-31 14:48:40 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [96] => WP_Post Object ( [ID] => 29272 [post_author] => 111 [post_date] => 2016-04-29 11:56:33 [post_date_gmt] => 2016-04-29 10:56:33 [post_content] => In 2015, the Gulf Cooperation Council (GCC) countries began implementing and accelerating pricing reforms targeting the removal of energy subsidies. While the price increases were from a low base and domestic energy prices are still well below international levels and among the cheapest in the Middle East and North Africa (MENA) region, the recent increases represent a fundamental shift in the GCC’s economic and social policies. In this Comment we analyse the fiscal pressures which led to the acceleration of pricing reforms, which we argue were building even during the period of record high oil prices preceding it; we review recent energy pricing reforms in GCC countries; and we analyse the implications of these reforms for the social contract between GCC governments and their citizens. We conclude that recent energy pricing reforms have been driven primarily by short-term revenue needs, and, while the implicit social contract is not as rigid as originally perceived, it may not prove sufficiently elastic to accommodate further price increases. Deeper reforms will therefore not be viable unless governments introduce mitigation measures and implement effective communication strategies which emphasize the importance of energy pricing reform for national transformation. [post_title] => Striking the Right Balance? GCC Energy Reforms in a Low Price Environment [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => striking-right-balance-gcc-energy-reforms-low-price-environment [to_ping] => [pinged] => [post_modified] => 2016-06-29 13:31:34 [post_modified_gmt] => 2016-06-29 12:31:34 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [97] => WP_Post Object ( [ID] => 33604 [post_author] => 111 [post_date] => 2016-04-09 15:41:10 [post_date_gmt] => 2016-04-09 14:41:10 [post_content] => The lack of a clear legal framework for foreign investors is holding back planning for Lebanon’s extensive exploitation of gas fields, while neighbour-rivals such as Israel move forward. Fattouh, B. (2016). ‘The energy of Lebanon’s dreams’, World Energy. [post_title] => The energy of Lebanon’s dreams [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-energy-of-lebanons-dreams [to_ping] => [pinged] => [post_modified] => 2019-12-09 15:42:42 [post_modified_gmt] => 2019-12-09 15:42:42 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [98] => WP_Post Object ( [ID] => 33599 [post_author] => 111 [post_date] => 2016-04-09 15:29:10 [post_date_gmt] => 2016-04-09 14:29:10 [post_content] => Given its highly undiversified economic base, maximizing revenues will always rank highly in Saudi Arabia’s output decision. However, this objective needs to be balanced against another—maintaining its share in key markets and maximizing long-term revenue—given the massive size of Saudi Arabia’s reserves. The trade-off between these two objectives tends to change over time, depending on market conditions, the nature of the shock, and the behaviour of other producers; Saudi Arabia’s oil policy is hence not constant. The authors argue that the advent of US shale has made the calculus of the trade-off more uncertain, complicating Saudi Arabia’s output decision. Using a simple game, they show that, under uncertainty, it is always safer for the Kingdom to assume that the shale oil supply is highly elastic, and thus decide not to cut output. But as Saudi Arabia learns more about this new source of supply, its policy could adapt accordingly. The fact that Saudi Arabia’s oil policy could change as the trade-off between revenue maximization and market share evolves, and as new information to the market arrives, will keep the market second-guessing and will continue to shape market expectations and to influence market outcomes. Fattouh, B., Poudineh, R., and Sen, A. (2016). ‘The dynamics of the revenue maximization–market share trade-off: Saudi Arabia’s oil policy in the 2014–15 price fall’, Oxford Review of Economic Policy, 32(2), 223–240. [post_title] => The dynamics of the revenue maximization–market share trade-off: Saudi Arabia’s oil policy in the 2014–15 price fall [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dynamics-of-the-revenue-maximization-market-share-trade-off-saudi-arabias-oil-policy-in-the-2014-15-price-fall [to_ping] => [pinged] => [post_modified] => 2019-12-18 10:21:09 [post_modified_gmt] => 2019-12-18 10:21:09 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [99] => WP_Post Object ( [ID] => 29087 [post_author] => 1 [post_date] => 2016-02-24 09:11:50 [post_date_gmt] => 2016-02-24 09:11:50 [post_content] => The accord reached by Saudi Arabia and Russia, along with Qatar and Venezuela, in Doha on February 16th has been widely seen as effectively an agreement to do nothing. The four countries have accepted a freeze in production based on January 2016 levels, but for most of them (with the exception of Saudi Arabia) this effectively means the ability to maintain oil output at or near full capacity. The impact on the oil market balance will be minimal, especially in the short term. Furthermore, significant caveats were included in the Doha agreement, in particular that it would only take effect if other OPEC and non-OPEC countries agree to co-operate. Saudi oil minister Al-Naimi also added that his country would ‘continue to satisfy customer demand’ for oil. Indeed, the reaction of the oil market, which saw prices rise by more than 10% in anticipation of the meeting but then fall back by over half that amount after its conclusion, underlined the ostensibly disappointing outcome. However, despite the minimal impact of the deal on market balances, the reaching of an accord between the largest OPEC and non-OPEC producers does suggest some interesting conclusions for the oil market over the next few months, as subtle shifts in negotiating tactics have started to emerge. [post_title] => Saudi-Russia Production Accord - The Freeze Before the Thaw? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-russia-production-accord-the-freeze-before-the-thaw [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:23:03 [post_modified_gmt] => 2016-02-29 16:23:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [100] => WP_Post Object ( [ID] => 29078 [post_author] => 1 [post_date] => 2016-02-08 14:09:12 [post_date_gmt] => 2016-02-08 14:09:12 [post_content] => On Wednesday January 27th Russian Energy Minister Alexander Novak met with a group of Russian oil companies to discuss the domestic and global energy markets, following which he announced that Russia would be prepared to discuss an output cut of 3-5% at a meeting with OPEC in February. On the face of it this would seem to imply that Russia might reduce production by 300,000-500,000 b/d, and indeed the immediate reaction of the oil market suggested that some credibility had been given to the statement as the oil price surged by 8% in the immediate aftermath of the comments. However, subsequent comments by other Russian and OPEC observers, combined with the history of Russia’s relationship with OPEC, which has achieved little of substance, suggests that an agreement is a long way from being concluded and has limited chances of success. A more interesting conclusion is that Russia, perhaps not surprisingly, has revealed its growing economic and corporate desperation to see oil prices rise. [post_title] => Russia and OPEC - Uneasy Partners [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => russia-and-opec-uneasy-partners [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:22:34 [post_modified_gmt] => 2016-02-29 16:22:34 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [101] => WP_Post Object ( [ID] => 27320 [post_author] => 1 [post_date] => 2015-10-19 15:22:05 [post_date_gmt] => 2015-10-19 14:22:05 [post_content] => This paper follows on from ‘Saudi Arabia’s Oil Policy: More than Meets the Eye?’ published in June 2015, which raised a set of fundamental questions in relation to the sharp drop in the oil price between June 2014 and January 2015, and OPEC’s decision, spearheaded by Saudi Arabia, not to cut output in response. We develop a simple analytical framework, which formalizes Saudi Arabia’s decision-making process relative to the fundamental revenue maximization-market share trade-off in the 2014-15 oil price fall. Using a simple game, we show that under uncertainty, it is always better off for the Kingdom to assume shale oil supply is elastic and not to cut output. But we also argue that as Saudi Arabia learns more about this new source of supply, its policy will adapt accordingly. The fact Saudi Arabia’s oil policy could change as the trade-off between revenue maximization and market share evolves, and as new information is transmitted to the market, will keep the market second-guessing. It will continue to shape market expectations and influence market outcomes. Executive Summary [post_title] => The Dynamics of the Revenue Maximisation--Market Share Trade-off - Saudi Arabia's Oil Policy in the 2014--2015 Price Fall [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dynamics-of-the-revenue-maximisation-market-share-trade-off-saudi-arabias-oil-policy-in-the-2014-2015-price-fall [to_ping] => [pinged] => [post_modified] => 2017-11-20 09:37:12 [post_modified_gmt] => 2017-11-20 09:37:12 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [102] => WP_Post Object ( [ID] => 27329 [post_author] => 1 [post_date] => 2015-07-17 10:54:49 [post_date_gmt] => 2015-07-17 09:54:49 [post_content] => In this presentation, given at the Bank of England, Bassam Fattouh looks at current developments in the oil market and explores some short and medium term prospects and concludes with the following observations: • It is important to be clear about causality; it is supply and demand imbalances that cause stocks to rise and for the shape of the curve to switch to contango. • High levels of stocks will continue to put downward pressure on the oil price and on time spreads. Until stocks are drawn-down, any potential price recovery will be capped. • Most pressure will be felt on light sweet crudes and on the Brent structure given that the North Atlantic (ex-US) has become the clearing destination for light sweet cargoes. • Saudi oil policy is not constant and Saudi cuts should not be excluded but the bar to implement the cut has risen. Saudi Arabia output policy has become less flexible both on the upside and the downside and its signaling power has reduced. • The perception of the loss of supply feedback to clear markets affects market sentiment, increasing volatility and increasing the risk premium in investment in energy projects. • Clearing excess supplies through supply and demand adjustment to lower prices is subject to uncertainty and lags. • So far demand growth has done most of the work, though it has not been strong enough to absorb the entire glut. • The supply response is yet to come, but global supply has become more varied and the nature of the investment cycle has changed - there are three investment cycles being superimposed on each other: The US shale cycle; the non-OPEC ex- US cycle; and the OPEC/Middle East cycle. The outcome of these combined investment cycles on output is yet to be seen. • A key question remains: If non-OPEC outside the US falters and OPEC investment does not materialise, can US shale fill the projected gap? [post_title] => Global Oil Markets - Current Developments and Future Prospects [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => global-oil-markets-current-developments-and-future-prospects [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:19:25 [post_modified_gmt] => 2016-02-29 16:19:25 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [103] => WP_Post Object ( [ID] => 33608 [post_author] => 111 [post_date] => 2015-07-09 15:49:39 [post_date_gmt] => 2015-07-09 14:49:39 [post_content] => Sandwiched between volatile oil prices and a lack of cohesion within OPEC, Saudi Arabia has favoured maintaining market share over maximizing revenue. Fattouh, B. and Sen, A. (2015, July). ‘When looks are deceiving’, Oil Magazine, 29, 40–43. [post_title] => When looks are deceiving [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => when-looks-are-deceiving [to_ping] => [pinged] => [post_modified] => 2019-12-09 15:52:09 [post_modified_gmt] => 2019-12-09 15:52:09 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [104] => WP_Post Object ( [ID] => 27336 [post_author] => 1 [post_date] => 2015-06-19 10:47:44 [post_date_gmt] => 2015-06-19 09:47:44 [post_content] => The sharp drop in the oil price between June 2014 and January 2015 turned the world’s attention to Saudi Arabia’s role in the oil market and the determinants of its oil output policy. Initial hopes that Saudi Arabia would come to ‘rescue’ and ‘balance’ the market and put a floor under the oil price were replaced by stories of ‘price wars’ and ‘conspiracy theories’ aimed at pushing prices down to achieve some wider geopolitical objectives. This raised a set of fundamental questions: has there been a shift in Saudi Arabia’s oil policy? And if the answer is yes, what are the implications of this shift in policy on the short and long run dynamics of the oil market? Has the role of ‘swing producer’ shifted from Saudi Arabia to the US shale producers? Is Saudi Arabia still relevant in the ‘new oil order’? This paper argues Saudi Arabia’s oil policy should not be analysed in isolation of the evolution of global oil market dynamics. It is also fundamentally rooted and shaped by some salient features of its political, economic, and social systems. Given Saudi Arabia’s multiple objectives, some of which are short term while others are long term, and also given the limited number of tools available to policy makers (essentially: adjusting output and signalling to the market in the short term, and determining the pace of investment in its energy sector in the long term), Saudi Arabia faces trade-offs with regards to its oil output decisions. One key trade-off is between the objective of revenue maximization vis-à-vis that of maintaining market share and production volumes above a certain level. With the advent of US shale, Saudi Arabia has entered uncharted territory where it is still learning about a new source of supply and its responsiveness to price signals, which has made the calculus of the trade-off more uncertain. It is in the context of ‘second best’, trade-offs, imperfect information, internal constraints, and wide uncertainty introduced by a new source of supply, that this paper attempts to explain the behaviour of Saudi Arabia in the current price cycle. Executive Summary [post_title] => Saudi Arabia Oil Policy - More than Meets the Eye? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabia-oil-policy-more-than-meets-the-eye [to_ping] => [pinged] => [post_modified] => 2017-11-20 09:45:09 [post_modified_gmt] => 2017-11-20 09:45:09 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [105] => WP_Post Object ( [ID] => 27343 [post_author] => 1 [post_date] => 2015-04-30 12:04:04 [post_date_gmt] => 2015-04-30 11:04:04 [post_content] => This short comment discusses how oil policy in the Arab world is often perceived by some parts of the western media, focusing on media coverage over the latest oil price cycle. An abridged version of this comment was presented at the 2nd GCC Petroleum Media Forum (Riyadh, Saudi Arabia, 22-24 March 2015). [post_title] => The Image of GCC Oil Policy in the Western Media [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-image-of-gcc-oil-policy-in-the-western-media [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:07:19 [post_modified_gmt] => 2016-02-29 16:07:19 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [106] => WP_Post Object ( [ID] => 27359 [post_author] => 1 [post_date] => 2015-03-18 13:55:32 [post_date_gmt] => 2015-03-18 13:55:32 [post_content] =>

This presentation outlines the current uncertainties engulfing the oil market focusing on two key dynamics: Saudi Arabia oil policies and the new dynamics unleashed by US shale production. It is argued that Saudi oil policy is rooted in fundamental features of Saudi Arabia’s political, economic and social systems. These include:

• High dependency on oil revenues • Massive oil and gas reserve base which will be exhausted over many decades • Its dominance in oil markets and oil trade • The availability of idle (spare) capacity • Leadership among oil-exporting countries • The challenge of long-run economic development • The vital importance of achieving political and internal stability

It is argued that maximizing revenue remains a key objective for Saudi Arabia but that this should be balanced against the objective of maintaining volumes above a certain level and avoiding loss of market share. The trade-off will be shaped by market conditions, cohesiveness of OPEC, and internal conditions of the country, which will determine the direction that policy will take. Therefore, Saudi Arabia oil policy is not constant and there is no desired ‘oil price’ (price is a moving target depending on market conditions). US Shale has generated a new set of challenges and uncertainties making the calculus of the trade-off more difficult and uncertain.

[post_title] => Oil Market Dynamics - Saudi Arabia Oil Policies and US Shale Supply Response [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-dynamics-saudi-arabia-oil-policies-and-us-shale-supply-response [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:06:12 [post_modified_gmt] => 2016-02-29 16:06:12 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [107] => WP_Post Object ( [ID] => 27364 [post_author] => 1 [post_date] => 2015-02-24 15:47:27 [post_date_gmt] => 2015-02-24 15:47:27 [post_content] => Energy subsidies are among the most pervasive, and most controversial fiscal policy tools in the Middle East and North Africa (MENA). In a region with few functioning social welfare systems, subsidized energy prices continue to form an important social safety net, albeit a highly costly and inefficient one. In the MENA region’s oil and gas producers, low energy prices have also historically formed an important element of an unwritten social contract, where governments extracted their countries’ hydrocarbon riches in return for citizens’ participation in sharing resource rents. While it is clear that energy subsidy reform will not be the only variable at play, its potential socio-economic dividends are important factors enabling some common regional objectives – sustainable fiscal policy, fiscal space to invest in key areas, and a more efficient and equitable distribution of scarce resources – to be achieved, helping to promote a more stable political status quo in the long term. If accommodated by effective mitigation measures, reforming energy subsidies in the MENA region’s middle-income economies could be a powerful tool for governments – addressing those very profound socio-economic grievances that have contributed to the outbreak of political protest. In this paper, we look at some of the MENA region’s potential avenues into reform. While the past has demonstrated the political difficulty of reforming energy prices, recent experience also shows that the reform of energy subsidies can be done, if accompanied by a set of enabling factors. [post_title] => A Brief Political Economy of Energy Subsidies in the Middle East and North Africa [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => a-brief-political-economy-of-energy-subsidies-in-the-middle-east-and-north-africa [to_ping] => [pinged] => [post_modified] => 2017-11-20 10:43:23 [post_modified_gmt] => 2017-11-20 10:43:23 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [108] => WP_Post Object ( [ID] => 27374 [post_author] => 1 [post_date] => 2015-01-26 14:15:39 [post_date_gmt] => 2015-01-26 14:15:39 [post_content] => Recent changes in international oil prices have highlighted the issue of petroleum product pricing reforms in a number of non-OECD economies, particularly as the non-OECD now accounts for the bulk of the global growth in consumption of petroleum products. In 2014, oil demand from the non-OECD is predicted to overtake OECD oil demand for the very first time. Of this, four economies – Brazil, Russia, India, and China, the ‘BRIC’ countries – will account for 45 per cent of non-OECD oil demand. The BRIC countries have some common socioeconomic and demographic characteristics, and face similar challenges in domestic energy policy. One significant common policy stance has been associated with petroleum product pricing – specifically, the historical use of price controls, together with efforts to reform these over time. The most interesting feature of this shared policy stance is that it has led to different outcomes in the BRIC economies, particularly in relation to the impacts on downstream investment. This paper investigates the impacts of gasoline and diesel pricing reforms on downstream investment in the BRICs. Of the BRICs, India and China (the two countries that are the largest net importers of oil) have accounted for the largest downstream investments and expansions in refining capacity. However, these are also the two BRICs where price controls for petroleum products have been largely retained by governments, which have preferred a gradual approach towards the liberalization of prices. In contrast, Brazil and Russia, where petroleum product prices were officially liberalized in the early 1990s and early 2000s, have experienced serious constraints in attracting downstream investments and have struggled to expand (in the case of Brazil) or upgrade (in the case of Russia) their refining capacity. These outcomes run counterintuitive to expectation, according to which liberalization and the alignment of domestic petroleum product prices with international oil prices should be conducive to fostering competition and investment along the entire value chain. In investigating the reasons for this counterintuitive outcome, an analysis of the ‘pass-through’ of international price movements to domestic prices for gasoline and diesel shows broad evidence of price controls being exercised in Brazil and Russia despite the official liberalization of prices, through implicit or indirect measures, with governments typically influencing domestic pricing through intervention in the operations and capital expenditure plans of the National Oil Companies (NOCs). In contrast, India and China have used explicit or direct measures such as setting prices directly, adjusting federal taxes, and compensating NOCs and marketing/retailing companies, as well as specific consumer groups affected by price changes directly using cash transfers. The findings therefore demonstrate a dichotomy of experience amongst the BRICs. This paper sets out three broad policy lessons – first, that the impacts of price controls generally tend to be concentrated in one part of the value chain, and although governments may view this as ‘manageable’ or ‘containable’ - these impacts have knock-on effects, as shown in this paper. Second, that petroleum product price liberalization is not irreversible – demonstrated by the experiences of Brazil and Russia where price controls were reintroduced implicitly. And third, that there is a need, post-liberalization, for policies and price adjustment mechanisms which are logical and transparent, and which take into account the potentially negative impacts of price controls on downstream capital expenditure. Executive Summary [post_title] => Gasoline and Diesel Pricing Reforms in BRIC Countries - A Comparison of Policy and Outcomes [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => gasoline-and-diesel-pricing-reforms-in-bric-countries-a-comparison-of-policy-and-outcomes [to_ping] => [pinged] => [post_modified] => 2017-11-20 10:46:37 [post_modified_gmt] => 2017-11-20 10:46:37 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [109] => WP_Post Object ( [ID] => 27382 [post_author] => 1 [post_date] => 2015-01-09 11:25:46 [post_date_gmt] => 2015-01-09 11:25:46 [post_content] => The Arab Energy Club organised a special session in Bahrain to celebrate and honour the work of Robert Mabro, the founder and former Director of the Oxford Institute for Energy Studies, and to look back at his lifetime contribution to the analysis of oil markets and his efforts to bring together the various stakeholders in the producing and consuming countries to the benefit of all. This presentation reflects on Robert Mabro’s work, drawing on some of his deep insights for a better understanding of current oil market dynamics and the role of OPEC in shaping oil market outcomes. [post_title] => Current Oil Market Dynamics and the Role of OPEC - Reflections on Robert Mabro's Work [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => current-oil-market-dynamics-and-the-role-of-opec-reflections-on-robert-mabros-work [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:04:16 [post_modified_gmt] => 2016-02-29 16:04:16 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [110] => WP_Post Object ( [ID] => 27390 [post_author] => 1 [post_date] => 2014-10-22 10:35:50 [post_date_gmt] => 2014-10-22 09:35:50 [post_content] => The sharp fall in oil prices in the last few weeks has turned the world’s attention to OPEC and particularly to Saudi Arabia’s response to the current slide in the oil price. Following unofficial communications to the market that Saudi Arabia is comfortable with markedly lower oil prices, even for an extended period,  hopes that the Kingdom would come to the rescue and ‘balance’ the market, arresting the decline in the oil price, were replaced by stories of ‘price wars’, ‘conspiracy theories’ and ‘grand design strategies and games’.  But why Saudi Arabia has not reacted to the fall in the oil price ‘in the expected manner’ is a question to which there is no clear single answer, especially given that all the explanations put forward suffer from some form of internal inconsistency. This presentation explores some of the potential explanations and the implications on oil price dynamics. [post_title] => Saudi Arabia's Oil Policy in Uncertain Times - A Shift in Paradigm? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-oil-policy-in-uncertain-times-a-shift-in-paradigm [to_ping] => [pinged] => [post_modified] => 2016-02-29 16:00:32 [post_modified_gmt] => 2016-02-29 16:00:32 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [111] => WP_Post Object ( [ID] => 27393 [post_author] => 1 [post_date] => 2014-10-13 13:33:31 [post_date_gmt] => 2014-10-13 12:33:31 [post_content] => While the impact of the increase in US production on prices and on oil market dynamics is yet to be fully felt, as some of the underlying forces still need time to unfold and need to be fully understood, it is important to provide a general framework to help us analyse the US shale revolution and its potential impacts on oil markets and key Middle East producers. In this paper, we propose a broad framework based on three main aspects: the US tight oil revolution as a positive oil supply shock – with the potential to transform into a global supply shock if hydraulic fracturing technology successfully diffuses to other parts of the world;  the US tight oil revolution as a force disrupting the existing trade flow patterns of crude oil, petroleum products, condensates, and NGLs; the development of US shale as a powerful force behind the shift in market perceptions, not only from a position of oil scarcity to one of oil abundance, but also as a shift in terms of the USA’s aspiration to achieve energy independence and how this would impact US foreign policy and its relations with other players, including key Middle East oil exporters. Executive Summary [post_title] => The US Tight Oil Revolution and Its Impact on the Gulf Cooperation Countries - Beyond the Supply Shock [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-us-tight-oil-revolution-and-its-impact-on-the-gulf-cooperation-countries-beyond-the-supply-shock [to_ping] => [pinged] => [post_modified] => 2017-11-20 11:03:32 [post_modified_gmt] => 2017-11-20 11:03:32 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [112] => WP_Post Object ( [ID] => 27398 [post_author] => 1 [post_date] => 2014-09-29 14:09:24 [post_date_gmt] => 2014-09-29 13:09:24 [post_content] => The surge in natural gas liquids (NGLs) supply accompanying US shale production has notably underpinned the domestic petrochemicals industry with cheap plant feedstock, particularly in the form of ethane. This has allowed US plants to forge a competitive global position in ethylene production and ushered in a new era of investments in the US petrochemicals sector. However, the impact of US NGLs production is not confined to the domestic petrochemicals sector. The emergence of the USA as a key global exporter of light-end commodities and purity products split from NGL streams is not just redrawing traditional trade patterns, it is also influencing wider market dynamics and global petrochemical feedstock trends and investment decisions. In this paper, we argue that while North American producers will lead the charge on cost-advantaged ethane-based ethylene production, petrochemicals markets will also adjust to support naphtha-based steam crackers based on growth in condensate exports and splitting capacity, particularly in markets east of Suez. Given these dynamics, the major spillover effect of US NGLs production on global petrochemical markets will be the provision of more optionality and feedstock alternatives between LPG and naphtha to global producers; this will ultimately act as a ‘balancing mechanism’ in global petrochemical markets outside the USA. [post_title] => US NGLs Production and Steam Cracker Substitution: What will the Spillover Effects be in a Global Petrochemicals Market? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => us-ngls-production-and-steam-cracker-substitution-what-will-the-spillover-effects-be-in-a-global-petrochemicals-market [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:09:43 [post_modified_gmt] => 2016-03-01 14:09:43 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [113] => WP_Post Object ( [ID] => 27404 [post_author] => 1 [post_date] => 2014-08-26 14:13:09 [post_date_gmt] => 2014-08-26 13:13:09 [post_content] => While most recent analysis has focused on the potential impact of the US ‘tight oil’ revolution on global oil supplies and oil price levels, the impact on the shifts in trade flows and on the dynamics of price differentials has received much less attention. This is quite surprising, as the recent transformations in the US energy scene have manifested themselves most visibly through changes in crude oil and product flows with consequences on the behaviour of time spreads, inter-crude spreads, and the pricing of various crudes in relation to global benchmarks. This Comment explores some of the structural issues affecting WAF crude trade flows, providing a case study of how the US tight oil revolution is shaping oil market dynamics. The growth of US tight oil led to the first wave of structural change as the USA gradually backed out imports from West Africa, but because of a variety of factors (such as higher appetite from Asia, the loss of Libyan production making Europe switch to WAF barrels, and a spate of disruptions to WAF output) the loss of the US market was not fully felt on WAF crude prices. However, beyond these temporary factors, a couple of ongoing trends are forming the second wave of structural changes impacting West African differentials. The first of these is the changing structure of global refining. Much higher US, Russian, and Middle Eastern runs have meant that Europe is now the balancing point for global refining, a trend which is expected to continue. The second is the further backing out of WAF crudes from North America. While the USA largely backed out WAF grades by the second half of 2013, as domestic output and infrastructure continued to improve, this year has seen a significant increase in US crude exports to eastern Canada. As a result, Canadian imports of WAF crudes have fallen, implying that there is more crude oil available for clearing in the Atlantic Basin. In a way, WAF has become the swing barrel heading to North America, depending broadly on WTI–Brent differentials. But the implications have not been limited to markets in the USA and Canada. Since the marginal barrel sets the benchmark price, backed WAF barrels from North America are playing a more important role in the Brent price formation process. [post_title] => New swings for West African crudes [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => new-swings-for-west-african-crudes [to_ping] => [pinged] => [post_modified] => 2016-11-17 16:28:21 [post_modified_gmt] => 2016-11-17 16:28:21 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [114] => WP_Post Object ( [ID] => 27408 [post_author] => 1 [post_date] => 2014-07-22 09:48:14 [post_date_gmt] => 2014-07-22 08:48:14 [post_content] => Published paper can be found here One of the major developments associated with the US shale revolution and that has attracted little attention from market analysts is the sharp expansion in US liquefied petroleum gas (LPG) exports. Substantial increase in domestic supply has not only meant that US imports of LPG have dwindled, but the US has now become one of the world’s biggest exporters of LPG. The sharp rise in US LPG exports is already having wide repercussions on global LPG market dynamics and trade flows. It is widely believed that the impact of higher US LPG exports will undermine the position of traditional exporters, mainly those in the Gulf Cooperation Council (GCC). First, as Asian consumers increase their purchase of US LPG in an attempt to diversify their sources of supply and gain access to cheaper LPG, GCC’s share of LPG exports to Asia is expected to fall. Second, LPG prices and the existing pricing mechanism may come under pressure from intense competition from US supplies. This paper argues that while US exports are a powerful force shaping LPG markets, it is also important to examine some of the internal dynamics within the key GCC producers, especially the rapid growth in domestic demand for LPG driven by the petrochemical sector. The drive towards diversification implies that a large percentage of the increment in production from the GCC will be used domestically. Liquid cracking could also offer opportunities for GCC producers to capture a larger share of the higher value petrochemical specialty products, which fits within GCC governments’ policies. These internal dynamics would lower the volumes of LPG available for exports from the region, and along with the expected growth in Asian demand for LPG, will moderate the impact of higher US LPG exports on prices. Furthermore, the cost of arbitrage between the US and Asia is likely to limit the impact on regional LPG prices, as prices in the US will have to fall substantially before the impact is felt in Asia. The biggest uncertainty however remains as to whether access to cheaper US LPG will induce Asian petrochemicals to start seeking alternative feedstock away from Middle East naphtha, which will have dramatic effect on LPG and naphtha markets and consequently on petrochemicals trade [post_title] => The US Shale Revolution and the changes in LPG Trade Dynamics - A Threat to the GCC? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-us-shale-revolution-and-the-changes-in-lpg-trade-dynamics-a-threat-to-the-gcc [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:54:23 [post_modified_gmt] => 2016-02-29 15:54:23 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [115] => WP_Post Object ( [ID] => 27422 [post_author] => 1 [post_date] => 2014-04-02 11:23:33 [post_date_gmt] => 2014-04-02 10:23:33 [post_content] => Kuwait’s domestic electricity and water sector has been in disarray for several years, struggling with fast-rising demand for several decades as a result of rapid industrialization, population growth, rising living standards as well as due to the artificially low utility prices set by the government. We use a model-based methodology to compare the current pricing scheme against an alternative where consumer prices are raised to market levels and consumers are on average compensated by cash transfers that do not distort their economic decisions. Our main finding is that a realignment of prices at or closer to the market price level confers a benefit on current and future generations of Kuwaitis, in terms of fiscal savings, that outweighs the impact of raising electricity and water consumer prices to market price levels. Specifically, in the market price scenario with consumer prices at about ten times current levels, there is a total fiscal cost of about one-third of the value of fuel input used in the power sector (or about 1.5 per cent of GDP), entirely due to the cash transfer. This, however, is just less than one-fifth of the fiscal cost of the current low-price regime, and in principle represents a massive saving. The net benefit of moving to market prices is 6.3 per cent of GDP. By implication, if it is judged that a cash transfer scheme, undifferentiated by usage, can help gain acceptance for the price reform, it is shown to be affordable. We also show that the shift to market pricing will be a more efficient route to achieving spare capacity in the electricity and water system. [post_title] => Price Reform in Kuwait's Electricity and Water Sector - Assessing the Net Benefits in the Presence of Congestion [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => price-reform-in-kuwaits-electricity-and-water-sector-assessing-the-net-benefits-in-the-presence-of-congestion [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:13:38 [post_modified_gmt] => 2017-11-20 14:13:38 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [116] => WP_Post Object ( [ID] => 27426 [post_author] => 1 [post_date] => 2014-03-17 13:32:45 [post_date_gmt] => 2014-03-17 13:32:45 [post_content] => The political turmoil that has swept across many parts of the Middle East and North Africa (MENA) since the beginning of the Arab Spring in December 2010 and the tightening of international sanctions against Iran in 2012 have reignited the recurring debate about energy security and the reliability of MENA as an energy supplier. In this paper, we examine the impact of the past three years of political turmoil in MENA on oil and gas markets. We argue that although many disruptions did occur and oil prices did rise, especially following the Libyan revolution in 2011 and when fears of a potential military confrontation between Iran and the USA intensified in early 2012, the short-term effects on oil and gas markets of recent events in the region have been less dramatic than originally feared. The Arab Spring did not destabilize the large Gulf oil and gas producers; the rise in oil price induced by political and geopolitical factors proved to be transient; and oil and gas markets have shown relative resilience in filling the supply gap and in redirecting oil and gas trade flows. Beyond the immediate impact of the past three years of political turmoil in the MENA, however, we argue that it is the more subtle, long-term effects of regional political instability and international sanctions that are likely to leave the most lasting mark on regional oil and gas markets. Potential repercussions are likely to be felt through several years of an unstable regulatory and investment environment, policy uncertainty, deteriorating security, and a lack of much needed energy pricing reform that will impact the long-term production and export capacity of various MENA oil and gas producers, including some of those unaffected directly by the Arab Spring and sanctions. [post_title] => The Arab Uprisings and MENA Political Instability - Implications for Oil & Gas Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-arab-uprisings-and-mena-political-instability-implications-for-oil-gas-markets [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:15:52 [post_modified_gmt] => 2017-11-20 14:15:52 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [117] => WP_Post Object ( [ID] => 27452 [post_author] => 1 [post_date] => 2013-12-20 15:10:46 [post_date_gmt] => 2013-12-20 15:10:46 [post_content] => This comment explores the links between Saudi Arabia’s export policy, US oil market balances, and the price dynamics of US benchmarks. The authors argue that one of the biggest surprises to the market has been the resilience of US crude import despite falling US prices. As a result, the fate of US benchmarks is not just linked to US production growth and infrastructure logistics such as pipelines and rail, but also to a development that could impact global oil markets –whether Saudi Arabia decides to defend prices by reducing production should other producers increase output or relinquishes its role as the swing producer and becomes protective of its market share. Should market fundamentals weaken enough and Saudi Arabia decides to maintain its output at current levels, the US Gulf Coast (USGC) remains the lowest cost option for signaling global intentions, and the damage to prices can be confined to one part of the world. As the oil glut in the US intensifies, the debates surrounding exports of light grades from the US, or at the very least, swaps of Eagle Ford lights with Mexican Maya, are likely to gain traction in 2014. The issue then becomes whether it is US crudes, particularly light grades, that disconnect severely from the rest of the world once again or would the rest of the world share the impacts of growing US production as more crude becomes globally available. So far, US policymakers have avoided the controversial and politically sensitive issue of whether to allow exports of light crude. This issue however cannot be kept under wraps for much longer. [post_title] => The Swing Producer, the US Gulf Coast, and the US Benchmarks - The Missing Links [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-swing-producer-the-us-gulf-coast-and-the-us-benchmarks-the-missing-links [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:33:39 [post_modified_gmt] => 2016-03-01 14:33:39 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [118] => WP_Post Object ( [ID] => 27454 [post_author] => 1 [post_date] => 2013-12-16 12:27:56 [post_date_gmt] => 2013-12-16 12:27:56 [post_content] => This comment analyses the recent refining dynamics in the GCC and their implications on local and global petroleum products markets and trade flows. The authors argue that the recent expansion plans in the GCC will have important implications on global petroleum products trade flows, constituting an additional source of competition for Asian and European refineries that could weigh down on refining margins, especially in Europe. While this represents a challenge for GCC refineries, it can also open up new opportunities for regional NOCs to build their trading capability in products markets and diversify their export base by increasing the export share of petroleum products and opening new markets. However, in the medium to long-term, the refining sector in the GCC will continue to be shaped by local dynamics, particularly by the ability of some of the countries to expand and upgrade their refining capacity and, more importantly, by the evolution of domestic demand. In the absence of any serious energy pricing reform that could rationalize the growth in demand for refined products, the race between expanding refining capacity, satisfying rising demand, and maintaining exports will continue; it is the outcome of this race which will ultimately determine the region’s position in global products markets in the next decade. [post_title] => Refining Dynamics in the GCC and Implications for Trade Flows [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => refining-dynamics-in-the-gcc-and-implications-for-trade-flows [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:34:37 [post_modified_gmt] => 2016-03-01 14:34:37 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [119] => WP_Post Object ( [ID] => 27466 [post_author] => 1 [post_date] => 2013-09-12 17:29:52 [post_date_gmt] => 2013-09-12 16:29:52 [post_content] => Historically, the industry has had a very poor record in predicting oil prices and key fundamental shifts in the oil market, and this time is no different. Not only did most industry and oil market analysts fail to predict the scale of the tight oil revolution, but now that the pendulum has swung in the opposite direction, expectations regarding the impact of the tight oil revolution on global supply dynamics and international prices appear overhyped. However, contrary to the general view in the market that the abundance of tight oil would cause both a sharp drop in oil prices and create a supply glut in crude or refined products, neither has really materialized. This raises a key question: how can the oil market be undergoing a revolution without its effects being felt on global oil prices? One may argue that the impact of shale oil on prices and oil market dynamics is yet to be felt, as some of the underlying forces still need time to unfold. However, we find such an argument unconvincing. If, during the last three years, the large positive US supply shock failed to cause sharp price falls, why would a rise in US supply now bring about falling prices over the next few years? Instead, in this note, we argue that there are some fundamental weaknesses and flaws in the analysis underlying the ‘oil price-collapsing’ scenario and ‘hyped expectations’; current projections of the impact of shale on global oil market dynamics are hence likely to produce ‘off the mark’ predictions once again. We also argue that the current debate neglects some key areas in which the tight oil revolution is likely to have its biggest impact – namely on crude oil and product trade flows, on price differentials, and on the global markets for natural gas liquids. [post_title] => The US Tight Oil Revolution in a Global Perspective [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-us-tight-oil-revolution-in-a-global-perspective [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:37:14 [post_modified_gmt] => 2016-03-01 14:37:14 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [120] => WP_Post Object ( [ID] => 27468 [post_author] => 1 [post_date] => 2013-08-22 10:05:02 [post_date_gmt] => 2013-08-22 09:05:02 [post_content] => In January 2013, the Government of India began deregulating the retail price of diesel by permitting Oil Marketing Companies to progressively raise retail prices over a period of several months, until their losses from the subsidization of diesel were completely offset. This policy decision represents one of the final stages of the ‘decontrol’ of prices for diesel and gasoline. Two key questions which arise from these recent measures are (a) whether they will play a role in slowing the pace of growth in India’s oil consumption, and (b) whether they have impacted the structure of India’s demand for petroleum products, and whether these reforms could make a difference to the economic situation in relation to fuel subsidies. This Comment therefore focuses on the potential impacts of these important reforms on Indian diesel demand.   The argument in this Comment can be viewed as being in three parts. The first looks at the Indian reforms in the context of wider literature on the response of demand to the progressive elimination of subsidies – arguing that, contrary to the expectation that higher prices lead to a reduction in demand, for a developing economy like India, the demand for diesel is likely to continue growing as income effects are stronger than price effects. However, the second argues that the price effects by themselves are quite complex; the lag between reforming the prices of different petroleum products, and the relative price changes which have prompted substitution between them, complicates the dynamics of demand. And third, it argues that India’s system of differential taxation at the state level could lead to outcomes completely different to those intended by reform at the federal level, particularly in relation to subsidy removal. [post_title] => Diesel Pricing Reforms in India – a Perspective on Demand [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => diesel-pricing-reforms-in-india-a-perspective-on-demand [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:40:00 [post_modified_gmt] => 2016-03-01 14:40:00 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [121] => WP_Post Object ( [ID] => 27470 [post_author] => 1 [post_date] => 2013-07-29 10:59:03 [post_date_gmt] => 2013-07-29 09:59:03 [post_content] => It’s that time of year again when Saudi Arabia’s domestic oil and gas consumption is in the limelight. Saudi Arabia faces sharp upward swings in oil demand during the summer, raising some market concerns about its export potential during the summer months. These sharp demand swings could influence oil prices, especially at times when the call on Saudi output is high and rising and when oil fundamentals are perceived to be tight. This comment argues that in order to understand the underlying dynamics behind such swings in oil demand, it is important to focus on the structure of the power sector, and on the evolution of the fuel mix in this sector. It concludes that while Saudi Arabia has some options in the long term (post 2020), the consumption of liquid fuels in the power sector will continue to present a challenge to Saudi policy makers in the short to medium term. For the next few years, liquids consumption by the power sector will continue to increase at a rapid pace, driven by rapid growth in electricity demand, low energy and electricity prices, and by infrastructure and technical constraints that will prevent higher penetration of gas in the power sector. [post_title] => Summer Again - The Swing in Oil Demand in Saudi Arabia [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => summer-again-the-swing-in-oil-demand-in-saudi-arabia [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:41:32 [post_modified_gmt] => 2016-02-29 15:41:32 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [122] => WP_Post Object ( [ID] => 27475 [post_author] => 1 [post_date] => 2013-06-28 11:50:01 [post_date_gmt] => 2013-06-28 10:50:01 [post_content] => The recent growth in US oil output has been impressive. From a negative annual growth in 2008, the US added around one million b/d in liquid production in 2012 with similar growth expected for 2013. Looking at global oil supplies from the US perspective gives the impression of plenty. However, in this presentation, Dr Fattouh argues that there is a risk in building one’s analysis on US developments alone. So far, the US contribution to global oil supplies has been camouflaged by the poor supply prospects in non-OPEC supply outside the US which still suffer from high decline rates, project delays, cost overruns and geopolitical outages. Having said that, one should not look at the developments in the US only in terms of a positive supply shock. The growth in US oil output has changed the perception of markets from oil scarcity, a few years ago, to oil abundance. It has also changed the dynamics of trade flows, with traditional exporters to the US forced to find new markets for their crude oil, with implications on oil price levels and differential dynamics.  Also for the first time in years, US policy matters specifically with regard to its policy concerning exports of crude oil and natural gas. Finally, the way the US perceives itself vis-à-vis the rest of the world could change if the US thinks it could achieve energy independence. [post_title] => The US Tight Oil Revolution - What Kind of a Revolution? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-us-tight-oil-revolution-what-kind-of-a-revolution [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:40:27 [post_modified_gmt] => 2016-02-29 15:40:27 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [123] => WP_Post Object ( [ID] => 27497 [post_author] => 1 [post_date] => 2013-01-23 11:06:09 [post_date_gmt] => 2013-01-23 11:06:09 [post_content] => The main purpose of this paper is to review the evolution of OPEC models and to link this evolution to some key events in the oil market. Our main conclusion is that OPEC’s pricing power varies over time. There are many instances in which OPEC can lose the power to limit oil price movements – either up or down. Such changes in pricing power are brought about by market conditions and can occur both in weak and tight market conditions. Because of OPEC’s varying conduct, there is no single model that fits its behaviour and hence analysts have been forced to choose from a wide range of models to explain certain episodes. The empirical literature has not been successful in distinguishing between the various competing models, as these models offer very similar predictions. This paper is forthcoming in the Annual Review of Resource Economics. [post_title] => OPEC - What Difference has it Made? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-what-difference-has-it-made [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:51:26 [post_modified_gmt] => 2017-11-20 14:51:26 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [124] => WP_Post Object ( [ID] => 27503 [post_author] => 1 [post_date] => 2013-01-08 15:42:21 [post_date_gmt] => 2013-01-08 15:42:21 [post_content] => Like no other region, energy resources have shaped the Arab world and its modern-day development trajectory. Endowed with some of the world’s most important oil and natural gas reserves, countries in the Arab world have over the past four decades produced and exported more oil than those of any other region, and hold reserves sufficient to supply world energy markets for more than another hundred years at current rates of production. Its energy wealth has benefited the Arab world, despite significant differences across the region alongside differing national resources, and their management across governments. Significant challenges also derive from the Arab energy led development model, particularly patterns of domestic energy consumption, rising demand for energy across the region, and rising domestic investment needs. This paper, by Bassam Fattouh and Laura El-Katiri, published by the UNDP, attempts to provide a very brief overview of the role energy has played in driving economic development in the Arab world, its effects on development choices, and the challenges faced by the resultant development model. It does so by looking at four different aspects of energy-led development: 1) the effect of energy on regional Arab economic growth; 2) the inter-linkages between energy and Arab economic structures; 3) the implications of energy for intra-regional integration; and 4) evolving challenges from this development model. Please follow the link to access the paper. [post_title] => Energy and Arab Economic Development [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => energy-and-arab-economic-development [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:46:50 [post_modified_gmt] => 2016-03-01 14:46:50 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [125] => WP_Post Object ( [ID] => 27504 [post_author] => 1 [post_date] => 2012-12-19 11:30:56 [post_date_gmt] => 2012-12-19 11:30:56 [post_content] => The discovery of sizable gas resources in the Levant Basin, a geological structure that straddles the territorial waters of Cyprus, Israel, the Palestinian Territories, Lebanon, and Syria, has the potential to be game-changing for the East Mediterranean region. Hitherto net energy importers, these countries are now faced with the prospect of long-term energy self-sufficiency and the development of a new revenue stream for the economy. With the resource potential of the Levant Basin believed to be much higher than the 35 Tcf of gas discovered recently, the East Mediterranean is now the focus of much interest on the part of major upstream investors. However, in the short to medium term, the development and monetisation of these resources present stakeholders with a set of challenges originating in the region’s complex political make-up, as well as in the fact that their energy and gas utilisation policies are still work in progress, over and above the technical difficulties relating to the development of these resources. This paper examines the challenges and opportunities that have been given rise to by these discoveries, arguing that to 2020 East Mediterranean gas is more likely to be a game-changer for local energy systems than for regional and international gas markets. [post_title] => East Mediterranean Gas - what kind of a game-changer? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => east-mediterranean-gas-what-kind-of-a-game-changer [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:56:32 [post_modified_gmt] => 2017-11-20 14:56:32 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [126] => WP_Post Object ( [ID] => 27507 [post_author] => 1 [post_date] => 2012-12-04 10:11:02 [post_date_gmt] => 2012-12-04 10:11:02 [post_content] => In the last decade, purely financial players with no interest in the physical commodity such as hedge funds, pension funds, insurance companies, and retail investors have become more prominent in oil futures and derivatives markets.  In parallel, there has been an explosion in the variety of instruments that permit speculation in oil. These movements in financial participation bear some rough relation to the oil price. Some have been led to conclude that greater financial participation has changed oil price behaviour. There have even been calls for policy intervention to limit financial participation in oil per se. In this comment, we discuss recent research on whether underlying changes in the incentives and constraints of purely financial players could have interfered with the workings of the oil market. We find no support for the view that greater financialization has had an important effect on oil market variables and harmed final consumers. In contrast, shifts expectations of supply and demand can have important impacts on prices, spreads, welfare, and even on financial market participation.  Therefore, before oil financial market policies are contemplated, it is crucial in the first instance to identify the channels through which financialization can result in market failure. [post_title] => Financialization in Oil Markets - lessons for policy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => financialization-in-oil-markets-lessons-for-policy [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:48:36 [post_modified_gmt] => 2016-03-01 14:48:36 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [127] => WP_Post Object ( [ID] => 27508 [post_author] => 1 [post_date] => 2012-12-04 10:05:03 [post_date_gmt] => 2012-12-04 10:05:03 [post_content] => The main objectives of this paper are to assess whether financialization can impact oil market behaviour over and above structural fundamental changes, and whether these changes affect final consumers' welfare.  While shifts arising in financial investors' preferences and wealth can explain the rise in participation of purely financial investors, they fail to explain key features such as the movements in the basis. Instead, anticipated changes in the physical layer of the oil market can better explain many of the features often attributed to financialization. We also find that greater financialization has no harmful effects on consumer welfare. Our paper shows that from a regulatory point of view, it is crucial in the first instance to identify the channels through which financialization can result in market failure and then design policies accordingly. [post_title] => Assessing the Financialization Hypothesis [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => assessing-the-financialization-hypothesis [to_ping] => [pinged] => [post_modified] => 2018-01-25 14:51:28 [post_modified_gmt] => 2018-01-25 14:51:28 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [128] => WP_Post Object ( [ID] => 27521 [post_author] => 1 [post_date] => 2012-07-12 10:13:48 [post_date_gmt] => 2012-07-12 09:13:48 [post_content] => While higher fuel specifications and regulatory changes in the bunkers market are most likely to have a big impact on long-term fuel oil demand, a structural shift of a similar magnitude on the supply side is already taking place, particularly in Russia, the largest exporter of fuel oil. The Russian government’s firmly stated commitment to the regeneration of its country’s refining industry and its determination to ensure that domestic demand for higher quality products is met would suggest that, although the exact timing of a reduction in fuel oil production may be unclear, a sharp decline in fuel oil exports by 2016 seems inevitable. We show that in the past, price relationships between high sulphur and low sulphur fuel oil and between heavy fuel oil and crude oil and diesel have been subject to structural breaks, but price movement did not increase or decrease without bounds as the refining industry continued to adjust to increasing demand for petroleum products and changing global demand patterns towards cleaner products. Looking ahead, as investment in refining capacity expands and as upgrading of refining units accelerates in Russia and elsewhere, price spreads are likely to exhibit similar behaviour to that in the past few years. This does not imply that structural breaks in the price relationships will not occur. For instance, governments’ desire to implement more stringent requirements without ensuring that the refining infrastructure is ready for such a shift or delays in refining projects will most likely destabilise the behaviour of price differentials, though the timing and the nature of such potential breaks (abrupt of gradual) remain highly uncertain. [post_title] => The Impact of Russia's Refinery Upgrade Plans on Global Fuel Oil Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-impact-of-russias-refinery-upgrade-plans-on-global-fuel-oil-markets [to_ping] => [pinged] => [post_modified] => 2017-11-21 10:56:08 [post_modified_gmt] => 2017-11-21 10:56:08 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [129] => WP_Post Object ( [ID] => 28169 [post_author] => 1 [post_date] => 2012-04-18 14:49:30 [post_date_gmt] => 2012-04-18 13:49:30 [post_content] => The financialization of oil futures markets has been held responsible for a variety of phenomena including changes in price volatility, increased co-movement between oil futures prices and other financial asset and commodity prices, a breakdown of the statistical relationship between oil inventories and the price of oil, and an increased influence of the decisions of financial investors such as swap dealers, hedge funds and commodity index traders on the oil futures price. Most importantly, there is a perception that oil futures markets no longer adequately perform their functions of price discovery and risk transfer. In this presentation, Dr Fattouh reviews the evidence in the academic literature and evaluates to what extent it provides support for the proposed effects of financialization. [post_title] => The Financialization of Oil Markets: Potential Impacts and Evidence [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-financialization-of-oil-markets-potential-impacts-and-evidence-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:26:03 [post_modified_gmt] => 2016-02-29 15:26:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [130] => WP_Post Object ( [ID] => 27538 [post_author] => 1 [post_date] => 2012-04-11 11:05:28 [post_date_gmt] => 2012-04-11 10:05:28 [post_content] => To most analysts, the combination of geopolitical and economic factors constitutes a ‘perfect storm’ that will keep an upward pressure on oil the price for the rest of 2012. The purpose of this short article is to broaden the debate and consider some potential weaknesses in the dominant story. The article will highlight three main points. First, the premises upon which the story of tightened market fundamentals is built are subject to a wide degree of uncertainty. Second, the channels expected to put an upward pressure on the oil price are not exogenous: they tend to interact with each other and are shaped in part by oil price behaviour. Finally, the feedback from policy circles seems to be different this time from that seen in the previous oil price cycle, and thus should not be ignored. This is not to say that dominant expectations of very tight market fundamentals may not materialize. They may well do, but this is not a foregone conclusion. [post_title] => Oil Markets in 2012: Calm or Turbulent Waters? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-markets-in-2012-calm-or-turbulent-waters [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:25:36 [post_modified_gmt] => 2016-02-29 15:25:36 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [131] => WP_Post Object ( [ID] => 28178 [post_author] => 1 [post_date] => 2012-03-30 12:06:27 [post_date_gmt] => 2012-03-30 11:06:27 [post_content] => A popular view is that the surge in the price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to regulate oil futures markets. This survey reviews the evidence supporting this view. We identify six strands in the literature corresponding to different empirical methodologies and discuss to what extent each approach sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. However there is evidence that both oil futures price and spot prices were driven by the same economic fundamentals. [post_title] => The Role of Speculation in Oil Markets: What Have We Learned So Far? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-role-of-speculation-in-oil-markets-what-have-we-learned-so-far-2 [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:58:37 [post_modified_gmt] => 2016-03-01 14:58:37 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [132] => WP_Post Object ( [ID] => 28187 [post_author] => 1 [post_date] => 2012-03-06 15:06:26 [post_date_gmt] => 2012-03-06 15:06:26 [post_content] => Despite the existence of other regional crudes with a much larger physical base, more than 25 years have now passed, and most cargoes from the Gulf destined for Asia are still priced against Dubai. Nevertheless, the nature of the Dubai benchmark has evolved and many of the institutional and pricing details have witnessed major transformations, driven in large part by the decline in Dubai’s oil production and innovations in the pricing mechanisms introduced in the 2000s. In theory (and in practice to some extent), the price of Dubai may be identified from the financial layers that have emerged around Dubai and Brent. The Brent complex sets the price level for Dubai while the EFS and the inter-month Dubai spread market set the price differentials against Brent. Since physical benchmarks constitute the pricing basis of the large majority of physical transactions, some observers claim that derivatives instruments such as futures and swaps derive their value from the price of these physical benchmarks. However, this is a gross over-simplification and does not accurately reflect the process of crude oil price formation in the case of Dubai. [post_title] => The Dubai Benchmark and its Role in the International Oil Pricing System [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dubai-benchmark-and-its-role-in-the-international-oil-pricing-system-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:25:00 [post_modified_gmt] => 2016-02-29 15:25:00 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [133] => WP_Post Object ( [ID] => 28190 [post_author] => 1 [post_date] => 2012-02-21 10:11:01 [post_date_gmt] => 2012-02-21 10:11:01 [post_content] => This paper, authored by Bassam Fattouh and Laura El-Katiri and published by the United Nations Development Programme, explores the issue of energy subsidies in the Arab World. The authors argue that while energy subsidies may be seen as achieving social objectives (such as expanding energy access and protecting poor households’ incomes); economic objectives (such as fostering industrial growth and smoothing domestic consumption); and political objectives (such as distributing the oil and natural gas rents to the population), they are a costly and inefficient way of doing so. Energy subsidies distort price signals, with serious implications on efficiency and the optimal allocation of resources. Energy subsidies also tend to be regressive, with high-income households and industries benefiting proportionately most from low energy prices. However, despite such adverse effects, energy subsidies constitute an important social safety net for the poor in many parts of the Arab world, and any attempts to reduce or eliminate them in the absence of compensatory programmes would lead to a decline in households’ welfare and erode the competitiveness of certain industries. Therefore, a critical factor for successful reforms will be the ability of governments to compensate their populations for the reduction or removal of subsidies through carefully designed mitigation measures. It is argued that  reform of energy pricing mechanisms in the Arab world may be seen as beneficial from more than one perspective. Nevertheless, this paper recognises that the current political climate in the region will render the reform of domestic energy prices difficult in practice, such that reform may indeed be a medium- to long-term endeavour. Please follow the link to access the paper. [post_title] => Energy Subsidies in the Arab World [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => energy-subsidies-in-the-arab-world-2 [to_ping] => [pinged] => [post_modified] => 2016-03-01 14:59:51 [post_modified_gmt] => 2016-03-01 14:59:51 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [134] => WP_Post Object ( [ID] => 28191 [post_author] => 1 [post_date] => 2012-02-10 10:02:25 [post_date_gmt] => 2012-02-10 10:02:25 [post_content] => The exchange of threats between Iran and the West vis-à-vis Iranian oil exports to European and other consumer countries has received wide attention among policy makers and analysts; IMF officials predict that crude oil prices could increase by as much as 30 percent in case of a halt of Iran's exports to OECD countries, and if other sources don’t offset the loss of Iranian crude oil. Others claim that all the elements are set for ‘the $200 a barrel scenario’. However, this commentary offers a less pessimistic view, and argues that the potential impacts of such threats on oil market dynamics are often exaggerated. Oil embargos against individual producing countries are in reality difficult to implement, for they require a concerted effort by a large number of buyers to prevent oil producers from diverting crude oil from one market to another. Where they result in a tightening of oil markets and rising prices for consumer nations, they can be relaxed or amended. As for the use of an Iranian oil weapon, the fact remains that despite continuous threats, Iran has never used the oil weapon; the oil weapon remains an indiscriminate policy measure that all producers, including Iran, are reluctant to use; and if ever employed, it is likely to be ineffective and counterproductive from a producer’s point of view. Nevertheless, fears that governments may pursue policies to restrict the flow of energy supplies rattle markets and place a premium on the oil price and contribute to increased price volatility. [post_title] => On Oil Embargos and the Myth of the Iranian Oil Weapon [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => on-oil-embargos-and-the-myth-of-the-iranian-oil-weapon-2 [to_ping] => [pinged] => [post_modified] => 2016-03-01 15:00:31 [post_modified_gmt] => 2016-03-01 15:00:31 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [135] => WP_Post Object ( [ID] => 27567 [post_author] => 1 [post_date] => 2011-09-13 12:07:52 [post_date_gmt] => 2011-09-13 11:07:52 [post_content] => The events that took place in the Arab world in the opening months of 2011 mark a watershed in the history of the Middle East and North Africa (MENA) region. Given the importance of MENA energy supplies in global economic terms, the political unrest witnessed by the region has caused widespread fears about the prospect of energy supply disruptions. With international oil and gas prices beginning to rise from 2010, there was serious concern among market and political actors that any further increase in prices would put at risk the fragile recovery of the global economy from the deepest recession in decades. This paper examines the significance of the recent Arab uprisings and their implications for regional and global oil and gas markets. It argues that, although markets were able to cope resiliently in the short term, there remains much uncertainty about the likely longer-term implications of the recent events. [post_title] => The Implications of the Arab Uprisings for Oil and Gas Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-implications-of-the-arab-uprisings-for-oil-and-gas-markets [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:59:52 [post_modified_gmt] => 2017-11-20 14:59:52 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [136] => WP_Post Object ( [ID] => 28215 [post_author] => 1 [post_date] => 2011-08-12 12:38:13 [post_date_gmt] => 2011-08-12 11:38:13 [post_content] => While much of the emphasis of the literature on energy poverty is on the prevalence of the phenomenon in sub-Saharan Africa and South Asia, little has been written about energy poverty in the Arab world.  Traditionally having being seen as one of the world’s most energy rich regions, the Arab world has in recent years often been overlooked as a region which suffers severely from energy poverty itself. In 2002, about 65 million people in the Arab world had no access to electricity, and an additional 60 million were severely undersupplied in both urban and rural areas. In terms of cooking and heating, almost one-fifth of the Arab population rely on non-commercial fuels like wood, dung, and agricultural residues particularly in Comoros, Djibouti, Sudan, Yemen, and Somalia but also in Algeria, Egypt, Morocco, and Syria. This study by Laura El-Katiri and Bassam Fattouh fills a gap in the existing literature by looking at the case of prevailing energy poverty in Yemen, one of the poorest countries in the Arab world. The Yemeni case is particularly interesting because of the country’s status as a net energy exporter. Large segments of the Yemeni population both in rural and urban areas rely heavily on traditional fuels such as firewood and dung while electrification rates in Yemen is relatively low where only 54% of Yemeni households have access to electricity. Decades of underinvestment and lack of necessary infrastructure, and Yemen’s prevailing poverty problem have all contributed to this status, as has the country’s fractured political system. [post_title] => Energy Poverty in the Arab World: The Case of Yemen [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => energy-poverty-in-the-arab-world-the-case-of-yemen [to_ping] => [pinged] => [post_modified] => 2017-11-20 14:58:30 [post_modified_gmt] => 2017-11-20 14:58:30 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [137] => WP_Post Object ( [ID] => 28224 [post_author] => 1 [post_date] => 2011-06-16 15:38:54 [post_date_gmt] => 2011-06-16 14:38:54 [post_content] => This presentation analyses the impact of the recent oil market disruption on oil market dynamics and price behaviour. It makes the following observations. In historical perspective, the current oil market disruption has been small so far. However, the main concern for the market is the geopolitical context in which the disruption has occurred. There are fears that current events would engulf other key oil exporters. These have caused market players to update their beliefs about the probability of disruptions from the region. This process of updating beliefs plus the fact that there has been an actual loss of output has induced changes in price levels. While sharp price rises and increased volatility have raised doubts about the effectiveness of the market mechanisms and the role of speculators in the oil price formation process, the fact remains that the oil market has shown great resilience in dealing with the Libyan physical disruption.  This has occurred mainly through adjustment in price differentials between crude oil markets, time spreads, crude and products markets and between various petroleum products. Movements in price levels have been less important than price differentials for the adjustment process with these movements reflecting an increased perception of lack of feedbacks from demand and supply that are needed to put a ceiling on the oil price. [post_title] => Oil Market Dynamics in Turbulent Times [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-dynamics-in-turbulent-times-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:19:43 [post_modified_gmt] => 2016-02-29 15:19:43 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [138] => WP_Post Object ( [ID] => 28229 [post_author] => 1 [post_date] => 2011-04-11 12:12:21 [post_date_gmt] => 2011-04-11 11:12:21 [post_content] => In this presentation, Dr Fattouh considers six key questions that are important for any analysis of the  future evolution of OPEC:  In a falling market how tolerant is OPEC or some of its players to a decline in market share? Will OPEC remain passive to oil substitution policies as a result of energy security and climate change agendas? Does OPEC has the incentive to increase market share? Can OPEC increase production capacity to fill the projected non-OPEC supply-demand gap? Is OPEC behaviour symmetric to rising and falling market? What is the impact of OPEC investment policy on oil market structure and price formation process? [post_title] => Oil Market and OPEC Behaviour: Looking Ahead [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-and-opec-behaviour-looking-ahead-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:19:15 [post_modified_gmt] => 2016-02-29 15:19:15 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [139] => WP_Post Object ( [ID] => 28233 [post_author] => 1 [post_date] => 2011-03-30 09:43:19 [post_date_gmt] => 2011-03-30 08:43:19 [post_content] => One of the major features of the oil market during the 1990s was the relative stability of the long-term oil price. While the spot price and the price of near-term futures contracts sometimes exhibited sharp price volatility that volatility was only partially transmitted to the back end of the futures curve which was anchored around the $20-22/barrel range. However as oil prices rose sharply during the boom years the consensus on the oil price that would balance the long term fundamentals of the oil market broke down and the whole futures curve became subject to a series of shifts. Our empirical evidence suggests that in the late 1990s and early 2000s there was limited evidence of adjustment between short-term and long-term oil prices. These dynamics however changed in early 2005 with the long term price making most of the adjustment towards the prompt price. We suggest an interpretation of the long-term behaviour of oil prices based on the insights of two models. The first is based on a signal extraction mechanism and shows that when the private beliefs by investors about the long-run determinants of oil prices become less precise relative to the information contained in the current spot price then the expected future oil price becomes closer to the current spot price. The second model is based on Bayesian updating and shows that if the variability of the spot price increases and/or if the spot price remains higher over a sustained period of time than anticipated by investors then the probability distribution of the parameter capturing the speed of mean reversion will shift and the expected future price will move closer to the current spot price. Our analysis predicts that in the face of increased uncertainty the long-term and short-term prices are bound to exhibit similar movements. These changes had important consequences on the oil price formation process. [post_title] => Uncertainty, Expectations, and Fundamentals: Whatever Happened to Long-Term Oil Prices? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => uncertainty-expectations-and-fundamentals-whatever-happened-to-long-term-oil-prices-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:16:55 [post_modified_gmt] => 2016-02-29 15:16:55 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [140] => WP_Post Object ( [ID] => 28236 [post_author] => 1 [post_date] => 2011-02-14 10:46:28 [post_date_gmt] => 2011-02-14 10:46:28 [post_content] => The main purpose of this report is to analyse the main features of the current crude oil pricing system; to describe the structure of the main benchmarks currently used namely Brent West Texas Intermediate (WTI) and Dubai-Oman; to clearly identify the various financial layers that have emerged around these physical benchmarks; to analyse the links between the different financial layers and between the financial layers and the physical benchmarks; and then to evaluate how these links influence the price discovery and oil price formation process in the crude oil market. The report finds that the assumption that the process of identifying the price of benchmarks in the current oil pricing system can be isolated from financial layers is rather simplistic. The different layers of the oil market are highly interconnected and form a complex web of links, all of which play a role in the price discovery process. The report also calls for broadening the empirical research to include the trading strategies of physical players; any analysis limited to non-commercial participants in the futures market and their role in the oil price formation process is incomplete. The report also emphasises the distinction between trade in price differentials and trade in price levels and finds that the level of the oil price, which consumers producers and their governments are most concerned with is not the most relevant feature in the current pricing system. Instead the identification of price differentials and the adjustments in these differentials in the various layers underlie the basis of the current oil pricing system. [post_title] => An Anatomy of the Crude Oil Pricing System [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => an-anatomy-of-the-crude-oil-pricing-system-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:16:29 [post_modified_gmt] => 2016-02-29 15:16:29 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [141] => WP_Post Object ( [ID] => 28237 [post_author] => 1 [post_date] => 2011-01-28 00:00:53 [post_date_gmt] => 2011-01-28 00:00:53 [post_content] => On January 28 2011 the Oxford Institute for Energy Studies held a one-day conference on ‘Regulation of Oil Markets: Current Reforms and Implications’. The conference focused 1) The inter-linkages between the physical and financial layers in the current international oil pricing system and the role of these linkages in the oil price discovery process; 2) An assessment and evaluation of the current regulatory reforms of oil derivatives and the implications of these regulatory changes on the price discovery process oil trading activity and the long-term strategies of market participants. The group of participants included key senior figures from government oil companies the financial industry and academia. The conference was conducted under the Chatham House Rule of non-attribution. This presentation introduced the themes for the day. [post_title] => Inter-linkages and Regulation of Oil Derivatives [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => inter-linkages-and-regulation-of-oil-derivatives-2 [to_ping] => [pinged] => [post_modified] => 2011-01-28 00:00:53 [post_modified_gmt] => 2011-01-28 00:00:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [142] => WP_Post Object ( [ID] => 28247 [post_author] => 1 [post_date] => 2010-09-06 09:31:42 [post_date_gmt] => 2010-09-06 08:31:42 [post_content] => The current oil pricing system has now survived for almost a quarter of a century, longer than the OPEC administered system did. While some of the details have changed, the fundamentals of the current system have remained the same since the mid 1980s. In the light of the 2008-2009 price swings, the current oil pricing system has received wide criticisms with some observers calling for its radical overhaul.  These calls are constant reminder of the unease that some observers feel about the current oil pricing system.  This comment analyses the oil pricing system highlighting some of its main features and drawing the linkages between the physical and financial dimensions of the oil market. [post_title] => An Anatomy of the Oil Pricing System [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => an-anatomy-of-the-oil-pricing-system-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:06:27 [post_modified_gmt] => 2016-02-29 15:06:27 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [143] => WP_Post Object ( [ID] => 28252 [post_author] => 1 [post_date] => 2010-06-01 00:00:23 [post_date_gmt] => 2010-05-31 23:00:23 [post_content] => This presentation examines the evolution of OPEC in the last 50 years and identifies some of the important structural changes in the oil market that has influenced OPEC behaviour. The presentation highlights the changing and evolving role of OPEC and proposes new approaches to analyse OPEC’s role in the oil price formation process. [post_title] => OPEC at 50: Evolution, Issues and Lessons [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-50-evolution-issues-and-lessons-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:05:56 [post_modified_gmt] => 2016-02-29 15:05:56 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [144] => WP_Post Object ( [ID] => 27619 [post_author] => 1 [post_date] => 2010-03-01 00:00:02 [post_date_gmt] => 2010-03-01 00:00:02 [post_content] => This comment analyses the oil price dynamics in 2009 arguing that 2009 represents a remarkable year in at least two respects: it witnessed the sharpest increase in spot oil prices in decades; and in the second half of 2009 it exhibited a high degree of relative stability despite a very uncertain and volatile global economic environment. The 2009 price dynamics indicate that the existing frameworks for the analysis of oil prices need to be modified to take into account new features of the market and the interaction among the various players. Furthermore attempts to identify the relative importance of fundamentals versus speculation in explaining the last price cycle are of limited use. Instead one should attempt to endogenise the role of financial players and understand the conditions under which these players behave in certain ways. [post_title] => Price Formation in Oil Markets: Some Lessons from 2009 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => price-formation-in-oil-markets-some-lessons-from-2009 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:04:29 [post_modified_gmt] => 2016-02-29 15:04:29 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [145] => WP_Post Object ( [ID] => 27621 [post_author] => 1 [post_date] => 2010-02-01 00:00:20 [post_date_gmt] => 2010-02-01 00:00:20 [post_content] => The recent behaviour of prices has polarised views about the key drivers of oil prices. One view attributes the recent behaviour in oil prices to structural transformations in the fundamentals of the oil market. An alternative view considers that oil markets have been distorted by substantial and volatile speculative financial flows. This dichotomy between fundamentals and speculation currently dominates the policy debate about the appropriate measures needed to reduce oil price volatility and to prevent a repeat of the latest price cycle. While it is convenient for some policy makers and analysts that the issues are presented in terms of this dichotomy it is too simplistic to be of use in formulating policy. Instead this presentation offers a more inclusive framework which emphasises the interactions among the various oil price determinants and the various players in the oil market. It also provides an alternative perspective on the oil price formation process based on perceptions of limited feedbacks and e increasing role of expectations and public signals. [post_title] => The Oil Market Through the Lens of the Latest Oil Price Cycle [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-oil-market-through-the-lens-of-the-latest-oil-price-cycle [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:04:24 [post_modified_gmt] => 2016-02-29 15:04:24 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [146] => WP_Post Object ( [ID] => 27622 [post_author] => 1 [post_date] => 2010-02-01 00:00:05 [post_date_gmt] => 2010-02-01 00:00:05 [post_content] => This presentation analyses some of the key relationships that are important for understanding global oil demand dynamics. It discusses the income and price determinants of oil demand as well as non-price factors such as the impact of government policies and other factors external to the oil market and which can have a drastic impact on oil demand. It emphasises that the relationship between oil demand and these determinants is far from linear and any analysis of oil markets should take into account non-linear and threshold effects and the cumulative and possibly irreversible nature of some of these effects. [post_title] => Global Demand Dynamics: Determinants and Policy Issues [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => global-demand-dynamics-determinants-and-policy-issues [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:04:16 [post_modified_gmt] => 2016-02-29 15:04:16 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [147] => WP_Post Object ( [ID] => 28268 [post_author] => 1 [post_date] => 2010-01-01 00:00:35 [post_date_gmt] => 2010-01-01 00:00:35 [post_content] => During the period 2002 to 2008, the oil market experienced a sustained increase in prices with the annual average price rising year-on-year for seven consecutive years. This boom, however, ended with a spectacular collapse towards the end of 2008. These sharp price movements captured public and political attention and raised concerns within both major consumers and producers about the adverse economic, political and social consequences of such violent price movements. [post_title] => Oil Market Dynamics through the Lens of the 2002-2009 Price Cycle [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-dynamics-through-the-lens-of-the-2002-2009-price-cycle-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 15:03:58 [post_modified_gmt] => 2016-02-29 15:03:58 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [148] => WP_Post Object ( [ID] => 28283 [post_author] => 1 [post_date] => 2009-07-01 00:00:52 [post_date_gmt] => 2009-06-30 23:00:52 [post_content] => The proposal for a crude oil price band seems to be gathering support. This comment discusses some of the limitations of an oil price band then it proposes a new framework for understanding the recent dynamics of oil price movements based on feedbacks. Rather than aiming at stabilising spot prices within a band the comment argues that the main objective of both oil importing and exporting governments should be to stabilise market participants' long term expectations. This requires a move away from focusing solely on the role of speculation and transparency issues towards a more general framework that also takes into account the inflexibilities in the oil market. [post_title] => The Price Band and Oil Price Dynamics [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-price-band-and-oil-price-dynamics-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:54:07 [post_modified_gmt] => 2016-02-29 14:54:07 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [149] => WP_Post Object ( [ID] => 27652 [post_author] => 1 [post_date] => 2009-03-01 00:00:15 [post_date_gmt] => 2009-03-01 00:00:15 [post_content] => While the media often focuses on the sharp swings in oil price, there have been some interesting reinforcing feedbacks unfolding in the term structure of oil prices affecting the international pricing system, financial investment, inventories and OPEC behaviour. These feedbacks are not new to the oil market, but the current environment seems to have amplified these price distortions. This comment discusses some of these feedbacks and price distortions and tries to draw some lessons from the period 1997-2009. [post_title] => Reinforcing Feedbacks, Time Spreads and Oil Prices [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => reinforcing-feedbacks-time-spreads-and-oil-prices [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:51:53 [post_modified_gmt] => 2016-02-29 14:51:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [150] => WP_Post Object ( [ID] => 27655 [post_author] => 1 [post_date] => 2009-02-01 00:00:41 [post_date_gmt] => 2009-02-01 00:00:41 [post_content] => This presentation, by Bassam Fattouh, challenges some of the conventional wisdom regarding the role of OPEC and analyses the Organisation's role in the short-term management of the oil market and its behaviour over the oil price cycle. It also discusses some of the transformations in the oil market and how these pose long term challenges for OPEC. [post_title] => OPEC Policy and Oil Prices: Long Term Issues versus Short Term Management of the Market [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-policy-and-oil-prices-long-term-issues-versus-short-term-management-of-the-market [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:51:38 [post_modified_gmt] => 2016-02-29 14:51:38 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [151] => WP_Post Object ( [ID] => 28300 [post_author] => 1 [post_date] => 2009-02-01 00:00:20 [post_date_gmt] => 2009-02-01 00:00:20 [post_content] => On October 9 2009 the Oxford Institute for Energy Studies held a one-day conference in Oxford on 'Oil Price Volatility: Causes and Measures of Mitigation Strategies'. The conference focused on three themes: the role of fundamentals and financial factors in explaining the recent sharp swings in oil prices and the marked increase in price volatility; an assessment of the plans and strategies currently pursued to dampen oil price volatility; and the potential measures that could be adopted to mitigate the impact of sharp swings in the oil price on the energy industry. The group of participants included key senior figures from government oil companies the financial industry and academia. The conference was conducted under the Chatham House Rule of non-attribution. This presentation introduced the themes for the day. [post_title] => The Oil Market Through the Lens of the Latest Oil Price Cycle: Issues and Proposals [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-oil-market-through-the-lens-of-the-latest-oil-price-cycle-issues-and-proposals-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:51:25 [post_modified_gmt] => 2016-02-29 14:51:25 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [152] => WP_Post Object ( [ID] => 27662 [post_author] => 1 [post_date] => 2009-01-01 00:00:01 [post_date_gmt] => 2009-01-01 00:00:01 [post_content] => Understanding the variation in the spread between the futures price and the spot price (known as the basis) is important for efficient hedging and for explaining the dynamics of commodity spot prices. Classical studies based on the theory of storage explain the variation in the basis in terms of changes in the fundamentals of supply and demand and/or storage technology of the underlying commodity (Kaldor, 1939; Working, 1948; Brennan, 1958; and Telser, 1958). Other studies explain the variation in the basis in terms of time-varying risk premiums which are influenced by preferences and beliefs of participants in the futures markets (Bailey and Chan, 1993). While the basis is relatively stable when compared to the variability of spot or futures prices, it may exhibit large variability for some commodities and may follow different dynamics depending on the behaviour of stocks of the underlying commodity. [post_title] => Basis Variation and the Role of Inventories: Evidence from the Crude Oil Market [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => basis-variation-and-the-role-of-inventories-evidence-from-the-crude-oil-market [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:50:39 [post_modified_gmt] => 2016-02-29 14:50:39 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [153] => WP_Post Object ( [ID] => 28308 [post_author] => 1 [post_date] => 2008-11-14 15:34:51 [post_date_gmt] => 2008-11-14 15:34:51 [post_content] => The oil sectors in the North African countries of Algeria, Libya, Egypt and Sudan have witnessed major transformations in the past decade or so. In Algeria, government reforms in the mid 1980s resulted in the entry of a wide range foreign oil companies to an oil sector previously dominated by the state-owned oil company. In Libya, the lift of US sanctions and the opening of the oil sector to foreign investment through a series of licensing rounds created a new dynamism not seen since the mid 1950s when the country’s oil industry kicked off. Egypt’s oil policy of building partnerships with foreign oil companies makes it one of the most attractive countries for foreign investment despite its mature oilfields. In Sudan, Asian national oil companies transformed the prospects of the country’s oil sector. Since 1999, Sudan’s oil production has been rising steadily enabling the country to join the club of oil exporters. [post_title] => North African Oil and Foreign Investment in Changing Market Conditions [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => north-african-oil-and-foreign-investment-in-changing-market-conditions-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:50:24 [post_modified_gmt] => 2016-02-29 14:50:24 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [154] => WP_Post Object ( [ID] => 27669 [post_author] => 1 [post_date] => 2008-10-01 00:00:53 [post_date_gmt] => 2008-09-30 23:00:53 [post_content] => Since the early 1970s, OPEC has been central to understanding the dynamics of oil prices. With the shift to the futures market for oil price determination, OPEC has also become important in understanding the changes in the shape of the futures curve and expectations about changes in long term oil prices. At this critical juncture, it is important to assess OPEC actions during the last cycle as events in the past three years or so highlight some interesting features of OPEC behaviour. These observations help us identify the channels through which OPEC interacts with the market and understand how OPEC is likely to react to the current slide in oil prices. [post_title] => To Cut or not to Cut: The Dilemma Facing OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => to-cut-or-not-to-cut-the-dilemma-facing-opec [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:45:31 [post_modified_gmt] => 2016-02-29 14:45:31 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [155] => WP_Post Object ( [ID] => 27674 [post_author] => 1 [post_date] => 2008-06-01 00:00:05 [post_date_gmt] => 2008-05-31 23:00:05 [post_content] => In this presentation, Christopher Allsopp and Bassam Fattouh discuss the recent rise in oil prices to around $135 per barrel, arguing that the diminution of feedbacks has destabilised long term expectations of oil prices. This has resulted in an unlocking of the back end of the futures curve, leading to ‘indeterminacy’ and great uncertainty about ‘fundamentals’ – a situation which can lead to volatility and drifts in the oil price responding to quite small changes in ‘news’ about supply, demand or OPEC behaviour. [post_title] => Oil Prices: fundamentals or speculation? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-prices-fundamentals-or-speculation [to_ping] => [pinged] => [post_modified] => 2016-03-01 15:27:24 [post_modified_gmt] => 2016-03-01 15:27:24 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [156] => WP_Post Object ( [ID] => 27683 [post_author] => 1 [post_date] => 2008-03-01 00:00:59 [post_date_gmt] => 2008-03-01 00:00:59 [post_content] => In this comment, Bassam Fattouh re-assesses the prospects of DME's Oman Crude Oil Futures Contract by focusing on three aspects: retroactive pricing, physical delivery and liquidity. He argues that in terms of providing better tools for risk management, enhancing price transparency and constituting the basis of a new benchmark, the DME's contract has not made any significant breakthroughs and that so far the main success of the DME contract has been in providing a flexible way to access physical Oman crude oil. [post_title] => Prospects of the DME Oman Crude Oil Futures Contracts [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => prospects-of-the-dme-oman-crude-oil-futures-contracts [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:44:00 [post_modified_gmt] => 2016-02-29 14:44:00 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [157] => WP_Post Object ( [ID] => 28336 [post_author] => 1 [post_date] => 2008-01-01 00:00:08 [post_date_gmt] => 2008-01-01 00:00:08 [post_content] => Despite the wide variety of internationally traded crude oils with different qualities and characteristics (the 2006 International Crude Oil Market Handbook describes more than 160 traded crude oil streams), many observers consider the world oil market as ‘one great pool’ (Adelman, 1984). Others argues that oil markets are ‘globalized’ in the sense that supply and demand shocks that affect prices in one region are transferred into other regional markets (Weiner, 1991). One implication of the globalization thesis is that prices of similar crudes in different markets should move closely together such that their price differential is more or less constant. This is in contrast to oil markets being ‘regionalized’ in which oil prices of similar qualities move independently to each other in response to shocks. Whether the oil market is one great pool or is regionalized has important implications in terms of energy policy and market efficiency. For instance, Weiner (1991) argues that the effectiveness of government policies, such as releasing crude oil from the Special Petroleum Reserve (SPR), depends to a large extent on whether the impact of such policy action extends to other regions or remains confined to the US market. In terms of efficiency, Gülen (1999) argues that regionalization gives rise to arbitrage opportunities across local oil markets and may render the market inefficient if arbitrage fails to push prices of similar crude oils in different markets in line with each other. [post_title] => The Dynamics of Crude Oil Price Differentials [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dynamics-of-crude-oil-price-differentials-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:20:46 [post_modified_gmt] => 2016-02-29 14:20:46 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [158] => WP_Post Object ( [ID] => 28344 [post_author] => 1 [post_date] => 2007-09-01 00:00:12 [post_date_gmt] => 2007-08-31 23:00:12 [post_content] => During the 1980s and 1990s, energy security declined in importance as oil prices fell and spare capacity stood at high levels. This was reversed in the decade that followed and once more energy security became a priority in policy agendas of most oilimporting countries. High oil prices, threats of terrorist attacks, instability in many oil-exporting countries and the rise in so-called ‘oil nationalism’ have raised serious concerns about the security of oil supplies. In the background, there are fears that the world may be running out of oil with many observers predicting an imminent oil supply crunch (Campbell and Laherrère, 1998) and raising doubts about the size of proven oil reserves in the Middle East and elsewhere (Simmons, 2005). These doomladen predictions about the availability of oil supplies and the size of reserves are gaining popular credence at times when oil market conditions are tight. Many international agencies, such as the Energy Information Administration (EIA) and International Energy Agency (IEA), are also predicting a healthy growth in global oil demand in the next 20–25 years, driven primarily by high growth rates of non-OECD Asian economies. [post_title] => How Secure are Middle East Oil Supplies? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-secure-are-middle-east-oil-supplies-2 [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:13:29 [post_modified_gmt] => 2016-02-29 14:13:29 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [159] => WP_Post Object ( [ID] => 27705 [post_author] => 1 [post_date] => 2007-08-01 00:00:02 [post_date_gmt] => 2007-07-31 23:00:02 [post_content] => Although Iran has many tools for deterrence or retaliation at its disposal, contrary to what many analysts believe, the oil weapon is not one of them. There are serious costs and risks associated with the use of the oil weapon. It is not always effective; it is indiscriminate; and it cannot be sustained for a long period of time. It is certainly not one of Iran’s strongest tools with which to confront the US. [post_title] => The Myth of the Iranian Oil Weapon [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-myth-of-the-iranian-oil-weapon [to_ping] => [pinged] => [post_modified] => 2007-08-01 00:00:02 [post_modified_gmt] => 2007-07-31 23:00:02 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [160] => WP_Post Object ( [ID] => 27711 [post_author] => 1 [post_date] => 2007-04-01 00:00:32 [post_date_gmt] => 2007-03-31 23:00:32 [post_content] => The recent disconnection of WTI from the other benchmarks revived the debate on whether the WTI benchmark has been ‘broken’ and whether oil market participants should adopt an alternative benchmark that better reflects the supply demand balance in the oil market. In this article, the author discusses the reasons for the WTI disconnection and its implications on the behaviour of oil price differentials. The author concludes that despite its drawbacks, WTI will continue to serve as one of the main international benchmarks for pricing crude oil as long as market players have an interest in its survival. [post_title] => WTI Benchmark Temporarily Breaks Down: Is it really a Big Deal? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => wti-benchmark-temporarily-breaks-down-is-it-really-a-big-deal [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:12:33 [post_modified_gmt] => 2016-02-29 14:12:33 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [161] => WP_Post Object ( [ID] => 27752 [post_author] => 1 [post_date] => 2007-03-01 00:00:30 [post_date_gmt] => 2007-03-01 00:00:30 [post_content] => Since the 1973 oil price shock, the history and behaviour of the Organization of Petroleum Exporting Countries (OPEC) have received considerable attention both inthe academic literature and in the media.1 Many conflicting theoretical and empirical interpretations about the nature of OPEC and its influence on world oil markets have been proposed. The debate is not centred on whether OPEC restricts output, but the reasons behind these restrictions. Some studies emphasize that production decisions are made with reference to budgetary needs which in turn depend on the absorptive capacity of the domestic economies (Teece, 1982). Others explain production cuts in the 1970s in terms of the transfer of property rights from international oil companies to governments which tend to have lower discount rates (Johany, 1980; Mead, 1979).  Others explain output restrictions in terms of coordinated actions of OPEC members.  Within the literature, OPEC behaviour ranges from classic textbook cartel to twoblock cartel (Hnyilicza and Pindyck, 1976), to clumsy cartel (Adelman, 1980), to dominant firm (Salant, 1976; Mabro, 1991), to loosely co-operating oligopoly, to residual firm monopolist (Adelman, 1982) and most recently to bureaucratic cartel (Smith, 2005). Others have suggested that OPEC oscillates between various positions but always acts as a vacillating federation of producers (see for instance Adelman, 1982; Smith, 2005). The existing empirical evidence has not helped narrow these different views. Griffin’s (1985) observation in the mid-1980s that the empirical studies tend to “reach onto the shelf of economic models to select one, to validate its choice by pointing to selected events not inconsistent with model’s prediction” still dominates the empirical approach to studying OPEC behaviour and its pricing power. [post_title] => OPEC Pricing Power: The Need for a New Perspective [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-pricing-power-the-need-for-a-new-perspective [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:11:53 [post_modified_gmt] => 2016-02-29 14:11:53 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [162] => WP_Post Object ( [ID] => 27758 [post_author] => 1 [post_date] => 2007-03-01 00:00:15 [post_date_gmt] => 2007-03-01 00:00:15 [post_content] => The behaviour of oil prices has received special attention in the current environment of rapid rises and marked increase in oil price volatility. It is widely believed that high oil prices can slow economic growth, cause inflationary pressures and create global imbalances. Volatile oil prices can also increase uncertainty and discourage muchneeded investment in the oil sector. High oil prices and tight market conditions have also raised fears about oil scarcity and concerns about energy security in many oilimporting countries. [post_title] => The Drivers of Oil Prices: The Usefulness and Limitations of Non-Structural model, the Demand–Supply Framework and Informal Approaches [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-drivers-of-oil-prices-the-usefulness-and-limitations-of-non-structural-model-the-demand-supply-framework-and-informal-approaches [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:11:23 [post_modified_gmt] => 2016-02-29 14:11:23 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [163] => WP_Post Object ( [ID] => 27762 [post_author] => 1 [post_date] => 2007-02-01 00:00:38 [post_date_gmt] => 2007-02-01 00:00:38 [post_content] => In this presentation, Dr Bassam Fattouh discusses three main approaches for analyzing oil prices: non-structural models, the supply-demand framework, and the informal approach. While non-structural models rely on the theory of exhaustible resources as the basis for understanding the oil market, the supply-demand framework uses behavioural equations that link oil demand and supply to its various determinants such as GDP growth, prices, and oil reserves. The informal approach on the other hand analyses oil price movements within specific contexts and episodes of oil market history. The latter approach is then used to identify some factors that have affected oil prices movements in recent years and analyses whether these drivers reflect structural changes in the oil market. This presentation is based on a paper titled: The Drivers of Oil Prices: The Usefulness and Limitations of Non-structural, Supply-Demand and Informal Approaches. [post_title] => Analysing Oil Prices [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => analysing-oil-prices [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:11:15 [post_modified_gmt] => 2016-02-29 14:11:15 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [164] => WP_Post Object ( [ID] => 27784 [post_author] => 1 [post_date] => 2006-09-01 00:00:41 [post_date_gmt] => 2006-08-31 23:00:41 [post_content] => One striking feature in the current market has been the prolonged contango in the WTI forward curve. Dr Bassam Fattouh assesses the various explanations that have been put forward to explain the current contango in crude oil markets. [post_title] => Contango Lessons [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => contango-lessons [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:09:50 [post_modified_gmt] => 2016-02-29 14:09:50 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [165] => WP_Post Object ( [ID] => 27786 [post_author] => 1 [post_date] => 2006-09-01 00:00:17 [post_date_gmt] => 2006-08-31 23:00:17 [post_content] => In this presentation, Dr Bassam Fattouh assesses the recent behaviour of oil prices focusing on ten relationships between oil prices and the market. [post_title] => Oil Prices and Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-prices-and-markets [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:09:44 [post_modified_gmt] => 2016-02-29 14:09:44 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [166] => WP_Post Object ( [ID] => 27789 [post_author] => 1 [post_date] => 2006-08-01 00:00:03 [post_date_gmt] => 2006-07-31 23:00:03 [post_content] => In this comment, Dr Bassam Fattouh considers whether the proposed Oman oil futures contract to be launched later this year satisfies the necessary conditions for it to play the role of a benchmark in pricing Middle Eastern crude oil exports to Asia. [post_title] => Middle East Crude Pricing and the Oman Crude Oil Futures Contract: A Critical Assessment [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => middle-east-crude-pricing-and-the-oman-crude-oil-futures-contract-a-critical-assessment [to_ping] => [pinged] => [post_modified] => 2006-08-01 00:00:03 [post_modified_gmt] => 2006-07-31 23:00:03 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [167] => WP_Post Object ( [ID] => 27801 [post_author] => 1 [post_date] => 2006-06-01 00:00:50 [post_date_gmt] => 2006-05-31 23:00:50 [post_content] => Earlier this year in Caracas, OPEC announced that it would leave its production quota unchanged. However, not everyone is convinced by OPEC’s recent announcement. Some observers believe that OPEC members have already reduced their supplies to keep inventories in check and they are doing this by not discounting their heavy crude oils. This comment explores the argument that OPEC may resort to reducing discounts on its heavy oil to reduce oil supplies in what is believed to be an oversupplied market. [post_title] => OPEC’s Discounts on Heavy Crude Oil: Is a New Policy Instrument Taking Shape? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opecs-discounts-on-heavy-crude-oil-is-a-new-policy-instrument-taking-shape [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:08:22 [post_modified_gmt] => 2016-02-29 14:08:22 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [168] => WP_Post Object ( [ID] => 27804 [post_author] => 1 [post_date] => 2006-06-01 00:00:26 [post_date_gmt] => 2006-05-31 23:00:26 [post_content] => Spare Capacity, Oil Prices and the Macroeconomy by Dr. Bassam Fattouh for Oxford Economic Forecasting’s conference ‘Global Macro and Industrial Outlook’ held in London on 6-7 June 2006. [post_title] => Spare Capacity, Oil Prices and the Macroeconomy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => spare-capacity-oil-prices-and-the-macroeconomy [to_ping] => [pinged] => [post_modified] => 2016-02-29 14:08:07 [post_modified_gmt] => 2016-02-29 14:08:07 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 169 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 45662 [post_author] => 974 [post_date] => 2023-01-17 10:41:17 [post_date_gmt] => 2023-01-17 10:41:17 [post_content] => Oil has always assumed a special position within the energy complex. Oil is a global and mature market, fungible, with many interrelated physical and financial layers, diverse set of players both on the demand and the supply side and has dealt with many shocks in the past (geopolitical and weather-related outages and demand shocks). Nevertheless, 2022 generated new types of shocks and the oil market has not been immune from government interventions which added new layers of uncertainty. However, despite the severity of the shocks experienced in 2022, the oil market through its various layers and players has shown strong resilience and continues to perform its key functions of price discovery and redirecting crude and products in the face of a massive shock. These shifts in trade flows will accelerate and consolidate in 2023, with wide implications for the structure of the market, price discovery, geopolitical relations, and the dominance of the dollar in oil trade. However, this has come at a cost. The trade routes have become longer and the cost of re-optimizing trade flows has increased, the adjustment in price differentials is sharper, the markets have become more segmented and less transparent and new class of trading entities have emerged. Also, refineries are having to change their crude slates resulting at times in sub-optimal use of crudes and supply of products. Most importantly, the current crisis is causing increased government intervention in energy markets including oil markets as energy security, alongside reducing emissions, becomes a key driver of energy policy. These government interventions have not yet reached their peak and are unlikely to be reversed anytime soon and the full impacts of which will become more visible in 2023 and beyond. [post_title] => Oil Markets in 2023: The Year of the Aftershocks [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-markets-in-2023-the-year-of-the-aftershocks [to_ping] => [pinged] => [post_modified] => 2023-01-17 10:41:17 [post_modified_gmt] => 2023-01-17 10:41:17 [post_content_filtered] => [post_parent] => 0 [guid] => [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 169 [max_num_pages] => 0 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => 1 [query_vars_hash:WP_Query:private] => bcae8fdccdbc7b3a00850b2f519d5e62 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [allow_query_attachment_by_filename:protected] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) )

Latest Publications by Bassam Fattouh

Books by Bassam Fattouh