Healthy global oil markets rely on stability, which has been hard to find recently. Intricately linked to all parts of the world economy, they are unsettled today for reasons as diverse as Covid-19 and the supply chain crisis, to name only a few. Perhaps most important of all, the war in Ukraine has sent shock waves that will be felt for quite some time. Brent rose to a staggering level of almost $140 per barrel following its start.
The commodity will be hard to tame in the short to medium term, although unexpected crashes have been known to happen when prices are this high. Even that will have its downsides, however. Countries with economies reliant on oil would quickly have to re-calibrate government spending, and sudden price fluctuations could hurt the global economy.
Therefore, lurches in either direction would be shocks to the global economy at a time when it is already at breaking point. But there are still actions that can make a noticeable difference for the better and bring about some calm. The online meeting of Opec members on Wednesday is a good example.
At the session, the super group of oil producers agreed to increase September's output by 100,000 barrels a day. Any increase is a step in the right direction, but some in the international community will have hoped for much more. In a statement, the organisation laid out why such requests were not possible, a key reason being "the severely limited availability of excess capacity, which necessitates utilising it with great caution in response to severe supply disruptions".
There are other reasons, too. Pumping more oil is not a straightforward process, and quickly bringing about a surge in production does not happen at the simple flick of a switch.
Also on Wednesday, an Opec communique described its concern about the impact of long-term under-funding in the industry. It said that: "Insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023."
Members also have a responsibility to protect their economic well-being amid so much uncertainty. With the world on the brink of a recession, too much oil on the market could devalue prices further if and when a downturn was to happen; demand for energy typically dries up during a recession.
This caution is not just to protect the interests of producers. Oil is not isolated in the economy, and mismanaging it could have an effect on other sectors. With all parts of the energy industry vulnerable, high inflation across the board – the UK has raised interest rates by the biggest level since 1995, for example – and yet more geopolitical instability on the horizon, the latest concern being Taiwan, responsible management of oil is key. Opec understands this.
Another important part of the meeting was introducing the organisation's new head, Kuwaiti oil executive Haitham Al Ghais, who took over on Monday. He will be in post for three years. He takes over from Mohammad Barkindo, who died last month, leaving the Opec community bereft, after two consecutive terms of dedicated service.
Mr Al Ghais now becomes an important mediator on the global stage. In a statement on the day he took up the job, he reminded the world that: “Opec has been at the forefront of promoting dialogue, co-operation and partnerships to achieve its mission … I look forward to working with all our member countries and our many partners around the world to ensure a sustainable and inclusive energy future which leaves no one behind.”
It sums up the nuanced path the organisation must tread on the road ahead. Founded with co-operation and responsibility as its guiding principles, Opec is more than capable of doing so.
