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Tuesday , December 6 2022

‘Pouring more oil into market not enough – curtail demand’

This post has been read 12686 times!

TO start with, there isn’t enough oil that is readily available to meet the ongoing demand, especially with China awakening to face economic growth with the power of oil, and Russia pushing its oil to the Far East at discounted price of more than $30 per barrel compared to Dated Brent.

It is near impossible for OPEC+ to replace Russian oil. The oil organization itself is struggling to meet its own commitment of 650,000 barrels of production increase from next month. On the other hand, Russia seems to be making more income compared to previous periods by reducing their own export volume, in anticipation for more revenues on a short term basis. So far, it is doing fine with lower volume but good lower returns.

However, demand keeps on growing, and motorists in the USA and Europe do not seem to care about the summer season when it comes to driving. China is leading the energy growth after two years of complete shutdown, leading towards demand for almost every item. This has pushed the global demand for crude oil close to 100 million barrels per day, beating the previous record. At this rate of demand, the prices will not cool down, but nothing can be done about it.

In the transportation sector, fuels represent the key element. Global refineries can barely cope with the demand for the most profitable element. However, with the current refining capacity, it is not possible to produce enough to meet the entire demand. It is a small cut or fraction of the refining process along with aviation fuels, which makes them expensive. Today, 100 liters of gasoline cost about KD 90, or 180 Sterling Pounds for the end users. Meanwhile, here in Kuwait, the prices of food and other items are increasing, not realizing that the same is applicable to other consumers along with the fuel prices.

At this stage, oil experts, along with banking and financial experts, are expecting the oil prices to hit $174, which is higher than the recorded price level of $147 of 2008. To predict such a level for the end of the year with the demand for energy at its best is plausible, in the absence of any real supply coming to the market soon. But again it is up to the USA administration and the way it can manage its outstanding issues with Iran, as it seems it is the only avenue available at present to stabilize the oil prices at a comfortable level.

Or else it might be better for oil prices to hit a record high and push to reduce its consumption by its own pocket spending force, forcing the demand to come down. There is no other way to correct the oil prices.

Pushing more oil into the markets or damaging reservoirs for additional volume are not the solutions. Demand must be curtailed, as any other means are not at hand. 

email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

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