Following repeated price rises and some stability at higher rates, the oil and energy markets are now experiencing some unanticipated contradictions, primarily due to the continuing Russia-Ukraine war. The conflict has turned into a protracted round of arm twisting by those on the outside, which explains the dangerous escalation and its ramifications at all levels.
Only the oil markets have maintained their balance thanks to the efforts of OPEC+ countries, which have sidestepped attempts carried out from time to time to sow division among members to bring down prices. However, all attempts have been thwarted due to the awareness shown by OPEC+ countries and holding on to the gains they have made, as well as the pragmatic way of handling of supply and demand equation.
The most recent of these developments is Russia’s announcement to cut its oil production by half a million barrels per day, which comes in light of positive indicators about the rise in demand from China after it lifted COVID-19 pandemic restrictions. This may lead to a shortage of supplies, especially since there is a decline in production for some important producing nations such as Nigeria.
Russian oil demand
This is in addition to OPEC’s expectations that oil demand will rise this year to pre-Coronavirus levels, at 102 million barrels per day. The demand is projected to rise to 110 million barrels per day by 2025, which would lead to a disparity between supply and demand.
The strange thing is that this comes in light of the rise in Russia’s oil production. During the first half of February, Russia’s production rose 1 per cent to nearly 11 million barrels per day. The Paris-based International Energy Agency indicated that the Russian oil exports approached their highest levels in January, as Russian oil found its way to Asian markets, along with some European countries that refused to participate in the boycott of Russia’s oil and gas, such as Hungary.
Other European countries have imported refined Russian oil from India and other Asian countries. Another significant point is that Russia’s decision to reduce output has had no effect on OPEC+’s policies. All members confirmed their commitment to the recent agreement to maintain the agreed-upon production levels until the end of this year, referring to the possibility of convening an emergency meeting if market conditions warrant.
GCC oil ministers make a point
This is supported by the consistency of the GCC’s position, which is the cornerstone of this approach to maintain market balance. The UAE Energy Minister Suhail Al Mazrouei stressed ‘there is not much need for the group to change its course, as the supply and demand for oil are identical, adding that price levels are evidence of balance’.
This was followed by a statement issued by Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman when he stated: “The OPEC+ alliance plans to stick with an oil deal agreed in late 2022 for the rest of the year 2023’. The sentiment was shared by the Kuwaiti Oil Minister.
Power of a unified position
It is necessary to emphasize the consistency of GCC’s position on oil, as this remains the basis for maintaining the gains made. Especially as the Gulf countries have ambitious development programmes that require substantial funds, which can be attained through relatively high oil prices.
In fact, there has been a radical shift in policies of the GCC, which are dealing with the developments in the oil markets on the grounds of their common interests, rather than emotions.
They also distanced their oil policies away from any differences in other positions that might crop up. This unity of purpose must be preserved, and which seems to be the case.
This means that, thanks to the GCC’s practical vision and the unprecedented solidarity of the OPEC+ countries, oil markets will maintain their balance and prices will remain at current fair levels. This marks a positive for the stability of the global economy as a whole.