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IEF Chief: Oil Market May Need More Supply

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Oil markets may require additional supply soon, especially as demand in China and other Asian countries return to pre-pandemic levels, says Joseph McMonigle, the secretary general of the International Energy Forum (IEF).

However, given the limited spare capacity available, this might be a tough task for Opec-plus alone, McMonigle told Energy Intelligence in an interview.

McMonigle said the markets have been much tighter as demand has come "roaring back" but he added that supply has not kept pace.

Furthermore, a recovery in China from Covid lockdowns earlier this year may give demand an additional boost and cause prices to spike higher again. "I think there will be a need for more supply at some stage," McMonigle said.

However, given that spare capacity within the Opec-plus alliance is limited, Gulf states are being cautious about using what remains available.

"This is a tough needle for Opec and the Saudis to thread here. They want to be responsive to the market, but at the same time they don’t want to do something on spare capacity that's going to end up being bullish for prices. So you truly do want to have some spare capacity," he said.

McMonigle added that a lack of upstream investment in the US is contributing to the current energy crisis, and that the responsibility of building new capacity cannot be borne by Opec states alone.

"So the discussion really needs to be broader and not just focused on Opec and the GCC, it needs to be about non-Opec," he said.

McMonigle noted that while demand in the US has regained pre-pandemic levels, US supply is still lagging behind because of a lack of investment.

The IEF is an intergovernmental organization with 71 member countries that seeks to promote dialogue on energy matters. Its secretariat is located in Riyadh.

US Hopeful on Supply

Sources familiar with the matter said Saudi leaders did not promise to supply more oil to the market in talks with US President Joe Biden in Jeddah on Friday.

But Energy Intelligence understands that additional supply would not be completely out of the question for the kingdom at some point, if there were a clear market justification for it and if it occurred within the context of Opec-plus.

"Based on what we heard on the trip, I'm pretty confident that we'll see a few more steps in the coming weeks," Amos Hochstein, the senior US State Department adviser for energy security told CBS television on Sunday.

Biden attended a summit of Arab leaders in Jeddah on Saturday where he met with the leaders of other Gulf Cooperation Council (GCC) oil producing countries, including the United Arab Emirates (UAE) and Kuwait.

"It's not just about Saudi...We met with the GCC, and with Saudi Arabia. I'm not going to go into how much spare capacity there is in Saudi Arabia and in UAE and Kuwait etc. But there is additional spare capacity. There is room for increased production," Hochstein said.

Saudi Foreign Minister Faisal bin Farhan al-Saud told reporters that oil production was not discussed at the summit.

Opec-plus is scheduled to hold its regular monthly ministerial meeting on Aug. 3 where the alliance is expected to set a new policy for September, after the big production cuts it implemented in 2020 expire at the end of August.

Topics:
Oil Supply, Oil Demand, Opec/Opec-Plus
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