We’ll need oil for decades to come — and OPEC needs the high price
The non-story of the week is — or rather, should have been — the OPEC+ meeting of the world’s top oil exporters, who meet virtually on Feb. 1 and are expected to make no change in their production. The calming perception expected of this meeting probably changed on Monday, when the Kremlin announced that President Vladimir Putin held a telephone conversation with Saudi Crown Prince Mohammed bin Salman, aka MbS, “to discuss cooperation within the group … in order to maintain oil price stability.”
Wednesday’s meeting was going to be an affirmation that oil prices are where the cartel, made up of Saudi-led OPEC and Russia-led non-OPEC, roughly wants them to be. The price of the widely traded Brent crude was in the mid-$80 per barrel range on Monday, essentially propped up by last year’s production cut of a headline 2 million barrels per day. The Saudi position, then and now, is that the kingdom makes production decisions for economic reasons. Skeptics attach greater weight to the argument that MbS needs high prices to fund his ambitious infrastructure spending, including futuristic cities such as the $500 billion NEOM.
Whatever Putin’s motives are, they are unlikely to be as charitable as “maintaining oil price stability.” Winning the war in Ukraine and perhaps taking over the whole country, as well as punishing the West for opposing him while sending increased and better weapons to Ukraine, are surely near the top of Putin’s agenda. The main story on the front of Monday’s Wall Street Journal presciently warned: “Western backers of Ukraine fear time is on Russia’s side.”
Once again, Saudi leader MbS may have muddied his reputation with the U.S. and Europe. Saudi reporting tried to dampen the Kremlin’s spin, saying it was Putin who called and the two leaders “reviewed bilateral relations…” and “a number of issues of common concern were discussed.”
As yet, the American media aren’t making a story of the return of high gasoline prices but, at $85 per barrel, the pump prices in the U.S. have crept up again. This writer, who is perhaps foolish to need to buy his premium grade in the District of Columbia, last week paid well over $5 per gallon.
In the future, we will still probably need hydrocarbon fuels for many decades. In its latest annual “Energy Outlook,” BP anticipates that net-zero in carbon emissions by 2050 is likely an elusive target. Perhaps the only good news about the Russian invasion of Ukraine is that countries seeking energy security are being pressured to invest in the coming decade in renewables, an angle recognized in the Financial Times story: “BP pares back its long-term forecast for fossil fuels.”
Under its most ambitious scenario, BP forecasts that current levels of oil production, now around 100 million barrels a day, will fall to 20 million barrels per day by 2050. But even under this projection, the FT notes, investment in oil and natural gas production will be required for the next 30 years.
Whether Putin will be around to see that is questionable. But MbS may well be. BP studiously and correctly avoids price scenarios, but the Saudis need the revenues for many years yet. First, though, let’s get through 2023.
Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.
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