In the past few weeks, questions have been raised constantly about the current state of affairs when it comes to the oil and energy industry and specially to the prices of crude. It seems like there is a lot hanging in the balance and the prices are yet to stabilize. Experts talk about the numbers going both ways and what needs to happen for the cost of a barrel to get back to where it should be and the new norm of what stable prices should look like. The overall downward trend worries most analysts, especially because the external signs that affect oil prices are not hopeful for escalation of value. The geopolitical factors that have a say in whatever happens to the value of crude, seem to show that things could go either way, and you couple that with the increase of shale oil production in the United States and the way technology is moving away from gasoline as the main means of powering vehicles and you will find yourself facing a perfect storm in which is difficult to predict the next move.
Today in Suzzanne Uhland’s Blog, we want to take a look at some of the most current factors that are affecting oil prices today and how some countries around the world are key players into this narrative that is making us all wonder, what is going to happen next.
The comeback that the shale industry is making can no longer be ignored as an inconsequential fad. The first projections estimated a production of a little over one hundred thousand barrels per day, but the reality shows that by December of this year, the United States will be producing numbers closer to four hundred thousand bpd. This means that when it comes to production, you can be sure there will be no lack of oil coming out of the US, but everyone knows that when it comes to shale, you have to think about volatility and how sensitive it is to the market, so whatever happens with the competition being created by shale out of the United States remains to be seen. However, shale production is not the only way the US is impacting the market today. Growing tensions with North Korea has the whole world watching, especially after US relations with Russia have been shaken after the recent attack on Syria. The situation is a cause of concern and it may affect the market more than everyone expects, since the possibility for conflict at such a massive scale makes prices go down in anticipation for a possible confrontation.
The situation in Venezuela seems to get worse every day. Riots and people protesting the streets are becoming more and more common and if you add up the fact that the country’s production is suffering since prices took a dive back in 2014, then you have the necessary ingredients for disaster. If Venezuela’s production suffers, then we are looking at a massive deficit coming from one of the biggest producers in the world. Venezuela government depends on oil for more than 90% of their export revenues and if the crisis has already become a humanitarian disaster, then it is hard to know where things will go from there. The biggest problem seems to be that Venezuela simply doesn’t have the cash to import refine products so they are literally sitting on millions of barrels of crude oil that is not going anywhere anytime soon.
As things are right now, the OPEC is pushing for an extension on their cuts to oil production, but it couldn’t have come at a worse time for Russia, a country that produces the majority of its share during the summer and right now is making time before publicly making a decision about whether supporting or derailing the extension. Originally Russia was all about the cuts, but this was during the slow months of their production, now that things have changed, they are still to pronounce their position and are trying to stall as long as possible. ExxonMobil was just denied a waiver to get around US sanctions on Russia to continue drilling, so it remains to be seen if that gesture will have any type of impact on Russia’s decision.
The future of OPEC
Believe it or not, there is even some uncertainty about the future of OPEC. It seems almost as if the organization is losing grip on the control they have had over the prices of oil. The fact of the matter is that the United States with its production of shale oil has the OPEC at a tight spot. On one side they are losing market share to shale oil drillers and on the other, they are realizing that their influence for raising prices can only go so far. If members of OPEC feel they are no longer in control, they may decide to leave the organization all together and thus seal its fate.
* Featured Image courtesy of Adventures of KM&G-Morris at Flickr.com