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Wednesday , September 28 2022

Crude oil supply is ‘tight’ … a worrying time for consumers

This post has been read 9589 times!

DESPITE the slight decrease in the oil price last week from its peak of $95, the oil market is tight. The US administration has called on the oil producing countries to do something such as pour more oil. Is the US administration not aware that they don’t even have their actual spare capacity? Since the US call is obsolete, why make such calls then? The global demand for oil is strong and at a high level close to 100 million barrels per day.

Kamel Al-Harami

The call for more oil is increasing with various scenarios, mostly likely, the threat of war and stoppage of Russian gas to Europe. The tension is running high. The world is awakening from the impacts of the COVID-19 pandemic to deal with the new reality and embark on everything like before. Nothing is going to stop an even higher rate of infl ation. There is no more interest in savings when they can enjoy whatever cash they can borrow or get their hands on.

Spending sprees is the name of the game. The quantity of 400,000 barrels promised by OPEC+ is not there. It always seems to be short by one million barrels. Those with spare capacity, if any, do not want to push it into the market because of two reasons – first, the ones with spare capacity don’t want to indulge and let other members share, and second, all OPEC+ members are happy with the current oil price level which has almost balanced year end budget. So, why rock the boat and change things from what it currently is?! On the other hand, gas prices have increased by more than 200 times along with metal prices.

The oil price did not reach its peak of $147, even though we are advocating such a high price level. However, oil price was always the culprit, and oil producing countries have been responsible for the high prices, regardless. This time, it is certainly not responsible. The hesitation and the push for alternative clean energy is the main cause, resulting in the USA losing about two million barrels of daily production from its peak of 13 million as the biggest oil producer. Under government threat and the push from oil companies’ shareholders, it does not want to invest in more oil, and instead wants to give them back their investments in cash, ending in higher oil prices and perhaps more profit. With the breakout of a war, markets will certainly go out of control, pushing oil to break all hells loose.

Therefore, a level of $100 and above is not impossible. In conclusion, oil supply is currently tight, with the demand being strong and with very little surplus spare capacity. Perhaps, the USA has to give in to Iran to pour oil into the desperate market.

By Kamel Al-Harami
Independent Oil Analyst
email: naftikuwaiti@yahoo.com

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