Supply shortage, conflicts keep oil prices high

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Oil prices edged above $90/barrel this week, even as the US and Venezuela agreed to a deal that would ease restrictions in exchange for a freer presidential election in the country next year.

But any real crude output increase by the South American producer will take time because of a lack of investment – probably by the end of 2024 or the beginning of 2025 and likely to be limited to 200,000 barrels per day.

The blast at a Gaza hospital renewed escalation concerns in the Middle East. The best hope is that US diplomatic efforts will prevent the Israel-Hamas conflict from becoming a wider regional war.

But there are still concerns over tensions escalating if Iran gets involved.

A long occupation could push Brent oil futures above $100/b because it raises the risk that the Israel-Hamas conflict expands and potentially draws in Iran.

Global oil prices have risen since late June, when Saudi Arabia and Russia announced that their 1.3 mln b/d output cut would extend to the end of December, fueling worries about reduced supply and increasing demand.

The market is really tight right now, hence its sensitivity to positive or negative news.

President Biden’s visit to Israel will likely involve balancing support for Israel with trying to prevent any escalation of its war with Hamas by rallying Arab states to help prevent a regional conflict.

But the blast at the Gaza hospital made things more difficult, and Jordan cancelled Biden’s visit to Amman.

Israel says the expected ground assault has been postponed to an “unknown date” but is expected to occur once Biden leaves.

Meanwhile, Iran pledged “pre-emptive action” from the “resistance front” of its allies, including Hezbollah in Lebanon.

Pressure is growing on the Biden administration to focus on Iran increasing oil production.

Interestingly, US Treasury Secretary Janet Yellen felt the need to say that the US can “certainly” afford to support wars on two fronts, as the conflict between Israel and Hamas threatens stability in the Middle East and the US continues to back Ukraine’s fight against Russia.

The IEA said it sees early signs of “demand destruction”; however, it still forecasts global oil demand growing by 2.3 mln b/d in 2023, followed by 0.9 mln b/d in 2024.

The market remains in deficit but will turn into a surplus in the first half of next year. The demand trend is upwards.

Shell’s shares struck an all-time high, benefiting from high oil prices.

ExxonMobil bought Pioneer for $65 billion, putting faith in shale oil.

Exxon’s biggest deal since merging with Mobil in 1999 creates a new US petro-giant.

The cost of transporting oil has surged on almost every mainstream trade route in the week since Hamas attacked Israel.

Climate change

A recent review said holding the global temperature rise to 1.5°C above pre-industrial levels is “less likely than ever” despite rapid low-emissions energy expansion.

The IEA said that efforts to tackle climate change and ensure reliable supplies of electricity could be put at risk unless quick action is taken to improve and expand the world’s power grids.

In September, Kadri Simson, EU energy commissioner, said the same about EU grids.

Around the world, 80 million km of new power lines need to be built or replaced to meet energy and climate goals – a daunting task requiring huge investments.

Renewables alone are not enough – interconnected grids that can flexibly handle wind and solar are just as crucial.

In Europe, interconnection must double in the next 10-15 years to meet climate and energy goals.


Chinese oil demand is at a record high.

China’s special climate envoy, Xie Zhenhua, told ambassadors in Beijing in late September that “it is unrealistic to phase out fossil fuel energy completely.”

He said oil, gas and coal will continue playing a crucial role in global energy supply and security.

Dr Charles Ellinas is Senior Fellow at the Global Energy Center, Atlantic Council

X: @CharlesEllinas