Saudis, Russia Slam Blind Faith in Free Markets

Copyright © 2021 Energy Intelligence Group

Opec-plus oil giants Saudi Arabia and Russia say the current global energy crunch can be blamed to a large extent on poor planning and excessive faith in free market forces.

Senior officials from both countries argued that the supply management efforts of the Opec-plus alliance have created a more orderly situation in the oil market, compared with recent price spikes in the markets for coal, natural gas and electricity.

They said current prices of more than $80 per barrel do not signal an overheated oil market and that they have no plans to accelerate planned increases in production to lower prices, despite suggestions from Washington that they should do so.

"The free market did not create a stable market," Saudi Energy Minister Prince Abdulaziz bin Salman told the Russian Energy Week forum on Thursday.

"The entire energy ecosystem is hijacked by ill-planned policies," he said. The Saudi minister said a "lack of stocks, lack of investments, lack of coordination" were the "root cause" of today's crisis in the markets for gas, coal and natural gas liquids.

Similarly, Russian Deputy Prime Minister Alexander Novak faulted Europe for "low-quality planning" and relying too much on the "invisible hand" of market forces to balance supply and demand.

Copy-and-Paste Solution?

Prince Abdulaziz went even further, suggesting that the markets for gas and coal would benefit from a supply-management mechanism, similar to the one used by Opec-plus for oil.

"Gas, coal and other sources of energy need a regulator as well," he said. "Copy and paste what Opec-plus has done!" he said.

The Saudi minister said that the recovery in oil prices orchestrated by Opec-plus over the last year and a half had been relatively modest compared with the recent dramatic spikes in prices for gas and coal.

Novak said the oil market is more balanced and more predictable today thanks to producers' cooperation within Opec-plus cooperation.

However, in response to a question from Energy Intelligence, on whether he favored similar regulation of the gas market, Novak said "there is some rationale" for that idea but that it would need to be "considered carefully."

Sticking to the Plan

Prince Abdulaziz reiterated that Opec-plus plans to keep gradually increasing its oil production but has no plans to step up the pace, despite calls from the administration of US President Joe Biden to supply more oil to the market.

The alliance started increasing its production in monthly increments of 400,000 barrels per day in August as it unwinds the huge production cuts it made in May of last year.

"It's not an issue of making somebody's day," the Saudi minister said. The goal is to ensure "sustainability and stability of the markets" rather than letting market forces lead to chaos, he added.

"We keep telling people that we should be looking beyond the tip of our noses," he said. Accelerating the rate of Opec-plus production increases would result in a "huge amount of stocks by the end of 2022," he added.

Novak also expressed support for the current gradual approach to increasing supply, saying the oil market should be fully balanced by the end of 2022. "I don't see any problems in terms of volatility," he said in response to a question about oil prices recently surpassing $80 per barrel.

Glasgow on Their Mind

Mindful of the upcoming UN climate conference in Glasgow, Prince Abdulaziz told the Moscow forum that "affordable, efficient and clean energy is a must."

Opec Secretary-General Mohammed Barkindo also told the forum that "Opec wants to be part of the solution" in Glasgow and help put the world on track to limit global warming in accordance with the Paris climate agreement.

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