The soaring demand for energy will inevitably keep the price of oil elevated, predicts the secretary general of Opec+, Haitham Al Ghais. As a collective of 23 oil-exporting countries, Opec+ carries significant weight in determining the volume of crude oil to be released to the global market.
In an anticipatory strategy to offset a growing demand of approximately 2.4 million barrels daily, Saudi Arabia announced cutting its oil production by a million barrels per day. This is designed to buoy prices, but also holds potential ramifications. According to the International Energy Agency (IEA), this combined effort of Saudi Arabia and Russia, both prominent oil producers and Opec+ members, could catalyse a “significant supply shortfall” as early as the end of this year.
Al Ghais explains this decision as being both “precautionary” and “pre-emptive,” taken voluntarily by two sovereign nations to mitigate unforeseen uncertainties. Indeed, such precautionary measures are not without precedent. Following Russia’s annexation of Ukraine in February 2022, oil prices reached an unprecedented high of more than $120 a barrel in June the same year, later stabilizing above $70 a barrel in May due to production restrictions. However, oil prices have been progressively climbing since then.
The benchmark for prices, Brent crude, surpassed $95 a barrel recently on back of predictions of shrinking supplies, sparking concerns that it may exceed $100 per barrel. Such inflated prices can lead to expensive fuel for customers in the next 10 months, causing prolonged inflation in critical economies.
Al Ghais, however, places greater emphasis on “underinvestment” in the oil sector rather than imminent inflation. He warned against the cessation of investment in oil, terming it as equally perilous. This could usher in future volatility and potential supply shortages. He ardently advocated for ongoing investments in the oil sector along with efforts towards decarbonizing the industry and incorporating alternative energy sources, primarily renewables.
When questioned about the prospect of ascending oil prices amplifying global inflation if they exceed $100 a barrel, Al Ghais avers that it is unwise to be “short-sighted”. He optimistically envisions a persistent increase in demand by “north of 2 million barrels a day” next year, despite the inherent uncertainties.
He also stressed that an estimated investment nearing $14tn would be necessitated by the oil industry by the year 2045. With global energy demand projected to expand by almost 25% by 2045 in comparison to the current demand, all energy forms would be indispensable. His remarks were in the lead up to a forthcoming congregation of key oil stakeholders at the International Petroleum Exhibition and Conference in Abu Dhabi.