Crude oil prices rose on reports of global demand picking up and are up about 4% through Thursday
Supply woes intensify
While the markets welcomed the good news, they continue to remain cautious about increasing supply. The oil market, since the last three years, has been marked by a constant tug of war between the OPEC and US shale producers over market share. OPEC underestimated the resiliency of the US shale producers to operate at lower prices when it oversupplied the market in 2014 to keep shale producers at bay. Since then OPEC proposed production cuts and while it helped support oil prices initially, OPEC member compliance now is dwindling. Also increasing output from Libya and Nigeria is further decreasing the effectiveness of the cuts
But demand is also going north
The International Energy Agency (IEA) recently reported an uptick in global oil demand this year. This demand will largely be driven by increased consumption in Germany, US, and India. China’s crude oil imports for H12017 have gone up significantly y/y.
Oil’s fall is significantly changing global landscape
The global crude oil landscape is changing with OPEC steadily losing its ability to drive prices in the world market. OPEC faces multiple challenges not only from rising US production but also from members who prioritize saving market share over maintaining the cohesiveness of the cartel. The changing scenario has forced a lot of gulf countries to reduce their economic reliance on oil and diversify into non-oil sectors as they realize that the current price decline is not a short term phenomenon.
It’s time to welcome the new world order!
Read more on oil here
Leave a Reply