The most fundamental law of economics is that of supply and demand. When supply is high, prices are low. And when demand is high, prices are high.
The modern global economy, so interconnected and dependent on every component, has never really had to deal with the economic laws that have been rewritten in the wake of the coronavirus pandemic – the brutal hibernation of industrial activity and important business anytime and anywhere.
In the UK alone, the economy has suffered its worst fall in gross domestic product in some 310 years – yes, more than three centuries.
Around the world, activity levels were sharp and sudden, down 15, 20% – levels that the economy could only have run like doomsday computer scenarios on college missions they would do everything to avoid.
But that’s what we went through together. And that’s what the global economy is recovering from.
Supply and demand
When the commodity of oil is added to this backdrop – and with the global economy now in restart mode and keen to make up for those quarters lost to Covid, the underlying importance of this first economic rule – supply and demand – is becoming more and more relevant now. Raw materials must be mined or manufactured, factories must process raw materials into goods, and goods must come to market. And oil makes that possible.
This is why since December, the price of a barrel of Brent Crude has increased by more than 11% since December and is now above $86. Brent Crude or West Texas Intermediate in the United States are considered the standards for the price per barrel of oil.
The key issue now is to ensure that the balance between the price of oil and what the recovering global market can bear is maintained. And this is the main task of Saudi Energy Minister Prince Abdulaziz bin Salman.
Speaking earlier this week at the Abu Dhabi Sustainability Week conference, he stressed that oil stability is paramount, adding that Saudi Arabia‘s alliance with the super producer group has taken steps to ensure security. energy.
“We think OPEC has done a lot to bring stability,” Prince Abdulaziz commented. “There is nothing deeper, more important to energy security than having a stable market.”
Between May 2020 and July last year, OPEC – which is led by Saudi Arabia and includes Oman – and Russia cut oil supplies to the world market by 9.7 million barrels per day (bpd). As demand picked up and the economy recovered, these cuts were reduced, with the group putting 2 million bpd back into the market by the end of 2021.
What happens in the future largely depends on the leadership of Prince Abdulaziz.
Saudi Vision 2030
He was appointed Saudi Minister of Energy in September 2019 and, as such, is responsible for coordinating the kingdom’s national and international energy policies in line with the objectives of Vision 2030.
This includes supervising energy activities within the kingdom; regulate the oil, gas, electricity, nuclear and renewable energy sectors in the interests of the kingdom in the short and long term, and guide Saudi international policy in relation to producers through OPEC and OPEC+.
Prior to his appointment as Minister of Energy, Prince Abdulaziz held numerous positions in the Ministry over the past three decades, including as Minister of State for Energy Affairs, Deputy Minister of Petroleum and Mineral Resources, Deputy Minister of Petroleum and Mineral Resources, Deputy Minister of Petroleum Affairs and Advisor to the Minister of Petroleum and Mineral Resources.
He holds a Master of Business Administration (1985) and a Bachelor of Industrial Management (1982), both from King Fahd University of Petroleum and Minerals. After graduating, he was from 1985 to 1987 director of the economic and industrial research division of the King Fahd University Petroleum Research Institute.
Earlier this month, Prince AbdulAziz and the oil-producing group agreed to add another 400,000 bpd to supplies – a delicate balance between ensuring that a global market still facing the uncertain effects of the Omicron variant of Covid is not scared away by worries of hyperinflation and commodity prices.
OPEC, the prince said, “is taking a lot of seriousness and care about what it takes to energize an economy and how far behind others are in that regard.”
In historical context, oil is at its highest price since 2014, driven by the recovery of the global economy from pandemic-induced hibernation. In China alone, its economy grew 8.1% last year, putting upward pressure on crude prices.
As he noted, Oped+ is more open with the plans and has “a more deliberate cautious approach in the name of compensation and in the name of the monthly meeting where we tweak – and those changes are announced at advance – and through this, we have delivered a stable and less volatile oil market“.
Volatility is the last thing Prince Abdulaziz and the group need right now – so is the global economy. Emirates NBD analysts said in a research note last week that Brent could hit $100 if the uptrend continues, or current levels of $86 could fall to around $75. Goldman Sachs also sees oil rising as high as $100 in the third quarter of this year, and it previously thought oil would stay around $85 in 2022.
Prince Abdulaziz, OPEC and its allies do not want crude prices to rise to $100 a barrel, as Oman’s oil minister said earlier this month.
“We are very cautious at OPEC+, we will review each month as we go,” Omani Oil Minister Mohammed Al Rumhi said in reports from Riyadh. “But so far I think 400,000 is good because demand is growing and we want to make sure the market doesn’t overheat. We don’t want to see $100 a barrel,” he said. declared.
“The world is not ready for this.”
With contributions from agencies