Increasing oil surge worldwide has propelled oil production countries to take the crude oil-based political game in their hands. Role of geopolitical actors has immensely effected oil surge across the globe.
In early April, the international ICE Brent Crude Futures benchmark for crude oil fell by more than $70 per barrel for the first moment in November 2018. A few weeks later it reached $75 a barrel and hit an altitude of almost 6 months before retreating modestly. This year’s gains have now raised considerable speculations over whether raw material can maintain its rally and in the near future hit $100 per barrel. If so, oil surge milestone would have been achieved for the first time since 2014.
Strengthening the crude-oil international market has supported a good deal of the price rally in 2019, with both declining supply and robust growth in demand contributing to a bullish feeling. OPEC supplies were reported to have decreased by over half a million barrels in March or by a big quarter of worldwide supply in four years.
OPEC and non-OPEC Countries Reaction
In addition to 14 member countries within the Organization, OPEC+ production cuts, comprising 10 non-OPEC countries, notably Russia, Mexico, and Kazakhstan, aimed at preventing excess supply on the world markets following a dramatic drop in crude prices at the end of last year. In that context, the Alliance has decided to reduce its production by 1.2 million barrels per day during the first six months of 2019 and prior to its conference again in June to decide whether to prolong that contract. The plan has largely succeeded to date, with OPEC supplies dropping by more than 1.5 million dollars this year, helping to boost prices. The main responsibility for the cut in Saudi Arabia in March was a 314,000 bpd reduction in output.
Geopolitical Role in Higher Oil Price
Geopolitical problems worldwide currently play a very important role in fostering higher oil prices, and in the coming months, it can lead to further upheavals. Recently, the US has put an end to its exemption from sanctions, which allowed certain countries–India, China, Japan, South Korea, Turkey, Greece, Taiwan, Italy, and South Korea–to continue purchasing oil. According to the US Department of State, allowing exemptions to expire “allows the US to zero the Iranian oil exports and denies the regime the income it needs for the financing of terrorism and violent wars abroad.”
Iran alerted that if sanctions increased, oil would fall to $100 per barrel. “Another side of the US action against Iran is not extending the oil waivers of some countries. But if complete sanctions on Iran’s petroleum go beyond $100 per barrel (the) petroleum cost, “said PEO head Fereydoun Hasanvand lately. This will very probably happen with Iran shutting down the Hormuz Strait, a major world crude transport route that passes every day one-third of the world’s marine oil. “If our oil is not to cross the Strait of Hormuz, oil from others certainly is not to go through this strait,” said Mohammad Bagheri, Chief of Staff of the Armed Forces.
Increased Tensions in Libia
“Tensions also increased in Libia, which threatened the stability of Libya’s military force, not just the internationally recognized government, but Libya’s National Army led by military strongman Khalifa Haftar.” The UN warned that the conflict pushed the nation of North Africa toward a full-blown war. The United Nations. If a scenario like this occurs, then Libya’s current oil output of around one million bpd will likely be jeopardized as has been the case many years ago.
Venezuela Prospect over oil crude price
And there seems to be a worse prospect for Venezuela, a leading producer of oil and OPEC member. The beleaguered Latin American nation now faces an economic crisis of full bloom, US sanctions against the state-owned PDVSA (Petróleos de Venezuela, S.A) petroleum companies, and the possibly harmful political impediment between current President Nicolás Maduro and opposition leader Juan Guaidó that plummet by almost 30% in March. In late April, Guaidó, backed by the US, demanded that the Maduro regime be overthrown in a military uprising. Again, the deterioration of conditionality would add additional bullish aid to oil prices to the resulting decline in oil production.
However, it remains to be seen whether crude amounts to $100 per barrel in this year; maybe too far for some. The IEA has recently stated that while crude markets have tightened this year, “sufficient supply” is maintained and that “the world’s supply capacity remains comfortable.” Fitch Solutions Macro Research (FSMR) anticipates that Brent will have an average annual figure of $73 per barrel this year, equal to April and $2 under its March estimate. The intelligence service provider observed that short-term “risk asset conditions, including oil,” are more challenging and that, in recent years, “there are premature signs of investment pushing it back to safe havens.” In the meantime, Bloomberg predicts $68.50 per barrel for the lower average in Brent for 2019.
This does not mean, though, that the 2019 rally of crude is over. 31 economists raised their projections for 2019 prices in the most recent Reuters monthly survey in late April. “American waivers for Iran will also be removed from the petroleum industry by another 0.5-1 million barrels daily. This will render the narrow production condition on the oil industry even harder due to the political unrest in Libya and the turmoil in Venezuela. High oil prices are certainly here to stay! “Many still see that this summer $80 per barrel of oil has been made.
Since the US decision not to renew Iran’s sanctions waivers, Saudi Arabia has little to suggest that the resulting Iranian crude shortage will be significantly boosted by production. In fact, the Saudi Minister of Energy, Khalid al-Fhalih, recently said to the Russian RIA news agency, “We will do the remaining part of the OPEC Plus deal even if the top producer of the OPEC commits to requests for Iranian oil replacement. And with the International Monetary Fund (IMF) forecast in January, which predicts that Saudi Arabia needs $85/barrel oil prices to balance its budget, it seems that the Kingdom has a significant economic incentive to limit its output in the months ahead.
Ziad Daoud, Bloomberg’s Middle East chief economist, states, “The fiscal breakdown in Saudi Arabia this year could be as large as $95.00 a barrel, even though the IM Football Fund likely assumes greater money flows from Saudi Aramco to the Finance Ministry.” The Alliance will, therefore, look forward to extending the initial output cut agreement at the OPEC+ conference on 25-26 June. The alliance will now be looking forward.