Publications: Notes at the Margin

Energy, China, Interest Rates: Consequences of Central Bank Tightening (February 20, 2023)


Lest the title of today’s report confuse readers, we explain that we based the following discussion on two questions posed by editors of different publications, several articles on the Chinese economy, and a brilliant essay in The Economist titled “War and subsidies have turbocharged the green transition.”[i] This issue of Notes at the Margin was motivated first by this question from an editor: “Has the oil market been politicized?” Then, a second editor asked, “Will the EU economy dodge the energy bullet?” The latter question was prompted by energy trader Pierre Andurand’s recent assertion that “Russia has lost the energy war.”[ii]


During the last week, several reports on China’s economy came out. These were followed by the news that thousands of retirees were confronting local officials in various Chinese cities to protest cuts to their government-provided medical insurance. The articles suggest that China’s anticipated recovery, which many expect to boost global oil demand in 2023, may not occur.


We also note that the broader market’s surprising euphoria regarding an end to central banks’ monetary tightening seems to have evaporated. The current thinking is that rising labor costs, record-low unemployment, and continued increases in producer and consumer prices will lead to additional significant interest rate boosts. The higher rates and potential economic slowdown would depress oil use more and cause firms in the industry to cut their inventories.


After digesting the seemingly unrelated questions and reports, we have concluded that global oil consumption will not increase in 2023 and could even decline.

[i] “War and subsidies have turbocharged the green transition,” The Economist, February 13, 2023 [].

[ii] Laurence Fletcher and David Sheppard, “Putin has ‘lost the energy war,’ top trader claims as he ends bets on high gas price,” Financial Times, February 10, 2023 [].


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