The Organisation of the Petroleum Exporting Countries (OPEC) says the ongoing war by Russia in Ukraine is causing huge volatility for the global energy market.
Mr Mohammad Barkindo, OPEC Secretary-General, made the assertion while speaking at the virtual 62nd Meeting of the Joint Technical Committee (JTC) on Wednesday.
Barkindo noted that there were implications and possible far-reaching consequences of the ongoing conflict in Ukraine.
He said: “As highlighted at our last meeting, the conflict has compounded the uncertainties related to the pandemic.
“It has heralded in further economic volatility, elevated risk premiums for oil, as well as many other essential commodities, given that both the Russian Federation and Ukraine are key global exporters, including of essential agricultural goods.
“From the oil market perspective, however, what is clear is that Russia’s oil and other liquids exports of more than seven million barrels per day cannot be made up from elsewhere. The spare capacity just does not exist.”
According to him, its potential loss, through either sanctions or voluntary actions, is clearly rippling through energy markets.
“The crises we face are causing huge volatility, with daily price swings of more than $5 per barrel occurring on 13 occasions across March and April,” Barkindo said.
He also recalled that April 2020 was the darkest and most sudden downturn in the history of the oil industry due to the COVID-19 pandemic.
Barkindo said April 2020 saw global oil demand drop by more than 20mbpd with industries and businesses shuttered-in and populations locked down.
“None of us will ever forget April 20, 2020. On that day, the price of NYMEX WTI in the futures market plunged by 56 dollars/b to minus-37.6 dollars/b, the first ever drop into negative territory.
“The markets were reacting to the situation with an unheralded bearish ferocity.
“It was a visceral moment for us all. I do not think any of us here ever envisaged a moment where sellers were literally paying buyers!
“However, the uncontrolled chaos over the month was also met by a landmark decision from OPEC and non-OPEC countries in the Declaration of Cooperation (DoC) on April 12,” Barkindo said.
He said the move was key to rescuing the industry from the precipice on which it stood, and in turn, assist with the resuscitation of the global economy.
Barkindo said what recent events and developments imply was the continuing shift among policymakers to better understanding what was required in the energy transition.
He said: “It is not about moving from one energy to another; it is about utilising all available energies and understanding the energy security dimension of our future to enable the necessary investments.
“This was clearly highlighted last month by U.S. investment bank, JP Morgan in its first annual energy outlook.
“It said the world needs to find 1.3 trillion dollars of incremental investment by 2030 to boost all types of energy output and infrastructure from renewables to oil and gas to avoid an energy crunch.
“What we are seeing is a wake-up call to all stakeholders. We need to ensure there is a clear pathway for all energy investments.
“Sustained investment in oil is required if we are to expand production and ensure adequate spare capacity, a vital cog in the oil market landscape.”