Strategy Note /

Oil importer alarm bells ring

  • Oil price (Brent) up over 10% this month, almost 25% above 2021 average. Next OPEC+ meeting on 2 February

  • Drivers are supply risks (Iran, Libya, Kazakhstan, Russia, UAE), lower inventories, less Omicron-demand concern

  • Geopolitical risks should fade but not low capex. We screen EM for fuel importer vulnerability, oil exporter valuation

Oil importer alarm bells ring
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
18 January 2022
Published by

Oil price (Brent) is up over 10% this month, almost 25% above 2021 average, and back at levels not seen since 2018 and 2014. Alarm bells are likely ringing in the oil importers in emerging markets, particularly those poorer ones also exposed to high food prices.

The drivers of this move are:

  • Geopolitically-driven supply risks (Iran Nuclear deal stuck, Libya output disruption, Kazakhstan protests and succession, Russia potential further sanctions, UAE drone attacks);

  • Unchanged OPEC+ agreed output expansion profile;

  • Lower inventories;

  • Less concern over Omicron Covid hit to demand; and

  • Slightly weaker US Dollar.

Geopolitical risks should fade but low capex, resulting from focus on the renewable energy transition, is likely to persist. The next OPEC+ meeting is on 2 February.

Below, we screen emerging markets for current account vulnerability to net fuel imports and for relatively cheap oil exporter equity markets.

Oil price vulnerability or benefit in emerging markets

Oil exporter equity markets: Russia cheaper than Saudi in large EM, Colombia cheaper than peers in small EM

Related reading

OPEC+ unchanged with oil price near fiscal breakeven, December 2021

Oil price exposure in emerging markets, September 2021

International Energy Agency calls time on Oil, May 2021