November 19, 2008
Tight global fossil fuel markets, increased nationalisation of oil reserves and massive economic growth in developing countries like China and India are creating new realities in global energy markets, which will remain volatile for some time to come, according to BP’s chief economist Christof Rühl, who spoke to EurActiv in an interview.
Christof Rühl is chief economist at oil giant BP.
Energy markets are changing rapidly and we are in a situation of high demand and high oil prices. How would you position this year’s statistical review in this context? Is it very different from previous reviews?
This review is different in two ways. First, it works out the long-term drivers that have pushed up oil prices and energy prices over the last two years. Since 2003, oil prices have increased 300%, traded coal by 200% and natural gas by 100%. These are enormous magnitudes.
At the same time, the report distinguishes between short-term volatility and long-term developments. If you look at the last few months, you have seen oil prices come down as quickly as they have gone up in reaction to these short-term market disturbances.
We should expect this to continue. The basic story of this report is that prices will be stronger for longer, because they are driven by new players in economic growth and by really drastic changes in the composition of economic growth, with more participation from so-called emerging or developing economies that have much higher energy needs because of industrialisation.
And at the same time, there are constraints on the supply side – either because access is restricted like in oil markets or because trading isn’t fully developed like in coal markets. As long as there is no global economic recession and growth remains relatively strong, this mixture will be the background.
But energy markets in general, and oil markets in particular, are strange. Like any complex system they need a degree of redundancy. But the oil market, for example, has only two million barrels of spare capacity at the moment and operates at almost full capacity. So every little interruption causes these violent reactions, and we should see volatility increase in the short term, because the market is dominated by a cartel and because the cartel has the only free spare capacity, we should also expect this to be possibly downwards.
Saudi Arabia, for example, in response to the economic situation has increased production, and oil prices are coming under severe pressure. More oil on the market together with a crash in demand means we will also see prolonged periods of low oil prices.
Do you expect a downturn in demand?
We saw this already in 2007 and 2008, and independent of the financial crisis, when oil demand fell in the OECD. It only increased in two groups of countries: the oil-exporting countries and the fast-growing emerging market economies, mostly in Asia.
The consumer in OECD countries was the first to get squeezed out, and this was before the financial crisis. On top of this we now expect some impact of slower economic growth.EurActiv Correspondent