What’s Going On Here?OPEC – the group of oil producing nations – announced on Monday that it’s expecting demand for oil to slip, but said the supply cuts it announced last month could keep the market burning bright. What Does This Mean?OPEC raised the hackles of energy-deprived nations everywhere last month when it announced plans to cut oil production by a staggering two million barrels a day. But in fairness, you can’t really blame the group for trying to shore up oil's price when black gold’s their lifeblood. Flash forward six weeks, and its strategy now seems pretty well-timed: the group just warned that wilting global economies and China’s industry-crippling zero-Covid commitments look set to seriously drain demand in coming months. Why Should I Care?Zooming out: Oil’s up for the fight.
Oil’s up against more than economic slowdowns and Covid-induced slumps, mind you: the industry’s also facing long-term adjustments as the world attempts to pivot away from fossil fuels and head toward cleaner, renewable energy sources. OPEC seems ready for both though, with plans to monitor supply against short and long-term slips in demand. That might mean oil prices stay afloat longer than you’d think in the months to come, even as global economies sail into troubled waters.
For markets: Old habits die hard.
Big Oil’s record profits and all-time-high stock prices might mean it’s party time for the industry right now, but a painful hangover might be brewing. After all, if the world really can wean itself off fossil fuels, then in theory there’ll be zero demand for oil at some point down the line – a fate that no number of supply cuts could remedy. That’s not going to happen overnight, of course, but a slow, painful decline is more than possible: just ask long-suffering investors in firms like British American Tobacco – not-so-proudly boasting share prices that haven’t budged for eight years – how it feels when your core product falls out of favor. | 