The outlook for the energy markets has never been more uncertain with oil and gas prices facing extreme volatility.
However, despite uncertainty, the oil and gas industry has been buzzing with activity over the last two weeks. While IOCs reported record second-quarter earnings, NOCs stepped up investments in new projects. ADNOC Drilling secured contracts worth $3.4 billion to boost offshore capacity and Saudi Aramco signed a deal with China’s Sinopec to boost collaboration in new projects.
Here is a roundup of top five trends that are impacting the global energy market:
1. Geopolitical tensions: Energy markets continue facing extreme volatility driven by geopolitical tensions and a spike in energy demand. According to McKinsey’s Global Energy Perspective, “the conflict in Ukraine, as well as other factors, have triggered significant peaks in energy prices as uncertainties around supply security and affordability are paramount. This comes at a time where markets are already tight following the COVID-19 rebound.”
2. Reduced demand: Higher commodity prices and fears of economic downturn have started to take their toll on oil demand. The IEA has trimmed its global oil demand growth to 1.7 MMbbl/d in 2022, reaching 99.2 MMbbl/d in its July report.
Bloomberg reported today that oil prices are headed for “a punishing weekly loss” on the heels of growing evidence that a global economic slowdown is spurring demand destruction. Prices have collapsed to the lowest level in six months.
3. More supply: While the energy markets are experiencing slower demand growth, there has been a growth in supply. EIA noted that the world oil supply jumped to 99.5 MMbbl/d in June as resilient Russian production and higher output from the US and Canada more than offset steep maintenance-related losses from Kazakhstan. Global oil supply is set to average 100.1 MMbbl/d, according to EIA.
4. OPEC’s decision: OPEC approved on Wednesday a small increase in output, shortly after President Biden visited Saudi Crown Prince Mohammed bin Salman seeking help to stabilize oil markets. Some analysts called the tiny increase of 100,000 barrels per day “meaningless” and a snub to Mr. Biden.
Although the group has warned of limited spare capacity, according to three anonymous Reuters sources, Saudi Arabia and the UAE will deliver a “significant increase” in crude oil production if the market faces a severe supply crisis.
5. Decarbonisation: Any conversation about energy markets is incomplete without discussing climate change.
Whereas a strong uptake is projected in decarbonisation energy technologies, revenue streams and support schemes to incentivize these low-carbon investments remain uncertain, according to Mckinsey.
This week, ADIPEC announced the introduction of the Decarbonisation Zone, a new addition that reflects the growing need for decarbonisation strategies in the energy industry.
The zone will be a forum for leaders in the energy ecosystem to discuss low-carbon technologies, and the essential role the oil and gas sector plays in accelerating the transition from fossil fuels to cleaner forms of energy, an ADIPEC release said.
