Global politics has been a big driver in energy markets for decades. Strategic expert George Friedman of Geopolitical Futures says Russia and China will both face their own particular energy-driven problems in 2017.
Low Economic Growth Weighs on Energy Prices
Speaking in a recent Mauldin Economics video about his 2017 forecast, Friedman said energy turmoil is a consequence of the world economy’s stagnant growth. Energy demand won’t grow because demand for the things energy allows nations to produce is also not growing.
The previous high-price era financed development of expensive oil and gas reserves, and the resulting supply overhang weighs on the markets. This, combined with low demand, makes it impossible for OPEC or anyone else to prop up energy prices.
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Soft Energy Means Headaches for Moscow
Given this, Friedman forecasts continued low oil and gas prices in 2017, and he thinks we could see crude oil retest the $30–$40 range.
Even with crude in the $50s, Russia faces a slow cash drain. Moscow needs $70–$80 oil prices to break even and fund its commitments. If this doesn’t happen—and Friedman thinks it won’t—Putin will face continued need to mollify a suffering population by creating diversions elsewhere.
China’s Export Bind
China has a different problem. The same macro demand factors that are keeping oil prices low also depress demand for China’s manufacturing exports.
Beijing, always worried about social instability, has to respond to flagging export growth with expensive support and stimulus programs. Right now, it has ample reserves to do so, but the reserves won’t last forever.
Watch the full interview (3:39) below or on the Mauldin Economics site.
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