Healthy global oil markets depend on stability, which has been hard to find lately. Intricately connected to all parts of the global economy, they are unsettled today for reasons as diverse as Covid-19 and the supply chain crisis, to name a few. Perhaps most importantly, the war in Ukraine has sent shockwaves that will be felt for some time to come. Brent surged to an astounding level of almost $140 a barrel after its launch.
The commodity will be difficult to tame in the short to medium term, although unexpected falls have been known to occur when prices are this high. But even that will have its downsides. Countries whose economies depend on oil would need to quickly recalibrate government spending, and sudden price swings could hurt the global economy.
Therefore, swings in either direction would be shocks to the global economy at a time when it is already at breaking point. But there are still measures that can make a noticeable difference for the better and bring some peace. The online meeting of Opec members on Wednesday is a good example.
At the meeting, the oil producers’ supergroup agreed to increase production by 100,000 barrels a day in September. Each increase is a step in the right direction, but some in the international community may have hoped for much more. In a statement, the organization explained why such requests were not possible, a key reason being “the severely limited availability of excess capacity, which requires it to be used with great caution in response to severe supply disruptions”.
There are other reasons too. Pumping more oil isn’t an easy process, and bringing about a surge in production quickly doesn’t happen with the simple flick of a switch.
Also on Wednesday, an Opec communiqué detailed its concerns about the impact of long-term underfunding in the industry. It states: “Insufficient investment in the upstream sector will impact the timely availability of adequate supply to meet growing demand beyond 2023.”
Members also have a responsibility to protect their economic well-being amidst so much uncertainty. With the world on the brink of recession, too much oil in the market could further depreciate prices if and when a downturn occurs; Demand for energy typically dwindles during a recession.
This caution not only serves to protect the interests of the producers. Oil is not isolated in the economy and mismanaged could impact other sectors. With all parts of the energy industry vulnerable, high inflation across the board – the UK, for example, has hiked interest rates to their highest levels since 1995 – and more geopolitical instability on the horizon, the latest concern is Taiwan, and oil stewardship is key . OPEC understands that.
Another important part of the meeting was the introduction of the organisation’s new head, Kuwaiti oil manager Haitham Al Ghais, who took over on Monday. He will remain in office for three years. He succeeds Mohammad Barkindo, who died last month, leaving the Opec community bereft after two consecutive terms of service.
Mr. Al Ghais is now becoming a key intermediary on the global stage. In a statement on the day he took office, he reminded the world: “Opec is at the forefront of fostering dialogue, collaboration and partnerships to accomplish its mission… I look forward to working with all of our member countries and our many partners.” around the world to ensure a sustainable and inclusive energy future that leaves no one behind.”
It summarizes the nuanced path the organization must take as it moves forward. Founded with cooperation and responsibility as guiding principles, OPEC is more than capable of doing this.
Published: 05 Aug 2022 03:00
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