Oil prices rose again, an indicator of recovery may be temporary on oil prices, with Brent prices exceeded over $ 30 a barrel after talking about the agreement between the producers.
The sharp drop in oil prices in the world markets had led , with the resulting serious consequences for the countries and companies , the Organization of Petroleum Exporting Countries “OPEC” to fire warning of serious and disturbing problems in the future in the event of investments decline in the oil industry , which led to the search for an agreement on a strategy to reduce production.
Disorders and fears affected the markets since the beginning of the year 2016, where oil prices were dropped during the past few days to below the $ 30 a barrel, the lowest level in more than 12 years, which has led to real confusion in many countries, especially Rentier states whose oil as an artery for the economy.
After talking about the intention for cooperation between the major producers to cut the supply and reduce the satiety that is taking place in the oil markets, as it is known, it will allow to the rise of oil prices, but as it is well known, any information on the lack of agreement within the markets, it will necessarily lead to the falling of prices and perhaps dramatically.
Reports have been published to tell that the head of Transneft state-owned company announced “The officials of the Russian energy sector concluded the necessity to hold talks with Saudi Arabia and other countries of OPEC about cutting production to support crude prices.”
Before this announcement , calls of countries are started within the organization, such as Nigeria and Venezuela to cut production to boost prices, which fell by more than half since May last year.
Experts say several factors played a role in the rise of oil prices, including the cold weather and blowing snow storms in the United States and Europe, as well as news about the possibility of coordination efforts between the Organization of the Petroleum Exporting Countries “OPEC” and producers from abroad to find a mechanism to reduce the current glut of oil supply that paid prices during the current January to its lowest levels in more than 12 years.
There may be an agreement in the near term, especially after showing intention of countries in OPEC to cut its daily production , but it will not be on the account of the market share of OPEC , and as in the case in Iraq, where Iraq’s oil minister warned of what he called a ‘coup’ in the global oil market with the investment stops, expressing his country’s readiness to cut production on conditions.
In fact, several factors led to this rise in oil prices, it was a talk about the agreement in the oil market between producers that was of the greatest impact on recovery rates ,noting that the fierce war was among the traditional producers, led by Saudi Arabia and the “OPEC” on the one hand, and non-traditional producers of “rock oil” producers; (United States, Russia, Canada, Brazil) on the other hand, which resulted in the fact to the losses of hundreds of billions and perhaps trillions of dollars as a result of losses of giant companies involved in shale oil production, where reports indicate that the debt of shale oil companies , that it was doubtful to get it, is currently more than $ 320 billion, and declining of investments in this sector as a result of the crash in oil prices in the markets.
On the other hand, we note that Russia ,the largest producer of shale oil which produces more than 10 million barrels , is facing a financial crisis, and on the other hand, not to mention the large losses suffered by the traditional “OPEC oil-producing countries” , These countries lost billions of dollars as a result of falling prices, which was reflected in the budgets of these countries and its economies and beyond from that , this reality has threatened the home front of these countries so that there is almost a lack of political stability, and here specifically to mention countries such as Iraq and Venezuela.
Many experts believe that the need is very urgent at this stage to look at the challenges that beset the world economy, noting that the global economic crisis that started from the continent of Asia, and China in particular has left its negative effects on the entire global economy, and International Monetary Fund cut its forecast for global growth in 2016 and warned of significant risks to the economy because of the global slowdown in the Chinese economy and the downturn in Brazil and falling oil prices. The fund is expected to increase lower than expected in economic activity in 2017 to 3.6% (less than 0.2 points) which is imposed by the conditions that described the “danger” of many countries, and here there must be a responsible review by political and economic decision makers and review to the glitches that had exhausted the global economy in general.
The production capacity of Iran in the wake of the lifting of the ban. There are comments from oil officials in Iran that Tehran wants to increase its oil production by about a million barrels a day. But Western experts in Iranian affairs believe that Iran will not be able to raise its production capacity by more than 800 thousand barrels at best .Despite the lifting of sanctions , the oil old industry is facing challenges that set it in dire need of modern technology owned by Western companies, at a time when Western companies do not want to enter into contracts amid the harsh financial conditions and dissatisfaction with the contracts offered by Iran to invest in oil and gas.
These six equations are the most important oil determinants in the new year, but the market is currently watching, the top producers agreement to cut production, which is the most important factor in the withdrawal of the surplus.
The new data which may affect the price of oil is the military maneuvers in the Arabic Gulf with the participation of forces from the Gulf states participated in the Arab coalition that is fighting in Yemen and in addition to Egypt, on the other hand, Iran’s announcement of the start of the Iranian huge navy military maneuvers for five-days came and that is a sight to create confusion about the future of the situation in the region and possibly the world.
The nature of the exchange of letters and the review of military powers and the ability of Military deterrence between the Arabs and Iran, may pose a real tension of the region which lies amid the a burning focus for decades, represents a real threat to the stability of the Middle East and the whole world.
It is still too early to talk about the return or recovery of oil prices, Factors of the collapse in oil prices are still exist till now ,and the competition between traditional and new producers reached its highest point , but talking about the agreement or genuine cooperation in the oil markets may raise oil prices to a good level, but it will not be in any case, as it was before the beginning of the collapse of prices in 2014, which in the short term at least.
But the question remains about the political and military situation in the region these days, are we going to see tension that have a real impact on the oil markets? Does prices will continue to rise in the event of producers to reach a cooperation agreement? And where to reach in case of agreement? These questions and others will be the focus of the attention of oil analysts and experts in the coming days.
Rawabet Center for Research and Strategic Studies