Claim: Oil Markets Face a “Doomsday Scenario” Supply Shock

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Essay by Eric Worrall

Think you have already seen high gasoline prices? claims chronic underinvestment, excessive taxation, and growing political turmoil in producer nations, could trigger a “Doomsday Scenario” as demand outstrips supply.

Oil Markets Could Face A Doomsday Scenario This Week

By Cyril Widdershoven – Jun 28, 2022, 7:00 PM CDT

Expect lots of oil price volatility in the coming months as markets finally discover just how much spare capacity OPEC members really have.

Oil production outages in Libya and the continued impact of Russia’s invasion of Ukraine are going to push oil prices higher if new supply isn’t found.

While some analysts are predicting oil demand destruction in the near future, there is little evidence to back up those claims.

This week, a possible doomsday scenario could emerge in oil markets, based not only on OPEC+ export strategies but also due to increased internal turmoil in Libya, Iraq, and Ecuador. Possible other political and economic turmoil is also brewing in other producers, while US shale is still not showing any signs of a substantial production increase in the coming months. 

Global oil markets have long believed that OPEC has enough spare production capacity to stabilize markets, with Saudi Arabia and the UAE just needing to open their taps. There is ,however, no real evidence to suggest that OPEC has increased production capacity in place in the short term. A research note by Commonwealth Bank commodities analyst Tobin Gorey already noted that OPEC’s two leaders are producing at near-term capacity limits. At the same time, UAE Minister of Energy Suhail Al Mazrouei put even more pressure on oil prices as he stated that the UAE is producing near-maximum capacity based on its quota of 3.168 million barrels per day (bpd) under the agreement with OPEC and its allies. That comment could still indicate that there is some spare capacity left in Abu Dhabi, but the remarks were made after French President Emmanuel Macron had stated to US president Biden during the G7 meeting that not only is the UAE producing at maximum production capacity, but also that Saudi Arabia only has another 150,000 bpd of spare capacity available. 

Pressure will build in the coming days, as Al Mazrouei’s remarks seem to rebuke claims of a spare capacity shortage, but as always “where there is smoke, there is a fire”.  A possible spare production capacity shortage, or non-availability at all, combined with an expected force majeure of Libya’s NOC in the Gulf of Sirte, and a suspension of Ecuador’s oil output (520,000 bpd) in the coming days due to anti-government protests, are likely to lead to an oil price spike. 

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If only there was a major oil pipeline project the Biden administration could approve, to provide Americans with a capacity buffer against what could be a nasty additional supply shock, on top of all the oil price pain people have already experienced.

Thankfully the USA’s green energy transition federal government is on the case. If you find the next gasoline price hike utterly unaffordable, if you are struggling to pay the bills, you could follow Democrat advice, and borrow $50,000 to buy an EV. /sarc

via Watts Up With That?

June 30, 2022