A Memo on the Current Global Oil Dilemma
Zoe Hatsios
OPEC+ held their monthly meeting on February 2, 2022, after much speculation that oil output goals would be adjusted. However, the group is remaining committed to higher output, increasing oil production by 400,000 barrels per day in March. The meeting, anticipated to address these record concerns, only lasted 16 minutes.
During the first week of February 2022, oil prices reached a seven-year high after a six-week chain of increases, directly impacting all Americans dependent on gasoline-fueled transport. These developments follow a tightening in oil production, specifically in OPEC+. Some believe that the recent uptick is a result of geopolitical tensions between Russia and Ukraine, but other sources are sticking to the fundamental understanding that the major oil producers are simply failing to meet their output goals, a trend continued by the adverse impacts of the pandemic. This rings in big for oil companies but scores terribly for consumers and importers. “Energy powers the global economy, and higher energy prices are felt by the consumer instantaneously,” said Muqsit Ashraf on the NPR Morning Edition.
Forbes’ Christopher Helman described the geopolitical premium becoming an increasingly important barrier “tied both to uncertainty over Russian President Vladimir Putin’s plans for a Ukraine adventure as well as slow going in nuclear program negotiations with Iran.” Countries are quite comfortable with keeping their output under the maximum.
However, conversely, some countries like Nigeria truly are struggling to even maintain output. Shell, Chevron, and ExxonMobil are all on the outs with their Nigerian onshore assets.
In either case, the rise in oil prices is not great for the United States. In November, President Biden announced the release of oil from the U.S. Strategic Petroleum Reserve in Texas and Louisiana totaling 50 million barrels. It comes as no surprise that this move had little long-term impact, given the ratio of this slim amount to daily OPEC output. This move pushed back the impacts of OPEC+ stagnation for a couple of months, allowing U.S. gasoline prices to fall 4% by the end of 2021. But, the market bounced right back, demonstrating both how much the demand for oil is exceeding supply, and also how external factors may manipulate supply and profits.
Robert Rapier, Senior Contributor at Forbes, theorizes that OPEC+ will not meet their vouched production increase in the first-quarter, and the U.S. will actually ramp-up production to equalize the economic impacts. Yet, he meets other theorists with the belief that these issues will not persist throughout the year.
Regardless of whether geopolitics or fundamentals are driving this supply shortage, there are some lessons to be learned about alternative energy. This phenomenon is a prime example of how dependent the world, and especially the U.S., have become on oil for energy. If investments in research and development towards adaptable alternative sources could be simultaneously spearheaded alongside Biden’s increased U.S. oil output, the impacts of the OPEC+ supply shortages may be lessened. Aside from the climate change debate, the impacts of this oil dilemma may provide further support for alternative energy: solving the problem by lessening the demand for OPEC oil.
