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World grapples with higher oil prices

World grapples with higher oil prices


Oil prices surged to over $90 a barrel this week as Saudi Arabia and Russia extended their 1.3 million barrel per day oil cut through to December.

The oil price has hit the highest level since November 2022 and up 25% since June, as supply cuts by OPEC+ tighten the market. It could even hit $100/b.

This threatens to reignite inflation concerns as much of the world is already grappling with higher energy costs.

The Saudi energy minister said the “kingdom will not sell oil to any country that imposes a price cap.”

Should Saudi Arabia become an official BRICS member, this stance would significantly undercut the efficacy of Western sanctions.

Iranian oil production is up to about 3.1 million barrels per day.

The EU’s dependence on Russian imports of oil fell to 2.3% in two years and natural gas to 12.9%, according to Eurostat.

Worldwide, oil demand is back in growth mode.

In the June edition of its ‘Oil Market Report,’ the International Energy Agency (IEA) expects global oil demand to reach a record high of 102.1 mln b/d in 2023, about 2 mln b/d more than in 2019.

Evidently, reports that oil demand has peaked were premature.

It has been growing by 1.4%/year on average during the past ten years, with forecasts expecting it to grow by 1.3% in 2023.

OPEC chairman Haitham Al Ghais said that according to their projection, oil demand in barrels will be higher in 2045 than today – up to 110 mln barrels – and that a “healthy degree of pragmatism” is needed to meet energy needs while curbing emissions.

But already positioning and expectation-setting over the role of oil producers and companies at COP28 is heating up.

The industry is being pressed to come to the summit with a “clear road map” in sync with the Paris Agreement goals.

BP urges more oil and gas investment while speeding energy transition.

“We need to do both.

“We need to invest in today’s energy system responsibly and, at the same time, we must invest in accelerating energy transition”, which the company said must be orderly.

Prevent shortfall

The International Energy Forum (IEF) and S&P Global Commodity Insights estimate that a cumulative $4.9 trln of investments in global upstream oil and gas are needed by 2030 to meet market needs and prevent a supply shortfall.

The oil and gas sector is in an upcycle.

The roll-out of a low-carbon energy system is going to take time.

Oil and gas will continue to drive the global economy and define energy security for many years.

Wood Mackenzie expects exploration spending to recover from “historic lows” over the next few years.

US oil production is expected to hit a record high this year, but there is uncertainty as to whether the current growth can continue.

Some analysts claim US oil production is nearing its peak as price volatility leads inevitably to less drilling and possibly, later, to a production decline.

The steep drop in output from US shale wells is turning out to be worse than expected, forcing oil drillers to work even harder to keep production from slipping, research firm Enverus said.

But the US oil industry has constantly proven its resilience, and while growth may slow, there is no reason to believe the end is in sight just yet.

Russian oil smashed through the $60/b G7 price cap as crude exports in July hit the highest level of 2023.

According to the IEA, Russia’s oil exports averaged about 7.3 mln bpd in July.

North Sea oil and gas industry is booming with increasing production and investments as Norway and the UK have overcome recent challenges and are on course to achieve significant milestones due to notable increases in investments, exploration success and production.

Solid oil and gas production from the region also provides indispensable resources to Europe and the rest of the world navigating the energy transition.

Iraq’s oil flows through Turkey — suspended since March 25 — are unlikely to resume until October.

The two countries have been discussing a restart of the oil flows for months but have been plagued with repeated delays — some due to technical problems and others due to political ones.

Demonstrating continued strong interest in oil and gas, Norway’s annual offshore exploration licensing round in mature areas attracted “very strong” bids from 25 oil and gas firms, including Shell, ConocoPhillips, Aker BP, and Equinor, the country’s energy ministry said.


China’s biggest coal company said it is “seizing” the opportunity to build more fossil fuel power plants before 2025 as the government prioritises energy security after a series of power shortages.

China now has 243GW of coal-fired capacity currently permitted and under construction.

Long term, China is pushing for electrification and plans to run its electric vehicle fleet on domestic coal-fired power.

The FT said Xi Jinping is putting China’s domestic and external security before tackling its economic woes.

His priority is scientific and economic self-reliance, not economic growth.

He is comfortable with China’s slower growth rates.

In recent weeks, Chinese authorities unveiled a series of interventions designed to shore up growth, particularly in property, which accounts for more than a quarter of economic activity in the country.

There are also expectations of further infrastructure investment.

China sees the adjustment as necessary over the long term as it continues to adjust its growth model away from property and infrastructure development to consumer services and high-tech manufacturing.

At the same time, China is building nuclear reactors faster and much cheaper than the rest of the world.

The BRICS Summit has shaped a new geopolitical landscape.

The expanded bloc will control over 40% of the world oil supply, over 50% of gas reserves and 72% of the rare earth minerals.

Their combined GDP now exceeds that of the G7.

Politics, as well as economics, matter when making climate policy.

The social impact of measures taken is as important as their efficiency.

Opposition to net-zero policies is mounting worldwide, even in the EU.

In the UK, Michael Gove warned over a backlash to green policies.

He said anger over heating policies in Germany has benefited the far right.

He warned that new environmental rules risked provoking a populist backlash in the UK and Europe.

Climate goals

The Earth just had its hottest summer on record.

July was the warmest month since the start of the instrument era in the 19th century.

The massive development of intermittent renewable energies will dramatically increase the need for flexibility in the electricity grid.

Interconnectors can contribute to managing this.

Energy transition is more complicated than previously thought – climate goals must coexist with priorities around energy security, access, and affordability.

The Intergovernmental Panel on Climate Change (IPCC) warns that continued greenhouse gas emissions will increase global warming.

But Jim Skea, the new chairman of IPCC, calls for a balanced approach to the climate change debate, saying, “It’s not helpful to imply that a temperature rise of 1.5 degrees Celsius is an existential threat to humanity.”

He said it is all about focusing on solutions.

“I like to stay focused on the positive and the things we can actually do to address climate change rather than getting stressed and paralysed into inaction by the fear of what’s happening.”

One positive solution would be replacing coal with natural gas within this decade.

People recognise the need to transition away from fossil fuels to clean energy.

But this has to happen orderly and only as clean energy technology becomes available on a scale to replace them.

With the rapid growth of renewables, record deployment of clean energy technologies, like solar, wind and EVs, is driving unprecedented growth in the market for the minerals needed to produce them, but also concerns about availability.

Read the latest issue of the OGV Energy magazine HERE

Published: 11-09-2023

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