OPEC’s approach toward increasing oil production
During a speech at the US-Arab summit in Jeddah, Crown Prince Mohammed bin Salman stated that Saudi Arabia will not have any more ability to boost its oil output beyond 13 million barrels per day. Saudi Arabia now has an oil production capacity of 12 million barrels per day, which it intends to increase by 1 million barrels per day by 2027 through several additional offshore projects.
The Saudi Crown Prince's remarks come as the US puts more pressure on the nation to increase oil output quickly to lower rising inflation and oil prices. The Biden administration has regularly urged Gulf nations to increase oil production to lower gasoline costs. President Biden's appeals have been more frequent as oil prices threaten to rise in the wake of a Russian invasion of Ukraine and its domino effects.
The OPEC, which produces roughly half of the world's oil, has been urged by the United States and other major oil-consuming western countries to increase the output of petroleum in order to assist with inflated prices. Russia wants higher pricing to compensate for lost exports due to Ukraine-related restrictions and sanctions. Although energy costs have decreased recently, a senior Biden administration official stated that the president would keep up the pressure at home and abroad to ensure that the supply of energy keeps up with demand and that gasoline prices remain low.
WHAT ARE OPEC AND OPEC Plus?-
OPEC+ is a group of 23 major oil-exporting nations worldwide that has monthly meetings in Vienna to discuss how much crude oil should be sold on the international market. The 13 OPEC members, primarily from the Middle East and Africa, form the nucleus of this group. In Baghdad, five nations, including the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, signed a document in September 1960 establishing the Organization of the Petroleum Exporting Countries (OPEC). They were to become this Organization's founding members. Countries like Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea, and Congo eventually joined the Organization. Currently, OPEC members produce roughly 28 million barrels of crude oil per day, which is 30% of the total global production. Saudi Arabia produces more than 10 million barrels of oil per day, making it the largest single oil producer in OPEC. When oil prices were at an all-time low in 2016, OPEC collaborated with 10 other oil producers to form OPEC+. OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. Russia, one of those new members, produces more than 10 million barrels daily. Together, these nations produce around 40% of the world's crude oil. Liquid fossil fuels are critical to the transportation industry. These sources supply 94% of the energy the sector needs. Other end users with sizable demands for liquid fuels include heavy industries, residential and commercial construction, and electric power producers. Geographically speaking, emerging economies are anticipated to continue to be the key forces behind future global oil consumption. There are few alternatives to oil in these countries because of their expanding populations and transportation industries, as well as their weaker investment in sustainable energy.
WHY ARE OIL PRICES SO HIGH?-
As COVID-19 spread worldwide in spring 2020 and nations went into lockdown, the price of crude oil collapsed due to a dearth of consumers. Because they lacked the room to keep all of the oil, the oil producers paid individuals to take it off their hands. Following this, the OPEC+ members decided to reduce output by 10 million barrels per day in order to assist the price rise again. When demand for petroleum increased in June 2021, OPEC+ started steadily expanding production, adding an additional 400,000 barrels per day to the global markets. An additional 600,000 were added in July and August. In September, an additional 100,000 was also added. Though, it still provides about two million fewer barrels per day than in the spring of 2020. Due to the fear in the market, especially after Russia invaded Ukraine, oil prices increased significantly to well over $100 per barrel. As a result, the pump's gasoline cost has significantly increased. OPEC+ over-cut supplies by 10 million barrels per day in May 2020, and now they are slowly raising supply without accounting for the consequences of the Russia-Ukraine situation. The possibility of a Russian oil embargo has alarmed the markets since it may generate a severe supply shortage.
The reduced supply of Russian oil and fuel following Russia's invasion of Ukraine and the sluggish oil output recovery following the epidemic are two main causes of today's high gasoline prices. Most people pay less attention to diesel fuel, although price increases for diesel have been much more pronounced than gasoline prices. Since more than 40% of European automobiles use diesel, diesel prices in both regions have increased as the United States supplies more fuel to European clients to make up for the diminishing Russian supply. Given that diesel is used to power both agriculture and the movement of products, it is a significant contributor to inflation.
PROSPECTS OF INCREASING OIL PRODUCTION -
In the upcoming months, the US is anticipated to continue applying pressure on Saudi Arabia and other OPEC countries, although the majority of the group's members have limited potential to increase their output in the short term. Currently, only Saudi Arabia and the United Arab Emirates have excess capacity. However, they have no incentive to raise output because it is thought that this capacity is finite. Both nations are benefiting from the high oil prices now being experienced, especially in light of the upcoming energy shift that will gradually reduce demand. There is also a geopolitical angle to it. It is also believed that Saudi Arabia's hesitation in raising oil output is due to reasons more than just upholding an OPEC agreement. Saudi Arabia believes that the United States is ignoring its regional safety and security concerns. The monarchy has requested the US for further assistance in fighting Yemen's Houthis, whom Iran supports, but the Biden administration has ceased to back aggressive actions in the Saudi-led conflict there. The United Arab Emirates has also resisted increasing oil production as the United States has requested due to security concerns. The Gulf countries have taken offence at a number of Biden administration actions, notably American efforts to revive the Iran nuclear deal. Demand has soared, but supply has not been able to keep up. Although OPEC has been gradually increasing oil output, it still has a limited amount of spare capacity and is likely being cautious not to flood the market once more. Beyond spare capacity, the investment cycles in oil production are relatively lengthy.
CONCLUSION-
Prices for crude oil and petroleum products can be impacted by geopolitical events and severe weather that prevent the supply of crude oil and petroleum products from reaching the market. These occurrences can make supply or demand unpredictable in the future, which might increase price volatility. It is now more critical than ever to create long-term resilience and adaptability in the future energy system. However, the industry's initiatives to improve energy supply and security are also important, as the conflict in Ukraine has amply demonstrated. The oil and gas sector is currently at a turning point and must make critical decisions. To enable nations that now rely on Russian oil and gas to retain their energy security, businesses appear to be leaning toward increasing conventional supply. However, this crisis presents a chance to hasten the switch to a cleaner, more effective energy system.
In response to growing requests to reduce such expenditure, OPEC has repeatedly cautioned that consumers should prepare for energy shortages unless the globe increases investment in new oil-and-gas projects. If the world wants to reduce net carbon emissions to zero by the year 2050, investment in new fossil fuel supply projects must end right once, according to the International Energy Agency, an energy watchdog for wealthier nations. It is wise to keep extra capacity on hand so that the market has breathing room, especially when an energy supercycle starts to take hold in the upcoming years.
REFERENCES-
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