Recovering Oil Markets: Causes & Effects

تم نشره في Tue 24 May / May 2016. 03:22 PM
  • Oil Barrels (Expressive)


Leheb Ata Abdul Wahab/Iraqi Energy Economist



Factors not related directly to the fundamentals of supply &demand have been in play giving a boost to prices, with Brent hovering around USD50 per barrel, compared to less than USD30 by the turn of the New Year.

The market has been a bit jittery due to the culmination of several factors compounded by the following:

(1) Wild fires at Canada, Alberta Region putting its production of Tar Sand Oil in jeopardy. (2) The political and social upheavals in Nigeria (and Venezuela) led by the Emancipation Movement of the Niger Delta, notwithstanding the militant movement Bokko Haram, threatening to sabotage its oil installations

Both Canada & Nigeria have lost more than the 3 million barrels per day of production, putting the issue of supply security at the forefront of the global security agenda. A priority of major significance on par with fighting terrorism.

The overhang of supply however, still dominates the market. With Iran producing at full thrust after economic sanctions have been lifted, currently producing 3.5 million barrels per day, aiming to reach 2012 pre-sanction levels at 4 million barrels per day by early 2017. And Iraq, now the second largest producer in OPEC, has added more than 600thousand barrels per day mainly from its Southern fields in Basra (Rumala & Quarna Oil Field under the supervision of British Petroleum and Russian Luke Oil) with current capacity close to 4.7 million barrels per day.

Hikes in both of Iran & Iraq compensate for the losses incurred in global supply off both Canadian & Nigerian output declines. The Market, as a consequence remains over flooded, albeit to a lesser extent, with Supply exceeding demand by 1.2 million barrels per day, in contrast to 2 million barrels per day in 2015.

The Market awaits with great anticipation the outcome of the OPEC meeting due in Vienna, on the 6th of June. Members are under severe pressure to curtail production on one hand, and to revisit their quota regime on the other. Nothing tangible is expected from the meeting, with both the Saudis and the Iranians at loggerhead. It is a proxy war with the battlefield expanding from geo-political, regional rivalry for supremacy and standing foothold at the realms of the Levant and larger MENA Region, to securing the upper hand in the global oil marketplace. The Saudis are adamant in protecting their market share having abandoned their previous “Swing Producer” policy, and wont nudge an inch to curtail production. Iran, however, adopt a completely different stance, arguing that to freeze production (as called upon by the Doha Declaration ) it is imperative beforehand to attain maximum production levels, in order to compensate for lost exportations deprived off during the Oil Embargo, enforced in light of its controversial Nuclear program.

The Big Question is; who blink first?