Commodity Strategy: Highlights from the Atlantic Council Global Energy Forum

Research evidence excerpt

Commodity Strategy: Highlights from the Atlantic Council Global Energy Forum

ered this latest supply shock

with much more of an inventory buffer, the initial tone of the forum was that the current,

relatively sanguine price level for oil is not sustainable if the Strait remains closed. Despite

SPR releases, partial offsets, and demand curtailments softening the blow, millions of barrels

remain off the market on a daily basis (with well over 1 billion barrels now lost). The view ofSTRATEGY

industry experts was that there is no substitute for a free and open Strait of Hormuz.

• The paralyzing impact of heightened volatility and uncertainty in oil markets emerged as a

theme in several contexts during the Forum. Lower engagement from institutional investors

and broader financial markets was ascribed to this, with participants having less ability to

participate and less conviction to do so in the current environment. Similarly, echoing what

we heard at our EPIC conference last week, public upstream companies are remaining

disciplined, with duration uncertainty continuing to deter significant production growth efforts

(though some private companies were noted as more apt to increase rigs in this environment).

• The debate over demand destruction struck fairly consonant tones at the Forum, with nearly

every mention of demand destruction (such as when discussing China’s current tapered

import activity) being emphasized as a short-term behavior change, as opposed to long-

term, structurally impaired activity post-conflict. To this end, it is perceived more as a deferral

of demand. That said, with policy and consumption responses occurring at scale in low-incomeCOMMODITY

countries, some speakers cautioned the risk to markets when this demand story ripples