Short-term gains on the crude oil market as climate change looms

The IEA concedes rising oil demand at odds with its call to end new oil, gas and coal funding

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Rashid Husain SyedThe International Energy Agency (IEA) is torn between two conflicting ends. On one hand, it’s grappling with climate change issues; on the other, it sees rising oil prices.

For now, the two ends seem to be running parallel but not converging.

Oil demand is rising fast, as are prices, reaching multi-year highs on Friday. Brent crude oil futures settled at $72.69 a barrel, rising 17 cents after reaching their highest since May 2019 (all prices in U.S. dollars). For the week, the price was up one per cent.

U.S. West Texas Intermediate (WTI) crude futures settled at $70.91 a barrel, up 62¢, settling at their highest since October 2018. the price was up 1.9 per cent on the week. Fuelling the fire, U.S. investment bank Goldman Sachs said it expects Brent crude to reach $80 per barrel this summer as COVID -19 vaccine rollouts boost global economic activity.

IEA is cautioning that the markets will need extra supply next year. In its monthly report, it said that the Organization of Petroleum Exporting Countries and allies, known as OPEC+, would need to boost output to meet demand, which is set to recover to pre-pandemic levels by the end of 2022. “OPEC+ needs to open the taps to keep the world oil markets adequately supplied,” it emphasized.

“In 2022, there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day above its July 2021-March 2022 target,” IEA said.

At a glance, this seems in sharp contrast to IEA’s position a few weeks back. In a report last month, it underlined that to meet the global emission targets and counter global warming, the world needed to stop developing all new oil, gas, and coal fields today or face a dangerous rise in global temperatures.

The report, prepared for the COP26 climate talks scheduled for November, pointed out that climate pledges by governments – even if fully implemented – will fall well short of what’s required to meet global carbon dioxide emission reduction goals.

Things are in flux. IEA now concedes that rising oil demand and the short-term policies of various nations were at odds with its call to end new oil, gas and coal funding.

OPEC+ has won this round of battle. Prices are rebounding, having touched their third weekly gain last week.

But there seems to be a caveat in this entire argument. It’s not that the supplies to meet the growing crude demand are limited or not available. Supplies are available.

Market management has pushed up prices. The world has enough oil at hand. In normal market conditions, if the output isn’t under tight control and all the available crude supplies are allowed to enter the markets, they could be enough to meet the rising demand.

If OPEC+ somehow refrains from managing output in an unnatural way – by not allowing available crude into the market – prices could be considerably lower than where they are.

This is what IEA seems to be stressing. It fully realizes that unbridled use of fossil fuels would be disastrous to global climate, and this needs to be controlled. But for the time being, it wants existing crude to be made available to the markets.

IEA fully realizes that alternative energy is on the horizon. Electric cars can’t be delayed much longer. It’s not an issue of if, just when.

Markets could stay tight for some time because of OPEC+ measures. But ultimately, the demand for fossil fuels will fall.

OPEC+ knows well. The rush to monetize crude assets beneath the surface isn’t without reason.

Whether OPEC+ or IEA is right will be revealed in time.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.


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