The secretary general of Opec+, Haitham Al Ghais, has issued a warning that the price of oil is expected to remain high as global energy demand continues to rise. Opec+ is a group consisting of 23 oil-exporting countries that collectively determines crude oil sales on the world market. According to Al Ghais, demand is projected to grow by about 2.4 million barrels per day. In an effort to boost prices, Saudi Arabia has announced a cut to its crude oil production by one million barrels per day. The decision by Saudi Arabia and Russia, both prominent oil-producing nations and Opec+ members, to reduce output has raised concerns about a potential supply shortfall by the end of the year, as highlighted by the International Energy Agency (IEA). Mr Al Ghais described the production cut as a preemptive measure due to uncertainties in the market.
The invasion of Ukraine by Russia in February 2022 caused a surge in oil prices, reaching over $120 per barrel by June of that year. Prices temporarily dropped to just above $70 per barrel in May 2022 but have been steadily rising as producers limit output to support the market. On Tuesday, Brent crude, a widely used price benchmark, exceeded $95 per barrel amid predictions of shorter supplies, raising concerns that prices could surpass $100 per barrel. The rising oil prices have led to warnings that fuel prices for drivers may rise in the next 10 months, reigniting fears of prolonged inflation in major economies. However, Mr Al Ghais emphasized that Opec is more concerned about the potential underinvestment in the oil sector. While some have called for halting investments in oil, Opec believes this approach is equally risky and could lead to future supply shortages and volatility. Opec advocates for continued investments in the oil industry alongside efforts to transition to renewable and alternative energy sources.
When asked about the impact of rising oil prices exceeding $100 per barrel on global inflation, Mr Al Ghais highlighted the importance of taking a long-term perspective and avoiding short-sighted assessments. He expressed optimism that global oil demand will remain resilient, with an anticipated growth of over 2 million barrels per day in the coming year, subject to global market uncertainties. Mr Al Ghais also stressed that the oil industry will require approximately $14 trillion in investment by 2045, as energy demand is projected to increase by almost 25% compared to current levels. He further emphasized the necessity for various forms of energy, including renewables, to meet future energy needs.
These remarks precede a significant gathering of key oil participants at the International Petroleum Exhibition and Conference (ADIPEC) in Abu Dhabi on Wednesday. As oil prices continue to rise, the announcement of output cuts by Saudi Arabia and the discussions at ADIPEC will shape the future trajectory of the oil market and its impact on various sectors.
