Yesterday’s broadly unchanged settlement prices hide an eventful day, volatile price action with Brent moving in a range of $2.27/bbl. It is reasonable to assume that it was a day of assessing the potential impacts of recent events, namely the ceasefire between Israel and Hezbollah and Donald Trump’s latest salvo of threatening its closest trading partners with new tariffs. The agreement between the Jewish state and the Lebanese paramilitary group to halt the firing at each other has come into effect this morning and the market, apart from the initial gut reaction on Monday, has discounted the move as it will not have an impact either on supply or on demand.

The incoming US President’s pledge to impose 25% tariffs on Canada and Mexico and an additional 10% on Chinese imports would have a massive inflationary impact in the US and therefore would hinder economic growth – if implemented, something that is implausible since the threat is currently viewed as seeking leverage. Yet, Canadian crude oil imports would not be exempted. Considering that US refiners demand around 4 mbpd of oil from their northern neighbour the step would create a shortage that would be palpable at the forecourts. The latest move from Donald Trump is long on threats, short on details and therefore is Trumpesque and chaotic.
Oil is being supported this morning by the 6 million bbls drawdown in US crude oil stocks as reported by the API last night, whilst gasoline and distillate inventories increased by 1.8 and 2.5 million bbls respectively. Because of tomorrow’s Thanksgiving holiday, the early release of US GDP, jobless claims, and PCE data will be at the centre of attention, guaranteeing hectic trading conditions, and the weekly EIA statistics. Add to that the weekend’s virtual OPEC meeting and you’ll find that there is a lot to ponder and evaluate. What you might conclude is that despite the uncertainties surrounding our market, barring all hell breaking loose in the Middle East, supply will be more than adequate to cover demand providing a price ceiling for oil.

An Agreement with Bitter Aftertaste

The latest Conference of Parties (COP), the 29th, to be precise, held in the capital of Azerbaijan, Baku, did not get as much coverage as previous ones. COP is an annual meeting where the Parties, 198 countries, come together to discuss and review progress made in the fight against climate change and agree on new measures that help mitigate the harmful impact of global warming. COP29 has been labelled ‘the finance COP’. The main focus was on climate finance referring to the funding that is needed to support the transition of lower-income nations from fossil fuel to renewable energy and help the most affected communities to weather the impacts of climate change. In other words, the major objective was to find new sources of wherewithal and increase the funding to tackle climate change.

Those hoping for an amicable agreement were left utterly disappointed on Day 1, when the host nation’s President, Ilham Aliyev, told delegates that oil and gas are a ‘gift of God’. Scientists would probably disagree as they are convinced that fossil fuel found in the ground is formed from the remains of plants, algae, and bacteria transformed into carbon-rich substances over a long period of time. In a quick riposte to the President’s opening address, the UN Secretary General, Antonio Guterres, said to advocate the use of fossil fuel was painfully absurd. He called 2024 the year of a ‘masterclass in climate destruction’, which is ’supercharged by human-made climate change’.

It is this overture against which talks got underway. As the week progressed, the gap between wealthy and poor nations in how to finance climate change became worryingly evident. On November 22, which was meant to be the official last day of the conference, no deal was in sight. And it was not just money that was the obstacle to a successful conclusion to COP29. Developed and several developing nations criticized oil-producing countries for blocking references to transitioning away from fossil fuel in the COP29 documents.

As the climate summit went into overtime developing countries fiercely criticized the rich part of the world for the $250 billion per year climate proposal until 2035, which was offered to poorer nations when a draft document released on Friday pointed out that a minimum $1.3 trillion in climate finance would be needed annually. The Alliance of Small Island States, countries that are existentially exposed to the impacts of global warming, said that the figure showed ‘contempt for our vulnerable people’.

After threatening to walk out and following a round of intense diplomacy behind closed doors, in the early hours of Sunday a deal was finally clinched, or perhaps better say, reluctantly agreed by developing countries. Eventually, the nearly 200 countries accepted the agreement in which the wealthy part of the world would be the major contributor of $300 billion per annum until 2035. It falls considerably short of the $1.3 trillion needed and cited by economists but it is an improvement on the previous offer of $250 billion and thrice the amount of the current contribution.

On one hand, the fact there was a deal achieved is a massive relief, on the other, the unbridgeable chasm between the richer and poorer parts of the world was once again ever so conspicuous. India’s delegate said the deal was nothing more than an optical illusion and called the sum on offer paltry. The argument is that since 75% of the growth in emissions over the past decade has originated in the wealthy part of the globe it is these countries that are obliged to help tackle the rise in emissions globally in general and in the developing part of the world particular – what is coined common but differentiated responsibility.

It was a bitter-sweet victory, if that, which did not solve fundamental problems, merely delayed the implementation of long-lasting and durable solutions. After all, climate change is a global phenomenon that requires international cooperation. Yet what is tangible is the division and mistrust between the developing and developed part of the world and between oil consumers and producers, the direct consequence of which is a much slower transition away from fossil fuel than originally hoped for or actually needed to keep the rise in global temperature 1.5 °C or less under pre-industrial level. 

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