Note from the CEO - October 2022
Crude oil, COP27 and the geopolitical tensions shaping global markets
Crude is back in the spotlight as all eyes turn to global oil markets. Have we severely underinvested? Will the price surge or shrivel? How long will China’s zero-Covid policy suppress demand? Will recession fears continue to spook traders and what will happen when the EU embargo on imports of Russian crude by sea come into force on 5 December and the ban on products starts on 5 February? Meanwhile, the recent decision by OPEC+ to cut output starting in November caused ripples worldwide and provoked exasperation in the US, which had called for the opposite action. Heavyweight producer Saudi Arabia is, in turn, looking eastward and strengthening ties with India and China, two of the largest buyers of Saudi oil. The US is striving to ramp up production as quickly as possible, yet the release of additional oil volumes from the Strategic Petroleum Reserve appears increasingly likely as gasoline and diesel prices rise ahead of the US midterm elections. Additional withdrawals are unlikely to have a material impact on prices and are widely considered nothing more than a political maneuver. Heating oil and diesel shortages amid meager storage levels are ringing alarm bells, especially in the northeastern states, as winter approaches and demand soars.
Rystad Energy forecasts that crude prices will return to higher levels in December, even though the OPEC+ cuts are not expected to reach the 2 million bpd level outlined by the group. However, demand forecasts are being dampened by fears of a global recession along with China’s focus on national security and its commitment to the zero-Covid policy over economic growth.
These geopolitical machinations will be under the microscope at the COP27 summit in Egypt starting next week. The tone at this year’s edition of the UN conference will likely differ noticeably from previous years, as many nations that are navigating the energy trilemma will feel a need to prioritize staying warm and keeping the wheels turning in the midst of a global energy crisis, rather than focusing on sustainability and affordability. The fate of many of the participating countries' emissions vows remains up in the air as the focus lies firmly on energy security. Some will double down on their climate goals and initiatives to build renewable energy infrastructure, while others will rely on fossil fuels and nuclear plant extensions to meet energy demand in a shaky market.
I am honored to have the opportunity to speak at COP27, addressing perspectives on the longer term energy mix and how technologies like electric vehicles, solar PV and energy storage systems are being deployed far more quickly than previously anticipated – a crucial piece of the puzzle when building the future energy landscape. I hope to see many of you there.
I also hope you can join us for our COP27 special webinar on 9 November, titled Road to decarbonization: Transformation and implementation despite the global energy crisis. This digital event will bring together some of our leading energy transition experts, including Artem Abramov, Dr. Minh Khoi Le, Yvonne Lam, Carlos Torres Diaz and Alexandra Gerken. We also invite you to join us for our post-COP27 events and reflections on 22 November. More information to follow.