Fatih Birol: 'Oil markets are on edge'

Rising geopolitical threats to global oil and natural gas supplies -- in addition to concern over human-caused climate change -- are increasingly hurting the appeal of fossil fuels as reliable, safe energy sources, the head of the International Energy Agency, Fatih Birol, said in an interview with S&P Global Commodity Insights, Report informs.

"Oil markets are on edge," Birol said in an interview with S&P Global Commodity Insights. "The issue is if one or more than one producing country is directly involved in the crisis or not. If that's the case, we may well see that the markets could be negatively affected ... in terms of supply disruptions and high oil prices."

According to him, fear of the conflict spreading wider in the Middle East has added to the bullish mood in oil markets, fueled by a mixture of OPEC+ voluntary supply cuts and heightened geopolitical risks from the ongoing conflict in Ukraine and sanctions against Russia. The West's sanctions on Russian oil exports have reshaped crude and diesel flows to Europe since Moscow invaded Ukraine last year while Yemen has also emerged as a potential flash point for global oil markets if peace talks with Iranian-backed Houthi militants collapse due to the conflict between Israel and Hamas escalating across the Middle East, analysts have warned.

Platts last assessed Dated Brent Nov. 6 at $88.095/b, down from a peak of $95/b in the wake of Hamas' Oct. 7 attack on Israel, but up by around $13/b since the beginning of 2023. Platts is a part of S&P Global.

People are also linking extreme weather events with the use of fossil fuels, in addition to being responsible for the deepening climate crisis, Birol said.

In its latest monthly oil market report, on Oct 12, the IEA said it was "ready to act" with a coordinated release of strategic stocks if an escalation of the conflict in Israel were to impact oil supplies from the Middle East. Noting there has so far been no direct impact on physical oil supplies from the conflict between Israel and Hamas, the IEA said it expects the international community to "remain laser-focused" on risks to the region's oil flows if there are any signs that it could spill over politically to the wider Middle East.

Looking ahead, Birol warned that the West's pivot away from Russian oil and gas will likely have longer-term consequences for the demand and supply outlook of its key oil and gas exports.

In its IEA's World Energy Outlook 2023, published in October, the IEA said that -- under its central scenario -- global demand for coal, oil and natural gas will likely peak before the end of the decade, due mostly to rapid progress on solar power and electric vehicles as part of an "unstoppable" shift to clean energy.

"Governments, companies and investors need to get behind clean energy transitions rather than hindering them," Birol said in the outlook. "There are immense benefits on offer, including new industrial opportunities and jobs, greater energy security, cleaner air, universal energy access and a safer climate for everyone."