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Worst Of Global Energy Crisis Could Be Approaching, IEA Head Warns
The bullish narrative for oil markets builds as the head of the International Energy Agency (IEA) and a new Organization of the Petroleum Exporting Countries (OPEC) report, all separately, warned Tuesday about a further global squeeze on energy supplies.
IEA Executive Director Fatih Birol told the audience at a global energy forum in Sydney that “the world has never witnessed such a major energy crisis in terms of its depth and its complexity.”
Birol continued and offered this apocalyptic warning:
“We might not have seen the worst of it yet … this is affecting the entire world.”
He explained that the global energy system is fracturing, and many factors contribute to this, including geopolitics, such as the Russian invasion of Ukraine.
“And as a result, we see that the entire energy system is going through a crisis.
“Oil, natural gas, coal, and electricity prices, they’re all going up of the roof. Why? Very simple. Russia, the country that invaded Ukraine, is the largest exporter of oil and natural gas.”
Birol also said winter in Europe would be “very, very difficult,” adding this may have severe implications for the global economy.
Besides Birol’s warning, OPEC’s first oil-market outlook for 2023 suggests no relief, and crude output would need to increase even though many of its 15 members are already pumping at or near full capacity. OPEC expects global oil demand growth to exceed supplies by 1 million b/d next year.
The outlook for 2023 indicates supply strains will persist, and increasing production is desperately needed (something the group could have trouble with because of years of underinvestment and political instability).
Shell Plc CEO Ben van Beurden warned last month that the world faces an “ever-tighter market” and a “turbulent period” because OPEC has less spare capacity than initially estimated. President Biden’s National Security Advisor Jake Sullivan argues otherwise.
Biden will visit the oil-rich kingdom of Saudi Arabia later this week, urging OPEC producers to open up the taps.
According to RBC Capital Markets, Biden will attempt to persuade Riyadh and United Arab Emirates to increase crude output, which could be announced as soon as the next OPEC meeting on Aug. 3.
Even if Biden urges OPEC to increase crude output, major refinery bottlenecks are structural and mean ramping up production of refined products will be challenging.
We discussed previously one of the worst-case scenarios laid out by JPM’s commodities team (whose complete note is available to pro subscribers) that Russia could make oversized cuts to crude exports that could send global Brent price to jump to $190/bbl – $380/bbl.
Despite the warnings and outlooks of tight global energy markets, Brent prices slipped under $100/bbl Tuesday morning on fears of COVID-19 resurgence in China, added concerns about a worldwide recession.