UNITED STATES (OBSERVATORY) – Demand for oil is growing, and production is declining. This has been reported for several weeks, and their number has increased, after Saudi Arabia confessed that it would like prices above $ 70 per barrel.
As if by magic, the traders began to frantically buy oil, pushing it closer and closer to $ 75.
Almost everyone is optimistic about demand. IEA forecasts for this year an increase in demand for 1.5 million barrels per day. Reuters data shows that April imports to Asia could reach a record level. Investment banks also play on the rise.
What can break this trend? If you listen to Goldman analyst Jeffrey Curry, then absolutely nothing. In his latest interview with Bloomberg, he said that “it is necessary to have a very high price before we see how it starts to harm demand.”
In his opinion, the rise in oil prices has a favorable effect on the world economy, since “higher oil prices lead to global surplus savings – petrodollars”, which are then invested in the global economy and stimulate even greater demand.
But not all analysts see the current situation in pink glasses. First, “global surplus savings” will appear only after oil producers close their budget holes.
It will take a long time before the Saudis receive some savings, not to mention surplus, to invest around the world and stimulate demand for oil. This also applies to other large producers, since they all suffered very badly from the last collapse of prices.
In addition to the budget deficit, there are also problems with inflation. Since almost every country in the world depends on oil, inflation is closely linked to prices. Higher oil prices mean higher fuel prices, and higher fuel prices lead to higher inflation. Although in some cases higher inflation is a welcome element, but today is a completely different situation.
Another urgent issue relates to the relationship between demand and rising oil prices. The head of commodities at Commerzbank, Eugene Weinberg, does not see any correlation in this case. In his opinion, the current price increase is due to four factors.
First, there are serious concerns about Venezuelan hydrocarbon production, which is now at the lowest level since 1950. Secondly, Saudi Arabia’s “unrealizable dreams” about oil at $ 80-100 per barrel. Thirdly, there is a high probability of introducing new US sanctions against Iran, which, incidentally, was the key reason for the jump in prices this week.
And, finally, as explains Weinberg, a powerful inflow of money from investment funds was recorded: the rates for raising oil prices for both ICE and NYMEX reached a record level.
Meanwhile, the production of “black gold” outside OPEC is growing, primarily in the United States. An avalanche of optimistic comments from the OPEC camp pushed back concerns about the rapid growth in oil shale production in the US.
Last week, US oil shale producers shook 10.54 million barrels a day. This is more than a million barrels per day more than in early January. In other words, shale companies in the US increased production by more than 1 million barrels per day in less than four months.
At these rates it is not difficult to imagine where the shale production will be in the next quarter. This trend will certainly have a serious impact on prices, when the hype around the last meeting of OPEC will fall.
Meanwhile, in the near future, the prospect of imposing sanctions against Iran will remain the main driving force behind rising prices. But even here it’s not so simple. Recall that last week, President Trump expressed his dissatisfaction with “too high oil prices.” And he must know how too high prices for a new round of sanctions against Iran will react.