OPEC and its allies are taking a "gradual phased approach" to adding crude oil back to the market after the pandemic slashed demand by some 25%, Saudi energy minister Prince Abdulaziz bin Salman said Oct. 14, brushing back calls by the US to raise output more aggressively to combat rising prices.
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"We want to make sure that we reduce these excess capacities that we have developed as a result of COVID, we want a gradual phase approach," the prince said. "We believe we'll have a challenging year in 2022 if we don't' attend to this situation immaculately with the same resolution."
The OPEC+ alliance has agreed to increase production by 400,000 b/d through the end of 2022, aiming to eliminate the historic cuts it implemented through the pandemic by late in the year
The International Energy Agency, however, has warned that even this glide path could lead to a significant oversupply by mid-2022, a scenario that Prince Abdulaziz acknowledged in advocating a cautious approach to supply management.
"We have an agreement we started to have a balance by the end of the year. It will be a bit challenging for us in 2022," he said.
UAE energy minister Suhail al Mazrouei also told the Russian conference that the OPEC+ alliance needs to strike a balance between encouraging investment in the sector and not increasing production too much.
"Reducing or increasing the production suddenly by a large amount is not going to help. It will not allow investors to invest," Mazrouei said. "You will solve the problem in the short term but you will have a bigger problem later on." Oil at $100/b is "quite possible," he said.
S&P Global Platts has assessed Dated Brent at three-year highs in recent days, with the benchmark reaching as high as $84.43/b on Oct. 11.
The IEA said that from September through end-2021, global output is set to rise 2.7 million b/d with OPEC+ accounting for 1.5 million b/d. This would still leave the OPEC + crude supply 700,000 b/d short of the global requirement in the fourth quarter. However, the IEA said that the picture could change quickly, lending support to OPEC+ sticking to its current plan of bringing back 400,000 b/d each month.
"If OPEC+ continues to unwind its cuts, the bloc could pump 800,000 b/d above the call on its crude in Q1 2022, assuming Iran remains under sanctions... by Q2 2022, OPEC+ crude oil output could rise to 2.1 million b/d above the call," the IEA said. As such, these possible stock builds in 2022 could offset the extended period of inventory draws that are expected to last until the end of 2021, the IEA added.
OPEC+ has been "attentive to the market" with the focus on ensuring energy security but also keeping in mind climate change, the Saudi prince said. "We believe our job as OPEC+ is to ensure the energy security of oil but it takes diversity of energy sources for us to enable this. We can also work on climate change."
He noted that while oil prices have climbed 29%, gas prices have soared 500% and coal is up 300%.
"This situation tells us they need to copy paste what OPEC+ has done and achieved," Prince Abdulaziz said.
There is a potential for "a serious energy crisis this winter," he said, that is due to a "lack of stocks, lack of investments and actual lack of coordination of buyers and sellers."