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Experts say IEA’s pumping of 120mn barrels of oil has limited, short-term impact

Monday، 11 April 2022 11:31 PM

Experts and specialists say the International Energy Agency (IEA)’s announcement of a new pumping of oil from emergency reserves of about 120 million barrels to boost energy supplies and calm prices will have a limited and short-term effect.
HE the Second Deputy Prime Minister and former minister of energy and industry Abdullah bin Hamad al-Attiyah said the agency’s decision is the biggest in its history, adding that despite the drop in the level of oil prices by about $5 per barrel immediately after the announcement, prices have soon resumed their rise again at the end of last week, and the price of Brent crude futures contracts recorded a level of $100.97 a barrel during the day.
In an exclusive statement to Qatar News Agency (QNA), HE al-Attiyah added that the rise in oil prices to record levels and reaching their peak at the end of last month to $130 per barrel is due to a group of factors, foremost of which is the imbalance of supply and demand, which greatly affected the movement of oil prices, in addition to the political turmoil witnessed by the major producing countries, specifically in relation to what is happening in the Middle East, which owns the largest share of global production, in addition to the impact of oil prices on the exchange rate of the US dollar — the higher the dollar price, the higher its cost to buyers of other currencies.
He explained that the current fluctuations in the oil market were due to the geopolitical tensions resulting from the Russia-Ukraine war, expecting the markets to suffer from a shortage in supply due to the absence of Russian supplies, which may reach 3 million barrels per day of Russian oil supplies in the month of April, as a result of the series of international sanctions imposed over Moscow. 
Al-Attiyah pointed out that the deficit between “Opec+” goal and its actual production is more than one million barrels per day, which may cause more pressure on oil prices, in terms of the fact that Opec plays a key role in maintaining the stability of oil markets, as it produces a total of 40% of total global production.
He ruled out the response of “Opec+” organisation to the demands of Western countries aimed at pumping more oil, pointing to the refusal of the major producers in the organisation to pump more crude, and saying that it would be difficult for “Opec+” countries’ oil production to replace Russian oil quickly. However, increasing oil production does not directly mean an increase in oil exports to Europe as reorienting oil market conditions is not an easy task.
On the alternatives to Russian oil for the European continent, al-Attiyah pointed out that Russia is ranked second in the world in crude oil production, with 14% of the total global production during the past year 2021, and that nearly 60% of Russia’s oil exports go to the European continent.
He drove home that the alternatives to solving this problem may be to change the policy of the largest producers of crude oil in Opec, and to persuade them to pump more oil supplies. Until then, it seems that oil-producing countries will benefit from higher prices, although most Opec members see the current high oil prices as a short-term benefit.
He felt the high prices motivate importing countries to invest in alternative sources of oil, while the ability of oil-producing countries to increase the supply of crude diminishes due to a lack of investment in the sector.
He stressed that global demand for fossil fuels will decline in the long run, but not as fast as the International Energy Agency expects. 
Amer al-Showbaki, an oil expert and specialist in energy affairs, said that withdrawing from the strategic stockpile does not address the structural imbalance in the oil markets, whether in terms of lack of investment or the loss of Russian oil as a result of the sanctions imposed on Russia, pointing out that the sanctions, if applied, will lead to a loss of the market from 1 to 3 million barrels of oil per day as a result of companies avoiding buying it and the automatic volumes of major international companies in dealing with Russian companies for fear of international sanctions.
He added that despite the compensation of some Indian companies as a result of buying Russian oil, their purchases amounted to the equivalent of half a full year in one month, benefiting from the cuts approved by Russia on oil prices by $30-35 per barrel, including the risk and additional insurance on Russian oil shipments.
He added that there was a necessity that prompted the International Energy Agency and the United States to dispose of emergency stocks and strategic reserves, such as cases of war, force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract) and emergencies, to pump quantities that limit the rise in prices, but these countries’ resort to the reserve came mainly due to the lack of response Opec+ to increase production. Then there is also the consideration that the IEA and the US are convinced that OPEC+ countries will not respond in the medium future, that is, at least during the next six months, and therefore they released part of their strategic stockpile, amounting to 180 million barrels, by one million barrels for a period of six months, and this temporarily contributed to calming prices around $100 per barrel.
Al-Showbaki explained that the impact of the strategic stockpile will be limited in the occurrence of temporary stability in oil prices, noting that the international powers expect that prices during the period of pumping the stock will stabilise and may decrease and after the specified period (that is, during the six months), Iranian oil may return to the markets after the conclusion of the nuclear agreement with Iran. Also, Venezuelan oil may enter the market circle, in addition to the gradual increase in production from Opec+, as it increased quantities from 400 to 433,000 barrels until the end of the retained quantity. However, the gap in Opec+ is increasing because the commitment rate reached 152% with 1.3 million barrels shortage of production, and the withdrawal from the strategic stockpile may cover this difference.
He suggested the return of oil prices to rise again after the expiry of the period of pumping the emergency stockpile (six months), pointing out that there are factors that enhance the rise in oil prices, most notably the recovery of the global economy after the coronavirus pandemic, the recovery of global demand, the Russia-Ukraine war and its repercussions, as well as the Opec+ policy regarding production that predicting that the fundamentals of the market have not changed, which calls for pumping more oil.
He added the state of uncertainty still controls the Iranian file, and the return of Iranian oil is not yet clear, therefore, the scenario of a rise in oil prices is likely to occur.
Al-Showbaki pointed out that there were other benefits to the stockpile, which is the testing of the rapid withdrawal mechanism from the stockpile, which for the first time is being applied, and was preceded by calls from the US Department of Energy to know the extent of the response and conduct the necessary stress tests, in addition to replacing the old heavy crude oil with light shale oil from the current American production in line with the need of modern refineries that require light quality of new oil to develop the industry. (QNA)

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