Investing Pioneer – November 21st – 3:45 PM EST
OPEC+ continues a proactive approach to bolster or maintain higher oil prices in the context of a heralded certain recession. Today, November 21st, the Energy Minister of Saudi Arabia, Prince Abdulaziz bin Salman Al-Saud, denied a recent report claiming Saudi Arabia was discussing with other OPEC producers to increase production by 500,000 barrels per day.
Instead, the Saudi Energy Minister maintained the bearish stance on oil supply by saying that if there is any need to reduce production, they remain ready to intervene. Following a cut of 2 million barrels per day, it would seem unlikely any decisions to increase production are imminent.
“It is well known, and no secret, that OPEC+ does not discuss any decisions ahead of its meetings. The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”
Prince Abdulaziz bin Salman Al Saud
This comes after a Wall Street Journal report stated a 500,000+ barrel a day production increase was under discussion by OPEC+, and follows the European Union and nations planning to set price caps – potentially embargoing Russian Oil – a move that would likely incentivize Russia to cut off supply.
UPDATE: WTI Oil has risen approximately 5% since the Energy Ministers’ comments.
Any such production increase is said to be in alignment with the intentions of the Biden Administration, which has called on OPEC to increase supply to solve fuel price issues. OPEC has continuously maintained the stance that it will not increase production, placing a burden on the country to supply more of it domestically.
OPEC claims that due to a recession, demand is not sufficient to expand supply. Indeed, it is in their incentive to maintain the price in a “Goldilocks zone”, for maximum revenue and stability.
Against the backdrop of the Democratic Party’s policy to reduce domestic production of fossil fuels, OPEC’s stance may cause issues.
In the face of higher oil prices and OPEC’s sway over supply, major oil producers including Exxon Mobil, Chevron and BP have announced plans to ramp up production.
For the foreseeable future, the Biden Administration will be faced with two conflicting issues, maintaining a sufficient energy supply, and not completely turning their back on clean energy commitments. This may become increasingly difficult or impossible.
WTI crude oil prices have fallen by approximately $40 from their June 2022 high of ~$120 to today’s (November 21st, 2022) price of ~$79.
Indeed, recently, Saudi Arabia has been aligning itself more with Russia than the United States. Probably most markedly, after Russia invaded Ukraine – quickly leading to sanctions and a cutting of ties with western nations and companies – Kingdom holding, run by Saudi Prince, Alwaleed Bin Talal, invested approximately $500-$600 million into Russian oil.
Following this, National Security Council spokesman John Kirby said,
“The Saudi Foreign Ministry can try to spin or deflect, but the facts are simple…[the decision will] increase Russian revenues and blunt the effectiveness of sanctions”.
John Kirby, National Security Council spokesman
Energy Supply Outlook
For Europe, the extent to which it will experience recessionary pressures is irrevocably tied to the severity of its upcoming winter. A milder winter will require less energy supply, thus preventing a severe strain on the economy. At the same time, efforts to improve supply will mean even a moderate or colder-than-average winter will not prove painful.
Questions regarding the following winter remain, with certain economic commenters suggesting a gloomier outlook for 2023-2024.
The International Energy Forum, an inter-governmental, non-profit international organization headquartered in Saudi Arabia, founded in 1991, presented a bearish outlook in December 2020, warning of a looming supply gap necessitating “trillions of dollars in investment”.
They said “A lack of incentives for producers to increase investment shortly after this low cycle will delay and weaken the resort action of market balances that are necessary to promote global economic recovery and support global sustainable developments and greenhouse gas emission reduction goals.”
The key takeaways from the report, in which the IEF collaborated with the Boston Consulting Group to come to their findings are; annual CAPEX needs to double in the following decade and governments must reject protectionism. The latter point does not bode well for the economic outlook, as it seems protectionism is becoming a growing theme for the global economy.
