Publications: Notes at the Margin

OPEC's Big Mistake?; Destination Restrictions Removed: A Threat to Price Stability; Fossil Fuel Firms Not Essential to Transition (March 8, 2021)


OPEC+ surprised us last week when the group, led by Saudi Arabia, decided not to boost production. Prices spiked, and at least one customer critical to the oil industry’s future vented its anger in response. The consequences of this decision could be severe, as we discuss in our first section below.


The Coalition's Saudi-led action was probably not the most important announcement last week, though. Earlier, the UAE made it known that it would no longer impose destination requirements on those who buy its oil. In doing so, the nation took a large step toward breaking from its traditional role as a follower of the Saudis and Kuwaitis on oil. Indeed, the choice severs the final chains limiting oil’s emergence as a commodity and may go a long way toward destroying OPEC. The UAE’s new ties to Israel likely helped it make this move toward independence. We discuss this development in our second section.


While OPEC+ was meeting, most in the industry were participating in CERAWeek, IHS Market's annual energy conference. The meeting took place virtually due to the Covid-19 virus. Many speakers asserted that the oil and gas industry would be essential in driving the low-carbon technology forward and providing the financing. In the third part of this report, we question their conclusion. The industry may play a small role.


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