Rapid moves with long-term ramifications are being made on the global energy chessboard.
Early last week, the Organization of Petroleum Exporting Countries and its allies in OPEC+ opted to stick to their original plan and gradually open the crude oil taps.
After their Oct. 4 ministerial meeting, OPEC+ said it had “reconfirmed the production adjustment plan.” This referred to its earlier decision to add 400,000 barrels per day (bpd) to the market for November.
The decision was taken despite calls on OPEC+ to increase supplies and cool the markets.
U.S. President Joe Biden’s administration previously called on OPEC and its allies to boost oil output to tackle soaring gasoline prices. The impact of surging prices was being felt all over, from China to Europe and India to Pakistan.
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The possibility of crude oil consumption soon returning to pre-pandemic levels meant further gains on the crude markets.
The OPEC+ decision to stick to the original plan added fuel to the fire. Gas prices kept surging. On Friday, U.S. crude futures topped US$80 a barrel for the first time since November 2014, rising by as much as 2.3 per cent that day. This was a seventh straight weekly gain, the longest stretch of advances since December.
The US$100-a-barrel hurdle is now definitely in sight. There’s even talk about oil touching the US$200-a-barrel mark.
“We believe the evolution of (current) coal prices might reflect supply, demand, cost of capital and energy transitioning issues for all fossil fuels, and it would certainly be possible that oil prices will follow the same pattern (inflation-adjusted for oil, that would be in a US$150-to-US$200-a-bbl range),” wrote a team of JPMorgan Chase & Co. strategists.
The possibility of crude touching or exceeding US$100 a barrel has put the U.S. Department of Energy in an awkward position. It needed to take action, some observers said. Energy Secretary Jennifer Granholm even floated the prospect of using the U.S. Strategic Petroleum Reserve (SPR). However, the administration backed off on Thursday.
Instead, the Department of Energy “will work with our agency partners to determine if and when actions are needed, but there are no plans (to release from the SPR) at this time,” a spokesperson said. Oil rebounded after the department declared it had no plans, for now, to tap into the reserves.
The OPEC+ decision to open the taps in a controlled manner and let the markets surge comes almost a month before the United Nations Climate Change Conference (COP26) in Glasgow. For the first time since the Paris climate conference in 2015, all signatories to that agreement are expected to commit to enhanced ambitions.
The world will be watching and demanding that national leaders rise to the moment, given the mounting climate crisis and far-reaching consequences for a livable future. Climate activists and scientists involved in the green campaign strongly believe we have reached a “code red” for our world.
The top priorities at COP26 include fresh commitments by the global leaders to prevent global temperatures from rising more than 1.5C. That will require rapid and bold emissions cuts, net-zero commitments and increased finance to adapt to a new green world energy order.
It will also require meeting the existing commitment to provide $100 billion in international climate finance each year so developing countries can invest in green technologies and protect lives and livelihoods against worsening climate impacts.
With COP26 just around the corner, has OPEC+ made the right decision by opting not to open its crude oil taps more rapidly?
With the U.S. under Biden back in the climate agreement, won’t the OPEC+ decision propel world leaders to strive to move more rapidly away from fossil fuels?
Rising crude prices give world leaders another justification to move rapidly in that direction.
So OPEC+ members should have thought a little harder about their options.
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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