If you are hoping for cheaper fuel, be patient. OPEC+ is to raise its oil output by only 100,000 barrels per day.
Lower pump prices are therefore still a long way off.
The modest increase is reportedly a setback to US President Joe Biden after his trip to Saudi Arabia, when he asked the cartel to pump out more oil to help the global economy.
Biden’s failure to persuade producers to raise output may cast a shadow on his recent achievement with the killing of an ailing al-Qaeda leader in Afghanistan or needling China by sending US House of Representatives Speaker Nancy Pelosi to Taiwan.
High fuel prices have already sent inflation in the US to a record high and taken Democrat popularity ratings to new lows. However, the OPEC+ decision will be a disappointment to millions of families around the world too, as they have to struggle to secure their energy needs.
The big oil producers said in their statement that they will closely watch the dynamic and rapidly evolving oil market fundamentals to conduct a continuous assessment of market conditions. They also noted that severely limited availability of excess capacity necessitates utilising it with great caution in response to severe supply disruptions.
Not everyone believes that only Saudi Arabia and the UAE have spare capacity. Following Biden’s visit to Saudi Arabia, Saudi Crown Prince Mohamed Bin Salman insisted that there would be no guarantee that increased oil production above current levels will happen and that his country could produce no more than 13 million additional barrels per day.
Even as other cartel members could boost production with the current infrastructure, their abilities can be hindered by deficient asset integrity and maintenance and political and security issues.
However, OPEC+ did point out the need for upstream investments as it warns that chronic under-investment in the oil sector has reduced excess capacities along the value chain (upstream/midstream/downstream).
The need to increase investments, which concurs with remarks by several OPEC officials, is expected to find a wide response soon, not only due to the need for greater supply or to put brakes on volatile prices, but also to the astronomical profits recently posted by oil companies. The top five — Shell, ExxonMobil, BP, Chevron and ConocoPhillips — doubled their profits than in the first quarter of 2021, which translates as more than $35 billion in only three months.
No one can waste a chance to make such profits. No doubt, those companies and others will be jostling to tap off more resources. More investments in fossil fuels simply mean that they will be here to stay much longer than previously expected.
But what will be the effect on energy transition and the 1.5-degree scenario? The best answer to this question comes from another Saudi official.
When asked whether geopolitical events in Europe would speed up the transition to cleaner energy or hinder it in the medium-term, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said: “I think it provided us with a reality check to how aspirations … can be compromised by the realities of the day.”
Even before the Ukraine crisis, he added, the “La La Land scenario about net-zero had been smacked with so many realities”, including cost.
When discussing sustainability goals, the minister used the phrase “low carbon” rather than “zero carbon”, saying that was “the difference between La La Land and reality”.