Publisher: Maaal International Media Company
License: 465734
Last week, Brent crude price has skyrocketed near $130 and plunged to $100, this is about a $30 downward swing in a week.
Such a steep price downward fluctuation caused the global oil markets to be in a state of panic and uncertainty though no sanctions on Russian oil yet, but many traders might be avoiding buying for fear of possible future sanctions. However, nothing has been changed in the physical market supply and demand scenario.
The severe panic that the markets are experiencing is due to the fear of a severe shortage of supplies for the barrels that will be loaded in the coming months and which will be processed in the refineries during the strong demand summer season.
The United States Energy Information Administration predicts that US crude oil production to average 12 million barrels per day in 2022, which makes it difficult for them to compensate for any supply/demand gap. This will also be exacerbated after the ban on Russian oil imports to the United States of about 700,000 barrels per day of crude oil and petroleum refined products. Hence, the US need to compensate these barrels itself rather than helping any supply gap.
Exactly two years ago, in March 2020, with the beginning of the pandemic’s repercussions on the transportation sector, the price of a barrel was less than $20, and it was mistakenly claimed that oil became worthless as it was the peak of oil demand. Two years, prices reached near $130 because the oil markets are turbulent with fears of an upcoming shortage of supplies that have not yet materialized on the ground.
The United States and the International Energy Agency have frequently requested OPEC to boost supply to help plug the gap in output from Russia.
In exceptional times, the attention is directed to Saudi Arabia when the sharp oil price fluctuations that large economies cannot bear, while the Kingdom has warned in several forums of the possibility of scarce energy supplies in the future due to a lack of upstream investments, so how when this exacerbates with the state of war among one of the largest producers.
Simply, how can Saudi Arabia demolish the efforts of OPEC+ after five years of cooperation, consensus and efforts. Conversely, the world must commend the Russian cooperation in OPEC+ efforts. Russia, as a partner and cooperator in the efforts of OPEC+, had high profiles and collaboration in the success of the alliance’s mission over the past five years. Keeping in mind that all major economies have reaped the fruits of this cooperation and efforts to balance the market and stabilize the global economy, especially during the pandemic.
The prices of metals have more than doubled as scarcity approaches. No one is surprised or complains! Instead, they consider it normal, but when oil prices rise as a result of constant conventional and non-conventional oil fields depletion, massive inventories draw, and rising costs, the world panic and claim the high price of oil will cause inflation, and that may be true, but bring a commodity or product that we import, which has remained stable over the years.
Will the increase in production calm the intense rise in prices?
This scene that brought together the world’s major energy producers and consumers in April 2020, when oil prices collapsed to historically low levels, is repeated when they rose to historically high levels.
The steep drop in prices of around $30 in a week illustrates that increasing oil production isn’t the right approach to calm the outrageous market. As Saudi Arabia is the only producer who can increase oil production by around 2 million barrels per day, this is a tricky card that shouldn’t be played unwisely or at the wrong time.
Faisal Faeq
Energy Adviser (former OPEC and Saudi Aramco)
Twitter: @FAISALFAEQ