The expansion of oil production capacity by Western and Middle Eastern companies was recently criticized by Rosneft CEO Igor Sechin at the St Petersburg International Economic Forum. Sechin pointed out that the combined production capacity of Saudi Arabia, the United Arab Emirates, Kuwait and Iraq amounts to 5.6 million barrels per day, or 13% of current OPEC+ production.
Phantom barrels” and their impact
According to Sechin, the creation of reserves by oil companies, both in the West and in the Middle East, can be interpreted as an anticipation of significant market changes. These “phantom barrels”, capable of massively influencing the market, neutralize the effects of voluntary production quota cuts by the mainOPEC+ participants. This situation is also reflected in market prices, which fell after the recent decision by ministers from OPEC+ participating countries, including some members such as Russia. It agreed on Sunday to phase out voluntary cuts of 2.2 million barrels a day over a year, starting in October. At the same time, the other reductions, totaling 3.66 million barrels per day, will be maintained until the end of 2025.
The outlook for global oil demand
Despite expectations of “peak oil”, global oil demand continues to grow. According to OPEC forecasts, primary oil demand is set to increase by almost 20%, reaching 116 million barrels per day by 2045. Sechin maintains that this projection offers a realistic vision of the world’s energy future. Sechin also addressed current market uncertainties, such as the outcome of the US presidential elections in November, and expressed skepticism about the green energy transition, which he sees as an illusion unsupported by cost-effective sources.
The impact of restrictions on Russian oil
Sechin mentioned that the budgets of most OPEC+ participants can withstand a possible drop in oil prices, which could be partially or totally offset by an increase in supply. A fall in prices could also lead to the lifting of restrictions on Russian oil imposed by the West’s $60/barrel price cap. Sechin concluded by pointing out that high interest rates, in the 18-19% range, discourage the investment processes in the real economy that are necessary for sustainable development. He also called for a rapid OPEC+ response to new emerging factors to stabilize world markets.
The discussions and decisions taken at the St Petersburg International Economic Forum demonstrate the complex challenges facing the global oil market. Increased production capacity and geopolitical uncertainties will continue to play a crucial role in determining future prices and policies.
