The oil market "is relatively in balance," Saudi Arabia's foreign minister said May 24, as the kingdom continues to brush off calls to produce more crude to bring down soaring prices.
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Consumers' pain at the pump is the result of underinvestment in refining capacity, Prince Faisal bin Farhan al-Saud told the World Economic Forum in Davos, and supplying more crude will not relieve the tightness in gasoline and diesel.
"It's much more complex than just bringing barrels to the market," he said. "As far as we are aware, there is no shortfall of oil. The problem is refined products, which is something that is more connected to a lack of investment over the last year-and-a-half [to] two years in refining capacity."
The global refining system lost some 410,000 b/d of net capacity in 2020 and another 50,000 b/d in 2021, according to analysis by S&P Global Commodity Insights, with several facilities closed and others converted to biofuels production.
Beyond the losses, refining margins in recent months have surged as sanctions on Russia have hit its crude runs and oil exports, and several refineries entered turnaround season. Mega-refineries at Jazan, Saudi Arabia; Al-Zour, Kuwait; and Zhoushan, China, are expected to come online later in 2022, but several other plants worldwide are scheduled for closure or conversion.
Refinery outages from planned and unplanned maintenance, run cuts and closures reached about 14 million b/d in April, up from 10.85 million b/d in February, according to S&P Global.
Even so, the OPEC+ alliance, with Saudi Arabia co-chairs with Russia, has come under fire from consuming countries, such as the US, Japan and India, for continuing to hold some of its crude production capacity idle while inflation and surging energy prices hammer major economies.
The Platts Dated Brent benchmark was assessed by S&P Global at $115.53/b on May 23, up from $78.99/b at the start of 2022.
Since 2017, OPEC has teamed up with Russia on a series of production cuts aimed at propping up the oil market, most notably in spring 2020, when it instituted a record 9.7 million b/d cut during the worst of the pandemic.
Those curbs are being gradually tapered and are scheduled to expire by October 2022. That leaves the future of the so-called OPEC+ alliance in doubt, though officials from the group say they hope to stay together to continue jointly managing the market. They say their efforts to prevent further volatility in the market are vital to instilling investor confidence in the industry.
The minister said that Saudi Arabia, the world's largest exporter of crude, "has done what it can" to assure adequate oil supplies, and that OPEC "as a whole has done a lot to make sure the oil markets are stable in a way that provides enough capital to invest ... in the interim while we transition to green energy. But unfortunately there have been others that have called for a complete stop to investment in hydrocarbons in the short term before we are ready for it."
Saudi Arabia pumped 10.40 million b/d of crude in April, according to the latest Platts OPEC+ survey, as the kingdom has been raising output by roughly 100,000 b/d each month in line with its quota under the OPEC+ deal. But that is still far below its declared capacity of 12.5 million b/d, including its share of the Neutral Zone it shares with Kuwait.
Prince Faisal's comments came as a sharp contrast to those of Fatih Birol, executive director of International Energy Agency, who told the World Economic Forum on May 23 that he feared the rise in oil prices would encourage more upstream investments at the expense of renewables.
OPEC officials have sharply criticized the IEA for its assessment that no new fossil fuel projects should be sanctioned if the world is to attain its climate change targets.
"My worry is that some people may use Russia's invasion of Ukraine as an excuse for a large scale, new wave of fossil fuel investments," Birol said. "My worry is it will forever close the door to reach our climate targets...and it may not be a lucrative investment."
Saudi Arabia itself is investing tens of billions of dollars to expand its crude production capacity, which it says will be needed as oil will remain a dominant fuel source for the foreseeable future.
Saudi crude production capacity is poised to reach 13.3 million-13.4 million b/d by the end of 2026 or early 2027, including the Neutral Zone, energy minister Prince Abdulaziz bin Salman said May 16.