The most basic law of economics is one of supply and demand. When supply is high, prices are low. And when demand is high, prices are high.
The modern global economy, so interconnected and reliant on each and every component part, has never quite had to deal with the economic laws that were rewritten as a result of the coronavirus pandemic — the abrupt hibernation of significant industrial and commercial activity any- and everywhere.
In the UK alone, the economy suffered its worst fall in Gross Domestic Product in some 310 years — yes, more than three centuries.
Around the world, fall-off levels of activity were sharp and sudden, down 15, 20 per cent — levels that economics might have only run as doomsday computing scenarios on university assignments they would do anything to avoid.
But that is what we have been through together. And it is what the global economy is recovering from.
That is the context.
Supply and demand
When the commodity of oil is added into this context — and with the global economy now in reboot mode and eager to make up for those quarters lost to Covid, the underlying importance of that first rule of economics — supply and demand — becomes ever more relevant now. Raw materials need to be mined or made, factories need to turn raw materials into goods, and goods have to get to market. And oil makes that happen.
That’s why since December, the price of a barrel of Brent Crude has risen by more than 11 per cent since December and now stands above $86. Brent Crude or West Texas Intermediate in the US are taken as the standards for the price of a barrel of oil.
The key issue now is making sure that the balance between the price of oil and what the recovering global market can take, is maintained. And that is the main job of Saudi Energy Minister Prince Abdulaziz bin Salman.
Speaking earlier this week at the Abu Dhabi Sustainability Week conference, he stressed that oil stability is paramount, adding Saudi Arabia’s alliance with the super group of producers has taken measures to ensure energy security.
“We believe Opec have done a lot in bringing about stability,” Prince Abdulaziz commented. “There is nothing more profound, more important for energy security than having to have a stable market.”
Between May 2020 and July of last year, Opec — which is led by Saudi Arabia and includes Oman — and Russia, reduced the supply of oil into the global market by 9.7 million barrels per day (bpd). As demand picked up and the economy recovered, those cuts were tapered, with the group adding 2 million bpd back into the market by the end of 2021.
What happens moving forward is largely down to the leadership of Prince Abdulaziz.
Saudi Vision 2030
He was appointed Saudi Arabia’s Minister of Energy in September 2019 and, as such, is responsible for coordinating the kingdom’s domestic and international energy policies in line with the goals of Vision 2030.
This includes overseeing energy activities within the kingdom; regulating the oil, gas, electricity, nuclear and renewables sectors in the interests of the kingdom in the short and long term, and directing Saudi international policy with regard to relations with producers through Opec and Opec+.
Before his appointment as the Minister of Energy, Prince Abdulaziz served in numerous capacities in the ministry over the past three decades, including as Minister of State for Energy Affairs, Vice Minister of Petroleum and Mineral Resources, Assistant Minister of Petroleum and Mineral Resources, Deputy Minister for Petroleum Affairs and Adviser to the Minister of Petroleum and Mineral Resources.
He holds a Master’s Degree in Business Administration (1985) and a Bachelor’s Degree in Industrial Management (1982), both from King Fahd University of Petroleum and Minerals. After graduation, he served from 1985-87 as Director of the Economic and Industrial Research Division of the Research Institute at King Fahd University of Petroleum.
Earlier this month, Prince AbdulAziz and the oil producing group have agreed to add 400,000 bpd more to supplies — a delicate balance between ensuring a global market still dealing with the unsure effects of the Omicron variant of Covid isn’t spooked by the worries of hyperinflation and commodity prices.
A great deal of attentiveness
Opec, the prince said, “is demonstrating a great deal of seriousness and attentiveness to what it takes to energise an economy and how much others are lagging when it comes to that.”
In a historical context, oil is at its highest price since 2014, driven by the recovering global economy emerging from the hibernation caused by the pandemic. In China alone, its economy grew by 8.1 per cent last year, putting upward pressure on crude prices.
As he noted, Oped+ is more forthcoming with plans and has “a more deliberate cautious approach in the name of compensation and in the name of the monthly meeting whereby we tweak — and these tweaks are announced in advance — and by that, we have delivered a stable, less volatile oil market”.
Volatility is the last thing Prince Abdulaziz and the group need right now — the world economy too. Analysts at Emirates NBD said in a research note last week Brent could hit $100 if the bullish trend continues, or the current $86 levels could fall to $75 or so. Goldman Sachs sees oil up to $100 too in the third quarter this year, and it previously believed oil would stay around $85 in 2022.
Prince Abdulaziz, Opec and its allies don’t want crude prices to climb to $100 a barrel, as Oman’s oil minister said earlier this month.
“We’re very careful at OPEC+, we will look at each month as we go,” Omani Oil Minister Mohammed Al Rumhi said in published reports from Riyadh. “But so far, I think 400,000 is good because demand is increasing and we want to make sure that the market is not overheating. We don’t want to see $100 a barrel,” he said.
“The world is not ready for that.”
With inputs from agencies
