MENA region has limited ability to relieve tight global energy markets
Executives are still facing a high cost environment into early 2023, with utilities, food, logistics, and talent costs likely to remain elevated in the coming six-to-nine months. Meanwhile, oil and gas revenues for major exporters across the world will continue to bolster fiscal outlooks and increase public spending in those markets.
Overview
US President visits Saudi Arabia: US President Joe Biden visited Saudi Arabia in an effort to raise the kingdom’s oil production and significantly reduce oil prices. Saudi Arabia announced it will be increasing its medium-term capacity from 12 million to 13 million b/d of oil production, but committed to gradual production increases.
OPEC has limited spare capacity: Aside from Saudi Arabia, the UAE and Iraq are the main markets monitored for spare oil production capacity. While political challenges are delaying any potential increases in Iraq’s export capacity, the UAE is likely nearing its sustainable production levels of close to 4 million b/d.
Libya oil disruptions ease: After having dropped to near zero in Q2 2022, recent developments show Libya’s oil production could begin to come online and potentially provide an additional 1 million b/d of oil to the markets. This is likely to be gradual and remain unreliable.
Iran nuclear deal momentum is slowing: Although an Iran nuclear deal could unleash much needed oil supplies into official markets within the next few months, the momentum for the deal has been losing steam in the last few weeks. As domestic political repercussions of a deal with Iran concern Biden, and Iran increases nuclear enrichment capacity, incentives for the deal have been falling.
Algeria and Qatar are unable to replace Russian supplies to Europe: Political tensions are reducing Algeria’s gas supplies into Europe, mainly Spain, while limitations to production capacity and existing long-term contracts with customers in Asia are preventing a major increase of supplies from Qatar into Europe.
Our View
OPEC—mainly Saudi Arabia—will continue to raise oil production into 2023. However, the existing tightness in global oil markets, ongoing high energy and jet fuel demand, the gradual nature of production hikes, market fears of limited spare capacity among oil producers, lack of an Iran nuclear deal, and reduced Russian oil and gas supplies in official markets are all ensuring oil prices remain high and average around US$ 109 in 2022 and US$ 95 in 2023. Slowing growth in the US and EU economies, as well as ongoing COVID-19 disruptions, are the main factors weighing on prices into next year and resulting in a lower annual average Brent crude oil price outlook.
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