| 11 December 2023, Monday |

Opec+ supply shortfall could push prices higher, IEA says

According to the International Energy Agency, an oil supply deficit from the Opec+ group of nations might lead to a tighter market and higher prices.

The Paris-based agency said in its monthly market report on Friday that the 23-member bloc’s chronic underperformance had essentially pulled 300 million barrels, or 800,000 barrels per day, off the market since the start of 2021.

“That shortage is projected to grow as certain Opec+ members battle with production limits, compounding market pressure,” the research stated.

Oil prices have risen in response to a faster-than-expected economic recovery, which has resulted in stronger demand and the difficulty of some Opec member nations to swiftly ramp up output due to industrial underinvestment. Rising geopolitical concerns around Ukraine have also pushed up costs.

At 2.30pm UAE time on Friday, Brent, the worldwide benchmark for two-thirds of the world’s oil, was trading at $91.79 per barrel, while West Texas Intermediate, the gauge that measures US crude, was at $90.38 per barrel.

According to the research, spare capacity is virtually exclusively owned by two manufacturers, Saudi Arabia and the United Arab Emirates.

“If the continuing gap between Opec+ output and its goal levels persists, supply tensions will develop, raising the risk of additional volatility and upward pressure on prices,” according to the research. These risks, “which have broad economic repercussions,” may be mitigated if producers in the Middle East with excess capacity compensated for those who were running short.

The IEA’s forecasts come as investment in the oil and gas sector falls due to governments’ green transition efforts. Total investment in the oil and gas upstream industry plummeted 23% below pre-coronavirus levels in 2021, to $341 billion, according to a new analysis released in December by the International Energy Forum and IHS Markit.

Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, told the Abu Dhabi International Petroleum Exhibition and Conference last year that the global oil and gas industry requires more than $600 billion in investment annually until 2030 to keep up with rising demand.

Despite increased demand and Opec+’s repeated inability to fulfill its objectives, the market is still expected to turn to surplus in 2022, according to the IEA. “If Opec+ curbs are fully reversed, non-Opec+ producers may add 2 million bpd oil supply, and the bloc could raise output by 4.3 million bpd.”

The Opec+ group, which achieved a historic decrease of 9.7 million barrels per day between May 2020 and July of last year, is undoing cutbacks as demand improves. Every month, the group adds 400,000 barrels per day to the market.

Due to underinvestment in the oil and gas sector, JP Morgan, the largest lender in the US, believes Brent will “overshoot” to $125 per barrel this year and $150 in 2023.

According to the IEA, global oil consumption is expected to rise by 3.2 million barrels per day this year, reaching 100.6 million barrels per day as limitations imposed to control the spread of Covid ease.