But the tentative emergence of new structures of global governance could be the story of 2020by Nick Butler / April 16, 2020 / Leave a comment
The past few weeks have witnessed remarkable instability in the oil market and a desperate international effort to remedy the situation. The deal reached last weekend between OPEC, Russia and other oil producers has not succeeded in lifting prices. That agreement, headlined as a cut of 10m barrels a day in production, includes all the previous cuts made since October 2018 which have been counted in to make the total sound larger. The actual additional reduction painfully agreed was less than 3m barrels a day.
A very modest reduction of this sort is clearly completely inadequate in the face of a fall in year-on-year demand in April of 29m barrels per day, followed by falls of 26mbd in May and 15mbd in June. These are the estimates produced by the International Energy Agency in its latest oil market report published on 15th April. Beyond mid-year, the IEA’s projection is for some recovery of the global economy, leading to a net fall in oil demand over the year as a whole of around 9mbd. There are many uncertainties around this of course and the numbers should be taken as indicative rather than precise.
Last weekend’s meeting, held under the auspices of the G20, did not stabilise prices but was significant for a number of other reasons.
First, it confirmed that OPEC has lost its power in the energy market. Cuts at this scale are biting into the basic revenue requirements of member states. Few of the OPEC member states can cut any further without inflicting real self harm. Nor can the Russians. Putin needs, as he has for the last 20 years, a steady flow of revenue to maintain his power in Russia. Oil is in chronic structural oversupply and for the first time in more than half a century the market is no longer controlled by producer power.
Secondly, the failure of the deal confirmed that the crucial roles in the energy market have passed to the United States—whose emergence, thanks to oil from shale rocks, as an oil exporter has disrupted previous certainties—and to China, whose increasing demand for oil imports has absorbed most of the volumes of global production added over the last decade. Between them, the US and China now shape the oil market and everyone…