Global policy makers should be inclusive and use all available sources of energy, particularly at a time when spare capacity is declining across all energy sectors, Opec heavyweights Saudi Arabia and the UAE said today.
"The world needs to wake up to an existing reality," Saudi energy minister Prince Abdulaziz bin Salman told an energy conference in Abu Dhabi today. "The world is running out of energy capacity at all levels — be it upstream, midstream or downstream. We are running out of capacity in manufacturing… [and] in supply chains," he said.
This capacity crunch, which the prince has attributed to years of underinvestment in the industry, is contributing to energy prices, particularly for oil products, rising to multi-year, and in some cases, all-time highs.
Front month Ice Brent futures breached $130/bl in March, but is now at around $105/bl. Meanwhile, tighter supply and rising demand have pushed Northwest European gasoline's premiums to a record high against crude. And the 3-2-1 West Texas Intermediate (WTI) crack spread in the US Gulf coast, a measurement of profitability margins, last week peaked at record highs as gasoline and diesel prices neared multi-year highs. The US Atlantic coast RBOB cash prices also hit record highs.
"Look at the differentials for diesel, for gasoline," Prince Abdulaziz said. "Look at the margins now — $40bl, $50/bl, $60/bl. I am a dinosaur, but I have never seen such things, ever."
The prince's comments came just one day after he told an aviation conference in Riyadh that this sharp rise in oil product prices was largely down to a dearth of refining capacity.
"This is an industry which is all about signals," he said in Riyadh. "If the signals are not conducive, people will not invest. And if they don't invest, there are consequences: a lack of available supply, which becomes inflationary."
In moments like this, when capacity is tight, rather than pick and choose, policy makers need to make use of all available energy sources, UAE energy minister Suhail al-Mazrouei said.
"We should not abandon or forget resources, particularly now," al-Mazrouei said. "We are in a crisis of supply because of investments. This is the worst time to forget some of the resources and focus on others. This will only serve to increase [energy] prices."
Staying the course
Despite oil prices holding above $100/bl for much of the past three months, and supply side concerns emanating from Russia's invasion of Ukraine, Opec and its non-Opec partners have repeatedly opted to stick with their pre-agreed roadmap and add no more than 432,000 b/d of crude oil to the market each month.
The Opec+ group sanctioned another 432,000 b/d increase in its collective production ceiling for June when its ministers met virtually last week.
Al-Mazrouei said the decision came as the group sees the market as balanced, particularly in the wake of demand weakness in China arising from its strict Covid lockdown measures. He also pointed to the uncertainty over the production and export from some countries in the Opec+ group, like Iran and Russia, which are currently under sanctions and choosing not to disclose supply data.
"So, we are balancing all these factors. And trust us, when it comes to these balances, we don't see a huge shortage."
