Onshore Energy Conference — London Onshore Energy Conference — London | Page 26
THE GREAT
UNWINDING
By Paul Hodges
Chairman International eChem
[email protected]
W
26
as two core assumptions from the stimulus
period have been over-turned, namely that:
• Oil would always trade above $100 a barrel
• China’s economy would always
grow at double-digit rates
It therefore seems highly likely, as chart
1 suggests, that oil is now returning to
CRUDE OIL PRICES IN $2016
1861 – 2016 ( TO DATE)
130
120
OPEC
crises
110
100
Central
Bank
liquidity
90
80
70
60
50
Long-term median
$23 / bbl ($2016)
40
30
20
10
01
20
11
20
19
91
19
81
19
71
19
61
19
51
19
41
19
31
19
21
19
11
19
01
18
91
18
81
18
71
0
18
61
$/bbl
e have reached the
second anniversary of
The Great Unwinding of
policymaker stimulus.
Almost inevitably, this now seems likely
to be followed by a Great Reckoning, a
consequence of the policy mistakes made
in response to the 2008 financial crisis.
The Great Unwinding began with China’s
decision to move away from the stimulus
policies adopted by the previous leadership.
Since then, those who expected stimulus to
return have been disappointed. The leader of
the Populist faction in the Politburo, Premier
Li Keqiang, has attempted to manoeuvre in
this direction several times, most notably
with last year’s failed stock market rally.
But in the end, strategy has continued
to be set by President Xi Jinping and his
Princeling faction, who has consistently
focused on the need for structural reform
with his New Normal economic programme.
Oil and commodity markets, along with
the value of the US dollar, have been the
leading indicators for the paradigm shift
set off by the Unwinding. Oil prices have
fallen by more than 50 per cent, and the
USD Index has risen by around 15 per cent,
SOURCE: IeC ANALYSIS, BP DATA