On Tuesday US Oil reached its highest price since December 2014, Brent reaching $69.08 and WTI reaching $63.24. Today WTI reached a high of 63.47 and Brent 69.32, Oil is undeniably starting the year with a bull run. Last year in July Brent had dipped below $50.00 as OPEC country members lowered their production, even though they weren’t to the levels the Organization intended.
January 2018 though tells a very different story, with the API (American Petroleum Institute) reporting a 11.2 Million barrel drop of inventories in the first week of the year. Compounding this upward trend is OPEC+ intent to continue its production cuts throughout 2018. Although non-OPEC countries will likely ramp up production to counter-act the diminished supply – the U.S. is already forecasted to surpass 10 million barrels a day.
Although oil experienced a slight correction downwards yesterday, its prices still remained in the region of three year highs. The sustained global demand for oil which is currently in the area of 100 million barrels a day, in combination with the curtailing of supply, may bolster prices well into the coming quarter.
OPEC isn’t entirely at the core of this price rally, a colder than average winter, increased over-seas demand and increased refinery also contributed to stockpiles slipping downwards. Creating even more fertile ground for a 49% oil price increase are frictions in the Middle East, a huge oil producer. We have recently seen protests breakout in Iran, both pro-government and anti-government – causing political analysts to fear that this may end up stoking the embers and causing a renewal of the 2010 Arab Spring.
Even though in the past the protests didn’t reach any of the oil producing countries of the M. East, Saudi Arabia, Iran, Iraq and the U.A.E. – this time it started in Iran, much closer to the oil producing countries.
Although the situation has become more stabilized in Iran with the protests being quelled, we cannot ignore the fact that the government arrested more than 3,700 people and 21 people were killed. The longevity of this stability will be largely dependent on the fate of these detainees and families have already converged on a number of the centers their loved ones are being held.
Although not at the forefront of the news today, Saudi Arabia’s Crown Prince still went through a purge of the country’s elite (jailing and confiscating/commandeering their assets) and in the process of consolidating authority, which could be yet another smoldering ember waiting to burst into a full-blown rebellion. Of course, the diplomatic rift created between Qatar and Saudi Arabia and Saudi Arabia and Lebanon, also has the potential to destabilize the region, further supporting the upwards trend.
As you can see there are a myriad of factors contributing to this peak in oil price, many factors of which do not seem to be easily remedied. Does this mean that the trend will continue? It depends on what kind of news will come out of the Middle East, OPEC+ members and of course the United States, which has the ability to slightly counteract the renewed restriction of oil production.