Forget ‘fair’ — what we need is a sustainable oil price

Forget ‘fair’ — what we need is a sustainable oil price

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Oil prices have already spiked to $70 this year because of rising tensions around Iran, a reminder of the volatility that nobody wants to see become the norm in 2020.

While last year the oil price moved in a fairly narrow range, upstream energy industry investment has been lacking almost everywhere except Saudi Arabia, the world’s largest exporter and its only swing producer.

For many decades, the Kingdom has endured the misconception of what is thought of as the “fair price” for oil. 

Saudi Arabia has played a pivotal role to balance the market for the sake of the stability of the global economy and it is the only exporter capable of fulfilling this role.

The Kingdom shoulders most of the OPEC+ output cuts while bringing to the market 31 percent of OPEC’s total crude oil production. 

However, over time, the so called “fair price” of oil may adversely affect the financial viability of a large producer.

It is worth recalling that Saudi Aramco took just 12 days to restore production to normal levels following the Sept. 14 attacks on the world’s largest oil processing facility in Abqaiq.

If such an attack happened elsewhere, indeed anywhere, it is hard to imagine such a quick recovery. Instead, the narrative could have been very different, with the world facing severe shortages and the oil price rocketing to unsustainable levels.

Sustainability in oil prices is what oil producers need, and it remains the most prominent challenge facing the entire energy value chain.

Faisal Faeq

So the idea of what is a “fair price” for a barrel of oil is not an easy one to pin down and may not ultimately be in the best interests of the consumer.

In the longer term, extremely low prices would lead to lower upstream investment, forcing some players out of the market, and ultimately creating the kind of volatility that are potentially catastrophic for consumers and the global economy.

Sustainable oil prices enhance investor confidence and stimulate investment mobility. Yesterday’s world economy is not like today’s and won’t be like tomorrow’s.

If consuming nations want safe and reliable supplies, they must stop thinking about what is a fair price for oil and start thinking about what is a sustainable price for this precious commodity.

As the Saudi Energy Minister Abdul Aziz bin Salman recently remarked: The concept of a fair price really resides in the eye of the beholder. Sustainability in oil prices is what oil producers need, and it remains the most prominent challenge facing the entire energy value chain.

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view