Monday, 27 March, 2017

A Glimpse on International Oil Markets

By Abdolreza Ghofrani, Senior international expert

Through the past weeks, some well-known petroleum journals and analyses made by a number of oil experts expressing the crude oil supply have decreased in global markets. If the demand, they suggested, remain stable, the prices would hike up to US$ 70 or probably 80 over the next two years. However we need to reaffirm that anticipating stable and /or decreasing demand for oil need to be pretty cautious, because, in existing world conditions, particularly if an economy boom looms, the increase of demand is quite unavoidable. Certainly, should, purportedly, the supply falls and demand remains stable, the crude prices will go up , and eventually  the oil incomes of exporting countries ,either being a member of OPEC or non OPEC would rise. However, notwithstanding probable sliding of the crude supply, OPEC and non OPEC countries cannot be sure of the fair income they expect. Perhaps the only good implication of this may be that there will be no longer at least global oil glut.

The world oil markets, over the last two years, have experienced the harshest fluctuations (or in better words the free fall of the crude oil prices ).The causes have been more political than economic. It means that economic basic principle of supply-demand has had the least impact on fixing the prices. Through the past couple of days some of domestic or international experienced oil experts, have presented full realistic analyses. In this short paper, the author does not intend to repeat them and going again into details. There are, however, some points being worthy to be addressed:

1-As earlier mentioned, world oil markets have been the most fluctuated one through the past decades. The commendable attempts of OPEC, though, to adjust these fluctuations cannot be downplayed in one way or another. So undoubtedly the irrational and non-economic actions taken by some member states, OPEC is fortunately standing firmly. Hence upholding this organization is pretty critical. In spite of the hard challenges in its way, through the past decades, without OPEC, the oil markets could have been much perplexed and worse. Moreover, non-OPEC countries, calling for a well-planned oil markets and fixing good prices upon the supply-demand principle, absolutely as usual do not have any problem with this powerful organization as well as its cooperation.

2-OPEC member states as before should abide by their “quotas”, or in better words “production planning”, and no member, for any reason, never ever is allowed willingly to raise or decrease the ceiling of crude production. The world, over the past two years, have been witnessing that how come the political motivations created a mess- crisis in oil markets. Everybody now can see those responsible for this rough situation, are the people who did lose the most. Naturally in the existing situation their responsibility is far too heavy and therefore they need to sacrifice too much more.

3-Everybody knows that Shale expensive  oil extraction is an industrial process for unconventional oil production and is frequently discussed now in the world oil circles. There is no doubt that this will be one of the energy carriers over the years to come. The steady decreasing of fossil and conventional oil resources, certainly has already pushed the United States, being the biggest oil consumer (20 percent of global oil consumption), or as put by a university professor,” the most oil addicted country”*, to work hard for extraction of oil from this new resource and developing new technology for cheap extraction of the Shale. Though, the importance of Middle East  and its rich oil resources and in spite of developing new sources of energy in other parts of the world ,America and other major oil consumers will not easily  leave this important and strategic region alone. Since, as already mentioned, the world oil markets are the most unstable one, so all oil rich regions of the world are always vitally needed for the consumers, particularly those in the West.Definiely, Middle East will have a remarkable role in the world over the decades to come. Besides any energy crisis in other parts of the world will furthermore discern and preserve the importance of this region.

4-Investments in oil industry and developing the energy resources are thoroughly important and vital for rich oil countries particularly our own as well. Over the past few decades, because of unnecessary and illegitimate sanctions imposed on our country, Iran oil industry has not been able to use her potentials and develop upper hand and lower hand operations. So other than the domestic resources for investments in oil industry, using the foreign resources for the investments are quite unavoidable. In this tight competing world, there are countries, with lavish financial resources and high technology that willingly want to do this because they are thoroughly aware of the huge benefits of these ventures. Giving, of course, the top priority to national interests, striking rational and just oil deals need not to be the source of any concern. Particularly that in present situation that is much more imminent.

5-Lastly, we have to recall that the lion part of our income is from oil. As time and again, this has been reiterated that oil resources are depleting, so it is quite critical to make the best use of it.Once an economist put it wisely,” every drop of oil should be efficiently used for development of our country and the better- off of our next generations who will have to live without depending merely on oil”. It is also worthy to note that in the existing world conditions ,there is a producer-consumer interdependence ,though this relation may not be quite equal but we dare to say that it is pretty fair. Last but not the least that oil income should not be used for just current expenses and must finance and serve the infrastructure of our economy as the oil resources are exhausting. This is what Norway has been doing for years.

*See “Addiction to Oil .America’s Relentless Drive for Energy Security, by Ian Rutledge, 2005 translated by Abdolreza Ghofrani into Farsi     

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