BAKU, Azerbaijan, February 23. The Europe and Central Asia (ECA) region is poised to face oil trade and price volatility, Trend reports.
According to the World Bank, this volatility is due to several key factors, such as higher transportation costs, for instance.
As the WB analysts explain, the rerouting of the global oil market has incurred significant expenses. Oil exports are now covering longer distances, from Russia to India and China, and from the US, Africa, and the Middle East to Europe, leading to increased freight costs. Additionally, the global oil supply remains unpredictable, with the OPEC+ alliance voluntarily reducing oil production in 2023. Saudi Arabia and Russia, as leaders of OPEC+, have committed to further tightening the oil market, extending their supply cuts through at least September 2023. This move resulted in a 12.3 percent increase in Dated Brent prices between the beginning of July and reaching $84.18/barrel on August 3, following the announcement.
The lack of clarity on the prospects for the oil market contributes to uncertainties in short-term oil demand estimates, the WB noted. In July, the IEA reduced its 2023 oil demand growth forecast by 220,000 barrels a day to 2.2 million. In contrast, OPEC revised up its 2023 global oil demand growth forecast to 2.44 million barrels a day on the same day as the IEA report.
At the same time, the WB experts pointed out that global upstream investment in oil and gas reached its peak in 2014 at around $900 billion, but it fell to $500 billion by 2016 following the 2015 oil price crash. The COVID-19 pandemic and the subsequent decline in oil demand further reduced upstream investment, hitting a record low of $400 billion in 2020.
Although the recent oil price recovery led to increased upstream investments in 2022, reaching $500 billion, they still remain 44 percent below 2014 levels, the WB added. Despite this decline in investments, oil supply rose by 3 percent between 2014 and 2022 due to significant reductions in drilling costs and production efficiency gains.