Global Fundamentals and Energy Markets

The global economy has undergone milestones and transformations throughout the last several years. Key amongst these important trends has been the fluctuations within the global energy market, particularly as it relates to major oil-producing countries such as Russia, the United States, and members of the Organization of Petroleum Exporting Countries (OPEC). After years of declining oil prices, from over US$160 a barrel in June 2008 to a low point of US$30 per barrel in January 2016, the OPEC alongside other non-OPEC oil-producing nations worked jointly on the implementation of the 2016 Vienna Agreement. This ambitious agreement, in effect since January 2017, has effectively reduced the petroleum output of major OPEC and non-OPEC oil suppliers, notably Russia and Saudi Arabia, in a successful bid to increase international prices by getting rid of massive stock overhang.

Global Fundamentals and Energy Markets

To the surprise of many international observers, the nations signatory to the Vienna Agreement have demonstrated a level of commitment and compliance with the terms of the agreement that skeptics originally believed improbable. Unquestionably, the Vienna Agreement has yielded some positive results, with the oil barrel pricing currently at approximately US$70. However, this pricing is still far below the historic prices pre-2015. The environmental policy rollback of the Trump Administration as well as the advances in non-fossil energy sources and the ongoing discovery of new oil reserves throughout the world have all contributed to a dilution of power that major oil and gas producers hold over the global market. In the case of the United States, the construction of new pipelines, the jumpstarting of the coal energy industry, new extractive techniques, such as fracking, and the use of shale gas have all contributed to keeping overall oil prices from skyrocketing.

At the most recent OPEC Conference during the month of June, the countries adhering to the Vienna Agreement decided to continue with their voluntary output reductions. Continued adherence and compliance with the Vienna Agreement will either be re-ratified or abandoned at OPEC’s next meeting scheduled for the month of December, depending on the macroeconomic outlook that can be assessed at that time.

It is important to remember that petroleum is one of the world’s most traded products. During 2016, the global trade of crude petroleum totaled US$616 billion. That same year, the largest exporters of crude petroleum were Saudi Arabia, representing 16% or US$96.1 billion of global trade; Russia, accounting for 12% or US$75.7 billion; and Iraq, with 6.7% or US$41.5 billion. Simultaneously, the main importers of crude petroleum in 2016 were China, totaling 17% or US$101 billion; the United States, representing 16% or US$99 billion; and India, accounting for 8.9% or US$54.8 billion.

On the other hand, refined petroleum specifically represented the fourth most traded product in the world during 2016 with a total of US$461 billion. In the case of refined petroleum, the largest global exporters are the United States, Russia, and Singapore, while the largest importers are the United States, Singapore, and the European Union.

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