Start worrying, says Saudi Aramco. We are at the very limit. What does this mean for investors?

The world economy is facing many challenges. So when the world's biggest oil producer comes out saying that it is quite possible that there will be more problems, there is certainly something to worry about.

Saudi Aramco says oil shortages could be the next global problem

According to Saudi Aramco, the world's largest oil producer, the global fossil fuel market is still tight. This does not bode well for a world that is still largely dependent on fossil fuels.

"Currently spare capacity is extremely low," Saudi Aramco CEO Amin Nasser said at a recent conference in London. "If China opens up, it will start to improve and the aviation industry will start to demand more aviation fuel. That may eliminate the rest of the free supply."

Nasser warns that oil prices could rise quickly - again.

"When you use up that spare capacity, the world should be concerned. There will be no room for any hitch - no interruptions, no contingencies anywhere in the world."

The price of oil could rise again

Despite growing fears of a global recession, global oil demand could recover sharply in China, while aviation fuel demand remains around 1.7 million barrels per day below the level before the tough COVID measures were introduced.

The CEO said that Saudi Arabia's own target to increase its production capacity remains on schedule. Saudi Aramco, which produces and sells oil on behalf of the Saudi state, is currently working to increase its production capacity to 13 million barrels per day by 2027, with additional capacity to be added gradually.

According to the latest Platts survey, Saudi Arabia, the world's largest oil exporter, pumped 10.92 million barrels per day in August, slightly below its quota under the OPEC+ agreement. The kingdom says it is capable of pumping 12.5 million bpd if needed, although this is untested and experts think it is not sustainable.

On prices, Nasser reiterated his concerns that the global oil market is focused on short-term economic fears of a global recession rather than fundamental supply data.

He said the oil market is not reading the situation as it should, pointing to low spare capacity, tight supplies and noting that high inflation is also affecting the cost of upstream projects. Nasser also said that Aramco maintains its position that current scenarios of zero net emissions by 2050 are unrealistic and undermine investment appetite for new oil and gas projects.

"Why would you invest if you think demand is going to collapse? It remains important to us that demand grows until 2030," he said, adding that alternative energy sources such as solar and wind are not yet ready to replace oil.

Aramco has warned for several years of the possibility of higher oil prices due to declining spending in the oil and gas sector.

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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