OPEC is optimistic about next year

The Organisation of Petroleum Exporting Countries (OPEC) has kept to its earlier targets of 2.25 million barrels per day in 2023, a dip from its 2022 figure of 2.55 million bpd in 2022, taking into account China’s zero-Covid policy which affected Chinese economic growth, the war in Ukraine and the US Federal Reserve’s raising interest rates to tame inflation.

The OPEC in its monthly report sounded optimistic that the relaxation of Covid curbs in China would improve its economic activity and its oil consumption, that Ukrainian crisis would be resolved and that the US manages a soft landing in its battle with inflation. These are seen to be possible developments which in turn could improve the global economic climate. OPEC’s monthly report said, “Although global economic uncertainties are high and growth risks in key economies remain tilted to the downside, upside factors that may counterbalance current and upcoming challenges have emerged as well.” This strikes a reasonably realistic note, recognizing the challenges and at the same time spotting the signs of improvement in the situation.

There has been a huge pressure on the Gulf Arab countries and OPEC to increase the crude output in the wake of the Russian war in Ukraine, and the West’s economic sanctions against Russia including its export of oil. But the Gulf Arab countries and the OPEC rightly saw that raising crude oil output was unwarranted because the signs were clear that there was an economic slowdown, and the temporary spike in oil prices did not indicate a resurgence in the global economy after the two-year Covid interruption. And OPEC held to its view.

The situation in Europe and the United Kingdom remains gloomy on the economic front and there are as yet no signs of economic recovery, and Germany, the strongest economy in the region, is showing signs of stress. The war in Ukraine has only made things worse for Europe. It was also predicted that the US was slipping into a recession as a result of interest rate hikes and the resistant inflation. But there are clear signs now that the US is weathering the economic stress quite well, and the possibility of recession has receded for the moment.

The other stressful factor for the OPEC economies was the challenge arising out of the climate change crisis, and the accusing finger that is pointed at fossil fuels as the villain, and talking of phasing down and phasing out the consumption of fossil fuels. The issue is complicated. It is the case that the use of fossil fuels is one of the causes of greenhouse gas emissions, but it was not the only one.

 And the demand that the use of fossil fuels should be eliminated remains unrealistic because the global economy would come to a halt if the fossil fuels were to be banned immediately. And even if it were possible to do so, it would not solve the problem of rising temperatures caused by increasing carbon footprint.

There is need for a calibrated and coordinated policy response, and pressing the panic button would not help solve the problem. Fossil fuels would remain the main sources of keeping the global economy running even as pressing renewable sources of energy into service is not a simple affair.

The OPEC has shown a keen awareness of the economic and climate challenges of the times, and it has indeed been exploring the renewable sources of energy option. But until the alternatives become commercially feasible, the world will have to depend on oil. OPEC has an important role in the working of the global economy. The fossil fuel story is not yet over.