MUSCAT, SEPT 29
Understanding market movements, especially a to a, can be puzzling even for the best analysts. It is difficult to grasp why two commodities react to the same global developments differently, or sometimes even in opposite directions.
The Observer spoke to Manpreet Gill, Chief Investment Officer, Africa, Middle East & Europe (AMEE) at Standard Chartered, to understand global oil supply and demand dynamics, price outlooks, and energy transition trends impacting the region, as well as what drives gold and other commodities.
When oil prices drop, the decline can be drastic, yet prices are not fluctuating erratically: When crude prices rise above $100, significant concern arises, making it easy for even a minor piece of positive news to push prices down. He anticipates that oil will remain around the $100 mark for some time, with positive news and ongoing talks potentially pulling it slightly lower, while less favorable developments could briefly push it above that threshold."
Addressing the likelihood of oil reaching $150 per barrel, as occurred in the early stages of the ongoing conflict: "The chances remain low. There are sufficient incentives across all sides to avoid such an extreme outcome because high oil prices fuel inflation and stifle growth globally. Furthermore, supply has not completely dried up, as some continues to flow from the region, helping to stabilize the market."
Regarding a potential return to pre-war price levels of $60 to $70 per barrel: "A resolution to the conflict is required. The market currently sits in a middle ground where the worst-case scenario is avoided due to shared economic incentives, yet positive catalysts remain insufficient to drive prices down toward $70. Over the long term, $70 per barrel remains the ideal benchmark for balanced economics, as dips below that level carry their own set of challenges. While short-term prices may hover around $100, the 12-month outlook suggests a shift toward the $70 range, reflecting broader supply and demand dynamics."
The Russia-Ukraine conflict impacts not only crude oil but also refined products like diesel and jet fuel, where supply remains constrained for distinct reasons. The market finds itself in a intermediate zone, well above desired low levels yet far below extreme price shocks of $200 per barrel, keeping inflation around 3%.
Difference between crude oil and atural gas: "While crude directly influences the global economy, the US, and emerging markets, natural gas holds greater weight for Europe and its inflation metrics. This divergence leads to varied market outcomes, though financial markets ultimately focus on pricing future expectations. Consequently, most markets would welcome the reopening of key transit routes like the Strait of Hormuz."
On whether the El Niño effect drives broader energy demand, Gill said that there is little evidence of a major shift in total consumption. While extreme weather increases demand in certain areas, offsetting factors such as structural energy efficiency and the rapid expansion of renewables, particularly in Europe, help counterbalance the impact. While El Niño shifts the energy mix, its broader economic effect is typically muted compared to initial fears. "Its most noticeable impact occurs in specific agricultural commodities depending on crop types and locations, making it an inflation variable to monitor rather than a central risk. Access to open energy supply lines remains a far more decisive driver for the markets."
Discussing the transition toward electric vehicles, solar energy, and renewables, he said that high oil prices naturally accelerate this shift by making renewable projects far more economically viable. However, the transition was already gaining momentum before price spikes, largely driven by Paris Agreement commitments. The primary challenge moving forward rests on the execution capacity of individual regions to implement these projects quickly enough.
"Turning to precious metals, gold traditionally serves as a safe-haven asset during geopolitical crises. However, the strongest structural driver over recent years has been emerging market central banks diversifying their reserves into gold. While the current conflict influences sentiment, higher inflation often raises bond yields, which can temporarily restrain gold gains. Nevertheless, as long as central bank purchasing continues alongside persistent demand for a supply-constrained metal, gold retains an upward trajectory, with potential to reach $5,000 over a 6- to 12-month period."
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