The era of cheap oil is over

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(ORDO NEWS) — Oil prices continue to rise, and OPEC + is going to keep them high, writes Al Ittihad. This goes against the interests of its competitors, for example, the United States. Winter is coming, stocks of “black gold” need to be replenished. And this will have to be done for a lot of money, the author of the article notes.

In early August, oil prices reached their highest level in four months due to many factors. Chief among them is the periodic increase in demand for fuel in the third quarter to replenish its stocks on the eve of winter. There is an improvement in economic conditions in many major oil consuming countries.

There are also several reports from some specialized sources about the volume of demand until the end of this and next year.

Brent crude oil on ICE in London drops

OPEC recently reaffirmed its forecast for global oil demand growth of 2.3 million bpd over the course of this year and the next two years. On the contrary, the oil production of the member countries of the organization decreased during April last year to 28.6 million barrels per day.

According to the monthly report of OPEC, the production of “black gold” again decreased in July by 836,000 barrels per day, reaching 27.3 million barrels. Such indicators were achieved thanks to the commitment of members of the organization to oil production quotas and a large voluntary reduction by Saudi Arabia.

The International Energy Agency also said in its August report that average oil demand this year will reach 102.2 million barrels per day. This made it possible to balance supply and demand despite the increase in the production of “black gold” in some countries, such as Brazil, Kazakhstan and the United States. America seems to have reconsidered its approach to shale oil production, which was influenced by the current administration’s environmental policy.

Now competing countries are engaged in a tug-of-war over oil prices: some are trying to lower them, others are trying to maintain the high cost of a barrel of “black gold”. A change in the price of oil – a strategically important commodity – will have huge geopolitical consequences in addition to economic ones.

Therefore, it is important to know the direction of markets and prices in the coming period. Especially with global tensions intensifying in many conflict zones, as the trajectories of price trends will depend on the strength of both the OPEC+ countries and their competitors seeking to lower oil prices.

Each of them has their own tools and sources of power. If we start with the OPEC+ group, then its strength lies in its unity. The share of the oil producing country accounts for 40% of its production and 60% of its reserves, which means that the loss of consensus among them can lead to serious consequences due to the possibility of a collapse in prices. This is the main weakness of OPEC+.

Crude oil

As for its competitors, their center of power lies in their influence and dominance over trading markets and financial transactions, including manipulation through speculation. Despite numerous shortcomings, their oil production is not impressive, and domestic consumption exceeds production.

At the same time, their exports are of a technical nature, associated with the quality of the oil produced there, which is not always satisfactory for their refineries. Their production may decline in the coming years due to limited supplies, which will eventually lead to increased dependence on OPEC+ countries.

This summary shows where oil markets and prices are headed in the coming years as the balance of power tilts in favor of OPEC+. And this means that the era of cheap oil can end forever, provided that the cohesion of the members of the group is maintained in order to avoid weakening that threatens its interests.

However, price fluctuations will accompany the markets in the coming period as a result of the competition we have pointed out, but the overall index will keep prices relatively high and will meet the interests and needs of the OPEC+ countries.

This positive development, which is tantamount to the importance of the price boom in the mid-1970s, will have implications for the economies of these states, their public finances and annual budgets, and will also pave the way for further economic growth and diversification.


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