- May 10, 2018
Oil Prices Reach Highest Level Since 2014
There’s an old adage that simply states; “water and oil don’t mix”. The same can be said for politics, in that whatever momentary crisis occurs around the world especially within a volatile place like the Middle East, the price of crude oil becomes the barometer, much like the stock market. The oil industry reacts to whatever potential international event or rumor, regardless whether real or imagined, oil prices will inevitably be affected.
On Monday for the first time since November of 2014, the price of US crude oil rose above $70 per barrel. The pricing serge can be attributed to a combination of factors, concerning the general state of our economy, and how investors factor real-world events, and the perception of what “might be” in the future, which no doubt requires a crystal ball.
Moreover, the heighten anxiety regarding the deepening economic and political crisis in Venezuela, and President Trump’s hard-line stand against Iran, imposing once again crippling economic sanctions, will undoubtedly affect the global oil markets.
For example, because of the political unrest in Venezuela, the countries exports have been cut in half since the beginning of 2000, with just 1 ½ million barrels a day being produced. In fact, the oil-producing country failed to keep up with its investment in maintaining a viable oil industry, which is currently in disrepair
Currently, crude oil was up in London by 1% to $75.59 a barrel, having hit a high of $75.89 on London’s ICE Futures earlier in the day, the highest level since 2014.
On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1% at $70.42 a barrel.
Moreover the speculation that President Trump would withdraw from the awful “Iran Nuclear Deal” has seen a steady rise in oil price (as much as 10%), within the last month.
Dubai-based Ehsan Khoman, head of research for the Middle East and North Africa region at MUFG bank, speculated; “There is some scope for profit-taking now that prices are at 42-month highs but that is being overshadowed by the potential re-imposition of sanctions on Iran.”
There’s little doubt that speculators are hedging their bets and perhaps inflating the current market by attempting to actually gage the future.
A primary example is the previous international sanctions placed against Iran which cut exports by around 1-million barrels a day. However, MUFG bank believes that the Trump Administration will “go it alone” if they impose sanctions, meaning the impact will be a loss of 250,000-350,000 barrels a day.
Mr. Khoman concluded; “The EU may not deem it necessary to reinstate sanctions on shipping insurance which were paramount in restricting Iranian crude exports last time around.”
Moreover, the U.S. isn’t directly affected regarding the imposition of new sanctions, in that America doesn’t import any Iranian crude oil. However, certain allies including Japan and South Korea which do, may switch to other suppliers to comply with the new U.S. led sanctions.
There are also signs of perhaps price manipulation among members of the Organization of the Petroleum Exporting Countries.
In an interview with Bloomberg on Sunday Iran’s deputy oil minister Amir Hossein Zamaminia said a “suitable price” for oil is $60 to $65 a barrel, which differs from OPEC’s top producer Saudi Arabia, which is looking to push its price to $80 a barrel to fund the countries economic reforms.
Apparently with a $15 fluctuation per barrel among member nations, the likelihood of price fixing and manipulating the oil market rather then supply and demand seems like a systemic long term issue, with countries not always friendly to the interests of the United States.
This hopefully brings us closer to being energy self-reliant as a nation, as America’s oil production is expected to continue growing with the number of oil rigs increasing last week by 9, which is at a 3-year high, bringing the total number of oil drilling rigs to 834, according to Baker Hughes (BHGE), an oil-field services firm that records and publishes industry data.