Wealth Outlook 2024 - Slow then grow

88 Wealth Outlook 2024 | Unstoppable trends OPEC's unlikely role in the energy transition FIGURE 2 Since the pandemic, OPEC production cuts have kept oil prices from falling too low OPEC crude oil production (YoY% change) Recession Real oil prices (YoY% change) 30 100 0 0 2004 2008 2012 2016 2020 2024 Source: Haver Analytics as of October 31,2023. Past performance is no guarantee of future results. Real results may vary. The world’s most powerful oil cartel has become an accelerator of the green revolution. Climate change and the rapidly falling cost of energy alternatives likely signal OPEC's ultimate demise. Thus, OPEC is faced with two choices: delay the inevitable by expanding production, lowering fossil fuel prices to compete with the price where alternatives compete, or alternatively maximize their current income by maintaining higher prices for as long as possible, even by reducing output to do so. Evidence thus far suggests that OPEC is opting to increase its cash flow while making the likelihood of a faster rate of decline for oil output more likely. On repeated occasions over the past several years, whenever oil prices have fallen from lack of demand or higher supply in other parts of the world, OPEC has consistently intervened, curbing production and restoring price stability, typically around $80 a barrel ( FIGURE 2 ). This strategy has been an unmitigated boon for the green transition, which has entered a critical stage of more aggressive developed-market government support aimed at accelerating private- sector take-up: a take up that’s considerably more likely with oil at $80 than $40. OPEC’s gambit has produced other unexpected winners. While OPEC’s strategy is designed to maximize its short-term profits, it is doing so by “taking the hit” for all oil and gas producers as it lowers its own production. That is not the case for Western producers, pipeline suppliers and other services. These companies get the benefit of the higher oil price without the accompanying production cuts and, in yet another irony, may be among the biggest winners of this next, strange phase of the energy transition (see No. 3 in Our top 10 high conviction potential opportunities on page 54 ) .