Inflation climbed to 5.2% year-over-year in May in Greece and to 4.2% in the U.S. Some believe this is the peak it will reach this year, but this may be more true for the U.S., where unit costs—which combine wage and productivity increases—are moderating.The “optimistic” forecasts are based on two assumptions. First, oil and natural gas prices will not skyrocket to higher levels, and second, there will be no further secondary inflationary effects from the rise in oil prices to date.
In April and May, the price of black gold rose every time there was news of a potential closure of the Strait of Hormuz and fell due to speculation about a peace agreement between the U.S. and Iran. In June, the situation hasn’t changed, but many believe there is a lot of noise and little substance.
However, yesterday Shell CEO Wael Sawan stated that 1.2 billion barrels of oil are missing from the market and “the deficit is deepening every day.”
His voice joined that of ExxonMobil’s Neil Chapman, who noted that inventories are declining and the price of Brent crude is heading toward $150–160 per barrel. Chevron CEO Mike Wirth made similar remarks, referring to “very high numbers” regarding the upper end of the price range.
Meanwhile, the IEA confirmed that global oil supply fell to 97 million barrels per day in March from 107 million to 108 million barrels previously.
It is evident that global reserves—both strategic and commercial—are declining. China has played a decisive role in bringing prices down, reducing its imports by 5–6 million barrels per day. However, this does not mean that Chinese consumption has decreased. Rather, China is simply reducing its strategic reserves.
Everyone knows this cannot continue. Reducing reserves can be used to address a crisis like the current one, but not indefinitely.
Essentially, countries are borrowing oil from the future. And all this at a time when public debt is expected to climb to an all-time high this quarter, while stock market valuations are sending warning signals.
However, history teaches us that when consumption exceeds income/production and a country or countries choose to borrow to maintain the same level of consumption, they undermine their future. The same applies to excessive energy consumption.
As is well known, the most drastic way to adjust demand to supply is to destroy part of the demand, and this can be achieved through a sharp increase in the price of oil. However, this is not the desired solution.
But if this continues for a little while longer, there may be no other choice, as borrowing from the future by depleting reserves has an expiration date.