China is the biggest oil importer in the world and when its economy sneezes, the global energy business is on the brink of coma, which is not the case on the whole, but it is for Angola, with the Asian giant’s imports of Angolan vines falling by 34 percent in August, which is helping to put a brake on the national effort to increase production.
This slippage in Angolan exports to China contrasts with the Chinese economy’s evident greater demand for crude produced in Russia, which results from the growing cooperation between Moscow and Beijing in the context of building a new world order that both powers confirm they want, but also in view of the discounts that Russia is making to its energy under the Western sanctions on its oil and gas because of the invasion of Ukraine on 24 February.
With the flow of oil falling to zero towards the USA and reducing sharply towards the European Union, due to successive packages of sanctions applied as punishment for the war in Eastern Europe, Russia bet on changing the needle to the east, conquering markets, especially the Chinese and Indians, through an aggressive discount policy that led, although today this difference is less pronounced, to differences in the order of 40% compared to the average values of the markets.
With Russian supply in full swing, not least because Russia is one of the three largest producers in the world, along with the USA and Saudi Arabia, Asian markets are now well supplied and there is less need to look for supplies in Africa or even in Brazil, where China also stopped going to get crude, reducing the South American giant’s exports to Beijing by almost 50%.
This, contrary to what happens with Russian oil, which has been increasing dramatically, reaching, according to Reuters, growing by more than 7% between 2021 and 2022.
In the background, the Brent markets, in London, and the WTI, in New York, are reflecting the ambivalence of the global economy, which, at times, presents itself in the form of a storm, with waves of inflation, winds of recession and the threat of a tsunami of unemployment, both in Western Europe and in the USA, punctuated here and there with desperate rises in interest rates by central banks to deflate the most relevant economic bodies, sometimes presents itself with hope and bonanza, as is the case of China which, despite the confinements of Covid, it again registers greater demand for energy and presents promising data in its exports.
This is how the barrel of Brent, which determines the average value of raw materials exported by Angola, is today recovering close to 0.6%, to 92.57 USD, in relation to contracts for October, with a similar behavior in WTI, which, at 10:30 am, Luanda time, as in London, had recovered 0.46% to USD 86.19.
With regard to a country like Angola, which still depends heavily on crude exports, which is responsible for 95% of their total, 35% of GDP and more than 60% of tax revenues, what matters is to be aware of the movements by the central banks of the major global economies, including the US Federal Reserve and the European Central Bank, which are preparing for new and robust rises in interest rates as a weapon to “kill” the sharp rise in inflation that causes fear, some analysts/economists even say that a Euro-American recession is already inevitable before the end of the year.
And in an environment of recession, which leads to inevitable rises in unemployment, which, in turn, opens the door to the reduction of industrial production and reduces the volume of transport, business and family, energy consumption is immediately felt and crude oil imports suffer to the same extent, which, for Angola, can even be a nightmare because this revenue is still fundamental for the Government to be able to deal with the serious economic crisis in which the country has been plunged for several years.
But the global economic crisis fueled, among other fronts, by the war in Ukraine, with inflation soaring in the major western economies, with the noisy announcement of a recession in the USA and the risk of closing a large part of the European industry dependent on Russian gas, due to the Moscow sanctions – cutting off the supply – to the European… sanctions, is also not letting the barrel float smoothly.
In the face of this stormy scenario, over the last two weeks, the markets have returned to seeming like a roller coaster, in an ups and downs unsuitable for traders with weak stomachs, which does not allow governments, both those that depend on the sale of crude, and those who matter energy, set solid plans to face these turbulent times.
And this is bad news for the new Angolan Government, especially for the reinstated Minister of Finance, Vera Daves, who will have to deal with the instability of the oil markets, although still at a reassuring bar, but substantially less than what was needed to to face with renewed commitment the fight against the national economic crisis, responding to the equally renewed challenges of the Fifth Legislature announced by the reinstated President João Lourenço: to fight hunger, poverty and unemployment.
With its eyes always on the Russian gas crisis in Europe, crude oil will inevitably depend, in its loss or gain in value, on the European capacity to face the energy crisis this winter.
In other words, if the Russians really turn off the gas tap as a sanction to European sanctions because of the war in Ukraine, and if the German or Italian reserves are not made up – and that is the case – then prices could skyrocket in the future. .
But until then, until it becomes clear that this expected crisis will loom large over Western Europe’s future, the barrel of crude is still likely to sink… and the submersion is also forced by the two-decade record appreciation of the US dollar.