By Liam Denning
It seems odd that Saudi Arabia’s energy minister professes concern about volatility; that just goes with the job title, surely? Also, oil-price volatility has actually eased from the heights reached earlier this year — sparked by the brutality of Saudi Arabia’s main OPEC+ partner, Russia.
Downward oil-price volatility, it seems, carries less legitimacy with producers than its upward cousin. Prince Abdulaziz bin Salman’s threatened OPEC+ supply cut may also be aimed at US efforts to revive the Iran nuclear deal. Either way, it served as a reminder that OPEC’s commitment to its mission of “stabilization of oil markets” is, shall we say, volatile.
Even before its “+” incarnation, OPEC consisted of a few capable VIPs with an entourage of stragglers. July’s target “compliance” of 523% — a figure that verges on performance art — speaks to this structural weakness. Of the 18 members tracked by the International Energy Agency, just three are producing close to their peak and with some to spare, accounting for 43% of total capacity.
Another 30%, however, is in countries whose output peaked more than a decade ago, with a collective decline since those peaks of almost 14 million barrels a day. A further 21% is in Russia, whose war drew sanctions that will ultimately cap production and may spur outright decline.
Like Russia’s self-inflicted damage, the overriding issue isn’t geology. For example, Venezuela and Libya both have 300 years-plus of oil reserves at current production, but their political decay has rendered such numbers almost imaginary.
With fears of recession elevated and oil stocks set to rebuild for several quarters, OPEC+ needn’t necessarily add more supply. Yet actually cutting, with oil around $100 a barrel, inventories below average and its second-biggest member roiling the global economy with war, would be a radical step, absent some immediate flood of Iranian barrels.
If the prince just wants high prices or to send up a geopolitical flare, fine. But in lamenting instability, he might consider how much of that owes to the crumbled foundations of the oil market’s self-styled bulwark.
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Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker. Energiesnet.com does not necessarily share these views.
Editor’s Note: This article was originally published by Bloomberg on August 26 , 2022. EnergiesNet.com reproduces this article in the interest of our readers. All comments posted and published on EnergiesNet.com, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet.com or Petroleumworld.
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EnergiesNet.com 08 26 2022
