World ‘will be in chaos’ without Opec+ balancing oil market, UAE minister says

Opec+ did not make any changes to its production policy after a panel meeting on Wednesday

Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure. EPA

The Opec+ alliance is doing a “noble job” of balancing the oil market even though the group does not produce most of the world’s crude, the UAE’s Minister of Energy and Infrastructure said on Wednesday, ahead of a meeting of the oil producers' group.

“I would like you to imagine the world without this group, we will be in chaos,” Suhail Al Mazrouei told attendees at an energy event in Fujairah on Wednesday.

“We are a group of 20 diverse partners but our aim and goal is one … the critical element is [that] this group is staying together,” he said.

Opec+, which includes Saudi Arabia and Russia, is responsible for roughly 40 per cent of the world's crude production, according to data from the International Energy Agency.

Opec+ members held a panel meeting on Wednesday where the group did not make any changes to its production policy.

Last month, the producer alliance extended voluntary oil output cuts of 2.2 million barrels per day until the end of November amid a drop in crude prices on concerns of slumping demand. Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman will pause scheduled increases of 180,000 bpd in October and November.

Oil prices have fallen this year on a weakening global demand outlook and rising supply from non-Opec+ countries. Concerns about fuel demand are primarily focused on China, the world’s second-largest economy and leading crude importer.

“It's very difficult to predict where China would be in 10 to 20 years. There are other countries that we're not thinking of that are catching up as well. India is one and [there are] many others,” Mr Al Mazrouei said.

China recently announced stimulus measures to combat a slowdown in its economy, which is facing deflation, weak consumer spending, a slumping property market and a manufacturing downturn.

However, oil executives and experts have suggested that lower crude demand from China might be here to stay amid growing electrification and electric vehicle adoption in the country.

Petroleum demand has “plateaued” not just because of temporary economic factors but also due to more permanent, structural changes in China's car market, Frederic Lasserre, global head of research and analysis at commodities trading firm Gunvor, said.

Almost 50 per cent of new car sales in China are EVs, which is directly impacting petroleum consumption. However, this shift is mainly happening in wealthier, urban areas where EVs are more affordable, accessible and supported by charging infrastructure, Mr Lasserre told The National on the sidelines of the event in Fujairah. “China's economy is turning less and less oil-intensive, for sure.”

Meanwhile, oil producers are increasingly viewing India as the new engine for global demand growth. India, which overtook China to become the world’s most populous country last year, will be the largest source of global oil demand growth until 2030, the IEA said in a report earlier this year.

India's oil demand is rising by 5 to 6 per cent annually, which is “fairly strong,” but since its market is four times smaller, it can't offset the decline in growth seen in China, Mr Lasserre said.

“We don't think that over the next 20 years, India can have the same kind of path that China had in terms of oil demand, precisely because technology [and] electrification will also penetrate India, maybe at a slower pace,” he added.

Iran escalation

Oil prices briefly surged by more than 4 per cent on Tuesday after Iran launched a barrage of more than 100 missiles against Israel in what the Islamic Revolutionary Guard Corps said was a response to the killings of Hezbollah chief Hassan Nasrallah and other militant leaders.

Israel has vowed to retaliate against Iran. Some media reports have said Israel may target Iran's oil infrastructure, posing a real threat of crude supply disruptions for the first time in the war.

However, the prevailing belief in the market is that Israel will not target Iranian oil facilities unless a significant event occurs in Israel itself, Mr Lasserre said. “Looks like so far, Iran is trying to prevent any escalation by telegraphing a bit to the US, at least when and how they would retaliate against Israel,” he added.

Iran was the second-largest source of crude supply growth last year after the US, with production reaching about 3.4 million bpd and exports at about 1.5 million bpd.