On October 11th, oil passed the $80 mark for the first time since 2014, and it would finish the week gaining 2-3%. It is speculated that if the current trend continues, the price of oil may rise above $100. Currently, stockpiles of crude oil are at their lowest since 2015 and on Thursday, October 15th, the International Energy Agency said that demand for oil was up by approximately 500,000 bpd per day, and therefore would generate a supply shortage of 700,000 bpd by the end of the year.
EU proposes banning Arctic drilling
Though the energy crisis continues to plague Europe, it did not prevent the EU from calling on a ban on oil and gas drilling in the Arctic on Wednesday, October 14th. The call for the ban comes on top of the decision by President Biden to reverse a Trump Administration decision that opened up ANWR for drilling. However, Russia, which also borders the Arctic, and generates 10% of its economic output from natural resources from the area, is not expected to join the moratorium. Moreover, Russias’ deputy prime minister claimed that the proposal for the Arctic ban was political. It remains to be seen how this will play out, especially in light of other tensions between Europe and Russia surrounding the supply shortage of natural gas.
One aspect of the disagreement between Russia and the EU may be the role of oil and gas in supplying the world’s energy. While some experts believe that oil and gas will supply 20-30% of the world’s energy in the future, Russia believes that the number will only drop modestly from 85% currently to 65-70% in the future.
Fundamental shift in oil, temporary for natural gas
As both energy and oil prices are soaring, some analysts are pointing out that a distinction needs to be made between the two sources of energy. The high natural gas prices are an issue in the short term, whereas oil prices may stay above $85 for years to come.
On Wednesday, October 14th, Russian President Vladimir Putin commented that oil prices might reach more than $100. He also said that the OPEC+ were working to stabilize prices in the oil market. Nonetheless, the oil producing countries will not be increasing output beyond the planned 400,000 bpd decided a few months ago. The UAE oil minister mentioned that his country does have spare oil production capacity, yet it was important to maintain market balance. These sentiments were also echoed by Russia, which could boost oil production, though it doesn’t believe the market justifies such a step.
Juggling priorities
At this precarious time, a new left-leaning government will be replacing the conservative coalition which has been ruling Norway for most of the past decade. This new coalition has pledged to slash emissions by 55% by 2030. Nonetheless, it has pledged to continue oil and gas exploration which accounts for 40% of its exports and 14% of its GDP. Outside of Russia, Norway is the second-largest supplier of natural gas for the European Union at above 20%. How the government will juggle these priorities in the light of the energy crisis remains to be seen.
These conflicting priorities are also occupying the Biden Administration. President Biden has pledged to shift as much as possible to renewable energy, and his early executive orders, as well as his budget proposals, are reflecting that. Simultaneously, the energy crisis has forced Biden to turn to OPEC+ nations and request that they ramp up production of the type of energy he has been trying to reduce.
Stay tuned as we offer more updates to this developing story.