The US hints at suppression of global oil prices
The current high global crude oil price suggests a window of advantage for oil-producing states to make as much revenue from oil exports. This inflow, if properly utilised, can help augment local savings and then be pooled together to fund investment initiatives that can drive growth and development.
However, not all economic agents can view the current global rate as an advantage. To net exporters of the crude oil, the current price regime may help deepen the sovereign purse, but to those who import more than they export, it may further distort their balance of payment equilibrium. Also, importers will incur an increased cost of conveyance of their goods, and producers will suffer an increased cost of production. Eventually, the incidence of these higher costs will be passed on to the final consumers.
To suppress the current high crude oil prices and make life more bearable for importers and producers, the United States of America has revealed plans to release 50 million barrels of oil from its reserves. This move is expected to bring down the already soaring energy and petrol price globally.
There are other countries considering this price suppression plan in a parallel response to the US.’ China, India, South Korea and the UK have also made similar hints favouring a suppressed global crude oil price.
In the recent past, the US President, Joe Biden, has repeatedly canvassed for a global slowdown in oil prices by advising OPEC nations to boost output more rapidly. It is hoped that output expansion of the universal product will help slow price movements and maintain a decent pricing base that can favour all concerned participants of the oil market.
However, OPEC seems to be cautious about rapid production expansion, given the recent COVID-19 experience. The international cartel has shown that it is committed to a phased production increase to control supply in line with current demand dynamics. During the pandemic that hit the whole world in no small measure, the global lockdown directive mandated a massive demand slowdown, and crude oil prices slumped drastically.
In 2019 just before the pandemic, the average closing price of crude oil was $56.99 per barrel. The lowest crude oil sales per barrel for that year was $46.31, and the highest sale stood at $66.24. In the year that the pandemic vividly struck, the average closing price had slumped to $39.68. For that year 2020, the opening price stood at $61.17 per barrel, and the highest sale recorded was $63.27. The pandemic-stricken year closed crude oil sales at $48.52 per barrel after suffering a global setback at the lowest of $11.26 per barrel.
Good sales resumed in 2021 as global economies commenced recovery efforts through increased vaccine roll-outs and other domestic policies to subdue post-pandemic effects. With a year open price standing at $47.62 per barrel, crude oil prices have recorded a 7-year all-time high at $84.65 per barrel. However, this high price has driven up petrol prices and energy bills in many countries of the world.
Consumers worldwide are finding it uneasy to cope with the impact of the elevated prices at the pump and other energy prices. Heating bills and electrification costs for households and business firms are on the rise, making it more difficult for individuals to provide enough for their daily living. Producers are also not having a good time with increased production costs, nor are they happy to pass on the incidence of these rising costs to households.
Production supply among OPEC nations in 2021 contrasts with 2019 levels. For instance, since the second half of 2021, oil production for exports in Iraq, Kuwait, Saudi Arabia and the United Arab Emirates (UAE) increased from 13.3 million barrels per day in June 2021 to 15.1 million barrels per day in October, registering an increase of 13 per cent, according to sources from the US Energy Information Administration.
However, crude oil exports from these four countries remain lower than realisations for 2019.
Also, crude oil supply from Angola, Libya and Nigeria has been flat in 2021. In October, supply figures were much closer to their low 2020 levels when compared with their 2019 levels, the U.S. Energy Information Administration reports. The production level observed in the lower 48 states of the US has also recorded a relatively flat trend compared with OPEC overall exports.
The overall slowdown in crude oil supply owes on one part to OPEC’s concern towards a resurgence of another pandemic given the rise of daily new cases in some parts of the world, and on another part, to other technical considerations such as the density and sulphur content of the crude product, geography, shipping logistics and market fundamentals.
For this reason, the U.S. and, indeed, some other countries of the world have been seeking ways to lower prices and address the scant supply relative to the demand for the prized commodity. The UK has been reported to give the go-ahead to local firms to voluntarily release 1.5 million barrels of oil from privately owned reserves to support the price slide drive.
It is hoped that supply intervention by the various yielding nations will help bring down the global price of crude oil and reverse the increasing cost trend worldwide.