Energy prices are surging due to limited investments in the hydrocarbons and infrastructure sector, as well as low inventories amid a rise in demand globally, Saudi Arabia’s energy minister has said.
Hurricanes and perceptions pertaining to the onset of a cold winter are also contributing to higher prices, Prince Abdulaziz bin Salman told the CeraWeek India Energy Forum late Wednesday.
“All of these congregated and led to higher prices”, he said, and added that “all of a sudden, we have the perception that we will have a severe cold, may happen or may not happen".
“Prelude it with hurricanes … which disrupted a certain amount of resources such as refining and production of crude and gas.”
Brent, the global benchmark for more than half of the world’s crude, was trading at $85.61 per barrel level, with West Texas Intermediate above $83.87 per barrel at 8.27am UAE time on Thursday. Both benchmarks have rallied more than 60 per cent this year.
Analysts including top US economist Nouriel Roubini expect oil prices to touch $100 per barrel by the end of this year due to a lack of investments in the energy sector as the world focuses on transitioning to clean energy in a bid to cut emissions.
Prince Abdulaziz said the world seemed unprepared to meet the surge in demand as countries began relaxing restrictions.
“As the spread of vaccination and as mobility start to emerge precipitously, people all of a sudden woke up to the reality that they're running out of everything, they ran out of investments, they ran out of stocks … I would say even creativity in trying to be attending to real solutions that address real issues,” he said.
The minister added that demand for oil could jump by 500,000 to 600,000 barrels per day if there is a severe winter and users switch from gas to oil.
Global shortages of natural gas are leading to an increased demand for crude and are placing more pressure on strained oil supplies, the Paris-based International Energy Agency said in a report this month. This, in turn, is helping to feed rising inflation and slow the world's recovery from the Covid-19 pandemic.
The agency expects demand to rise by 500,000 barrels per day due to the current crisis in the energy markets.
Saudi Arabia will also be looking to strengthen its relationship with India, one of the top consumers of oil in the world, Prince Abdulaziz said.
“It’s not going to be one-way street … there is a common interest, that India is still interested in investing in Saudi Arabia and we are, too. I cannot see two countries which are complementary to each other, than India and Saudi Arabia.”
He did not, however, provide details on how the kingdom plans to achieve this.
Saudi Arabia also aims to be the producer of all kinds of energy including “the hydrogen, the green, the blue, the solar, the renewable, the clean oil, the shale gas,” he said.
Opec Secretary General Mohammad Barkindo, who also spoke at the forum, said oil will continue to have a significant share in fuelling the global economy, accounting for 24 per cent of overall energy usage.
He urged the international community to continue to invest in crude oil to mitigate shortages and enable economic growth.
“We saw massive contraction in the industry, in terms of investment by about 27 per cent consecutively for two years. That was also unprecedented. We have not fully recovered from this contraction,” Mr Barkindo said.