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