Even OPEC Said Oil Prices Are Too High

OPEC’s head, Mohamed Barkindo, said the cartel was making an effort to ensure supply. “There’s no doubt that we are concerned with ensuring that the security of supply is also guaranteed,” he said during the same event, EGYPS 2022. OPEC and its partners were working to “ensure that we continue to be reliable and dependable to supply oil to global markets.”

Perhaps meant to appease traders, this last statement is more likely to worry them. Even though the main driver behind the latest spike in oil prices is geopolitical rather than fundamental, with all eyes on Ukraine, tensions will sooner or later dissipate, and fundamentals will re-establish themselves. And if the latest from the International Energy Agency’s chief, Fatih Birol, is any indication, oil’s fundamentals continue to be unfavorable for fans of affordable oil.

After urging the world to stop exploring for more oil in the IEA’s Roadmap to Net Zero published in May last year, Birol once again did a 180 and urged OPEC to pump more. The first time he, or rather, the IEA, did that was last October when it said in its Oil Market Report that OPEC’s spare production capacity was dangerously low and it needed to boost investments in new production.

“As the bloc ramps up production, its spare capacity will dwindle. Compared with a cushion of 9 mb/d in 1Q21, effective spare capacity could fall below 4 mb/d by 2Q22 and be concentrated in only a few Middle Eastern countries, although supply is expected to exceed demand. Shrinking global spare capacity underscores the need for increased investments to meet demand further down the road,” the IEA said.