Let's start off with what the China reopening means.
And I want to start off with one of your challenging the premise of what many
people are saying, that you take the example of many major economies when
they reopen. You're saying we cannot look at them as
a roadmap for looking at China this year.
Why not? Good morning and happy New Year to you
as well, David. So quite a few differences between China
is reopening and what we saw at the experience of the other major economies.
So, of course, we as we know, China has been quite unique in the zero Corbett
policy, not unparalleled across the world.
So, you know, trying to bring a population of one point thirty one point
four billion out of almost a cocooned and sheltered experience off of three
years of very strict curbs against Corbett and a very abrupt U-turn.
Right. So that is a critical difference in
terms of the mindset of the population, as you've seen over the past few weeks.
The public has actually it has actually hunkered down in fear instead of making
the best use of it really loosened mobility norms.
Workers have been calling in sick. So, you know, as Corbett has spread, we
know anecdotal evidence out there that the death count, unfortunately, is
increasing as well. So China's going through a very painful,
disruptive and fearful exit from. From Corbett.
And you know what the market is trying to put its finger on right now and
extremely difficult to do so is how long this painful period is going to last
until China actually moves on to a regulatory opening where mobility and
economic activity can go back to normal. Well, I mean, markets do look ahead.
I mean, they're looking to months minimum from now, and that's where the
enterprise ends. Some of that should actually be baked
into the price. On top of that, we the Strategic
Petroleum Reserve, also being refilled by Joe Biden, that all these are things
which should ultimately be rather positive for the oil price.
But it hasn't been. And also, if you look at the number of
long positions, oil, they've been dwindling, too.
So why the negative sentiment? So I think to put into context, you
know, the quite dramatic drop we saw over the past two days and crude prices
is actually yes, China is a big, big part of the picture, but so is the
global economy. And we have somehow kicked off 2023 with
a rather gloomy outlook of the global economy.
And as you were just mentioning earlier in your program, the Fed met a December
meeting. Minutes of the Fed as well have served a
reminder to, you know, that the Covid sorry, that Fed pivot enthusiasts as if
you were, if you will, that the Fed is inclined to keep its foot on the brake.
So, you know, the global economy is not looking good.
And of course, that doesn't bode well for the oil demand.
Now, of course, Chinese economy and reopening is a positive.
I completely agree with you. I think the problem right now for the
market is where exactly in time to put that reopening?
Could it be sometime in Q2, more like maybe the middle of this year?
So, you know, I think the market is taking a very short term view right now.
We are treating March crude, which is like, you know, April and May fuel sales
soar. Yes.
Arguably, the market should be looking at the positive of that of the Chinese
reopening. But I think the global economy is is
weighing down sentiment right now quite a bit.
How does this affect the upper classes here?
You know, a very crucial question. I would bet that the last two days is a
dramatic drop in prices has put object lesson on alert.
Now we know that the ministerial meeting is not scheduled until June, but there
is the GMC meeting, which is, you know, includes the de facto leaders, Saudi
Arabian and Russia. That is scheduled for the first offense.
I think OP has promised time and again to itself and to the markets that they
will be very active, very proactive, pre-emptive.
You know, I think they will also be taking lessons from the Fed's playbook
even. You know, the dangers of acting too
little, doing too little, too late. But my personal view is that, you know,
given that how many things are in flux right now, including what to expect of
the global economy and global oil demand going into 2023, what to expect of the
Chinese reopening, they may still be remain in a wait and watch mode.
I believe current prices are still a little above their being short.
But let's say, Brent, if it threatens to fall below 70 dollars, I think that's
when OPEC's blast will probably be prompted to act with deeper cuts.