The German newspaper headlines in bold letters Image that it could get its hands on the secret plan of Arab oil sheikhs to make refueling cheaper. For example, a journalist learned that the United Arab Emirates – one of the largest oil suppliers in the world – wants to increase oil production by a quarter: from 4 million barrels per day today to 5 million barrels in 2025.
However, it turns out that the plan is not that secret, because in September 2022 the state oil company Adnoc already announced this to the Bloomberg news agency. And at last year’s climate summit in Abu Dhabi, Sultan al-Jaber – CEO of Adnoc – reiterated his intention. He wants to drill 42 percent more oil by 2030, the BBC revealed.
ING’s chief German economist, Carsten Brzeski, expects that the increase in production could lead to a drop in crude oil prices of up to 19 percent in 2025. Does his Belgian colleague agree? “Note what he literally says: ‘maximum’, which can also mean zero percent,” laughs Peter Vanden Houte, chief economist at ING Belgium. Yet he also thinks that the price of crude oil will fall by about 10 percent. “All financial markets assume that.”
‘Now or never’
Why do the oil sheikhs want to lower the price now, while the Middle East is on fire? “The OPEC countries (a coalition of oil-producing countries, the majority of which are Arab Gulf states, ed.) are deliberately keeping the price high today. At the same time, countries outside OPEC do produce more oil,” says Vanden Houte. The OPEC countries are seeing their purchases shrink because the world is buying more American oil – the US is not part of OPEC. “As long as a barrel of oil is more expensive than $65, it remains profitable for the US to drill more and more shale oil,” says Vanden Houte.
The oil sheikhs must therefore respond, or their profits will melt away like snow in the scorching Arab sun. In addition, Europe wants to switch completely to electric driving by 2035. “Then all those oil reserves will probably become less valuable, so it’s now or never.” According to the International Monetary Fund, OPEC will increase production from July.
But will we also feel this at the pump? Image talks about a decrease of 20 cents per liter or more. “Oil is traded in dollars. The stronger the dollar, the smaller the effect on us. How strong the dollar will be next year also depends on who wins the US presidential race. Due to the excise duties, the effect on petrol and diesel will probably be limited to a few percent,” says Vanden Houte. Image so it seems to be pretty close. “The effect will be greater for heating oil: you pay less excise duties on it,” says Vanden Houte.
A spanner in the works
To make matters even more complex, the war in Ukraine also plays a crucial role. Ukraine is getting better at hitting Russian oil refineries with drones, hundreds of kilometers into the Russian interior. “But the result is that the price of refining crude oil into gasoline or diesel is rising. This has a direct impact on consumers. That is also why American President Joe Biden has asked Ukraine to stop those attacks. He can do without a rising petrol price just before the elections,” says Vanden Houte.
