Oil prices on decline – again! – By Hemantha Yapa Abeywardena
The price of crude oil is back on decline, having been on the rise for about three weeks. As of 13:00 GMT on Tuesday, the prices of WTI and Brent were at $77.94 and $81.97 respectively.
On political front, meanwhile, when President Trump received a hero’s welcome at the recently-concluded RNC, Republican National Convention, having survived an assasination attempt, he electrified the audience while declaring the very first that he would do in office: bringing down inflation by making oil and gas flow freely flow from right under his feet!
While reciting his famous mantra, ‘Drill baby drill‘, President Trump did not mince his words about what he would do: the US drilling will go ahead full steam, the Republican presidential candidate forcefully indicated.
With four months to go before the US presidential election, the outcome may be too close to call, but his determination to bring about yet another seisimic change in the energy realm may have sent a chill along the spines of oil producers; if the Republicans win; it is not a case of ‘ifs’, ‘buts’, ‘when’ or anything that linguistically falls in between, but a near certainty.
The political developments in the US, the world’s largest economy, may have been a key factor that brought down the prices of oil in the last few days.
In addition, global economic worries, coupled with high inflation and potential interest rate hikes, are also affecting the current oil prices. The crude oil stocks, for instance, are rising, indicating a static or even a demand on decline. Meanwhile, China’s less-than-favourable GDP growth, estimated to be just 5.2% is not encouraging either as far as energy markets are concerned, especially that being the world’s top importer of crude oil.
In light of the falling oil prices, the OPEC+ has been confined into a space with very little room for manoeuvre, perhaps having run out of steam of its balancing act: first of all, production cuts are easier said than done; moreover, it can exacerbate the prevailing economic situation across the world, unless a balance is struck while restricting the supply of the commodity to the markets; if stretched too far, slow economic growth can hurt producers, especially in the Middle East, too, in the long run, as they rely on many imports, especially vital food and vegetables.
In addition, energy transition moves are globally underway, diverting the vital investments away from the traditional fossil fuel sector. If prices fall down further, attracting investments for fossil fuel sector will be a herculian task, unless a growing, highly-skeptical audience is convinced about the measures taken to cut down on the carbon emission into the atmosphere.
All in all, the oil price that used to be determined by a complex interplay of political and economic factors, has never left its own domain of voltaitly and uncertainty; it’s going to remain that way for the for the forseeble future, leaving the producers in a uncomfortable lurch for years to come.
