Growing geopolitical tensions as well as a gap between demand and supply has pushed up prices. What does this mean and what is likely to happen in the future. The price of oil is rising yet again creating a shadow over the economy, causing the cost of living and degrading confidence in consumers.
Many experts in the field of energy believed that oil would soon reach $100 per barrel even as electric vehicles increase in popularity and the coronavirus epidemic continues. Exxon Mobil and other oil companies that just a year ago were thought to be endangered dinosaurs by certain Wall Street analysts are thriving and raking in the biggest profits since the beginning of time.
Why are Oil Prices so high Right now?
The pandemic slowed prices for energy in 2020 and even sent the U.S. benchmark oil price to below 0.01 for the first time in history. However, prices have risen quicker and faster than analysts expected, because the supply of oil has not kept up with the demand.
Western oil producers, largely under pressure from environmentalists and investors are drilling fewer holes than they did before the pandemic to limit the growth in demand. Industry executives say they are trying to avoid the same mistakes they did in the past when they over-pumped oil at a time when prices were high which led to a decline in prices.
In other countries, such as Ecuador, Kazakhstan, and Libya natural disasters as well as political instability have reduced output in the last few months.
What Options Do The US And Its Allies Have If Russian Production Is Halted?
The United States, Japan, European countries and China will release additional crude out of their reserves of strategic reserves. These moves can be beneficial when a crisis is not long-lasting. However, the reserves would not be enough in the event that Russian energy supplies are cut off for months or even years.
Western oil companies who have pledged to not produce excessive amounts of oil may alter their strategy if Russia was unable or unwilling to provide the same amount of oil as it did. They would have huge incentive financial rewards — due to an increase in oil prices for them to continue drilling wells. However, it will take them months to increase production.
What Is The Status Of OPEC?
Vice President Biden has been pushing the Organization of the Petroleum Exporting Countries to increase oil production however, several members have fallen short of their production limits, and some might not be able to rapidly increase output. OPEC members and their allies Russia being one of their members, agreed on Wednesday to adhere to a plan to increase output in the coming month to just 400,000 barrels per day.
Additionally, if Russian supplies suddenly decrease, Washington is likely to press Saudi Arabia to raise production independent within the cartel. According to analysts, the kingdom has millions of barrels of capacity left which it could utilize in the event of an emergency.
What Would It Take To Bring Down Oil Prices?
Oil prices go between a low and a high. There are many reasons why prices may fall over the coming months. The pandemic is not ending and China has closed down many cities to stop the transmission of this virus. It is also slowing its economy and increasing the demand for energy. Russia as well as the Western world might agree whether it is formal or tacit, that would prevent an all-out attack on Ukraine.
Additionally, the United States and its allies can revive a nuclear deal with Iran that former President Donald J. Trump abandoned. A deal like this would enable Iran to sell its oil more quickly than it is currently. Experts believe that Iran could export more than a million barrels per day if the nuclear agreement is renewed.