With the latest OPEC+ decision, which was a foregone
conclusion anyway in light of the enormous power that Saudi Arabia wields in
the organization, the crude oil price started rocketing on Friday, despite the
substantial increase in crude oil stockpiles in the US.
Usually the US crude oil stockpiles is a reliable
indicator when it comes to determining the price of oil; the higher it goes,
the lower the price becomes.
This time, however, the crude oil price defied the rising
crude oil inventories while adding yet another surprise to the spectacle of
crude oil price fluctuations.
If the trend continues into next week, the price of
crude oil, both Brent and WTI, will go beyond $70 a barrel; it will certainly
be reflected at the pumps when you go to fill the tanks.
In the United Kingdom, motorists already feel the significant
rise in price at service stations, having been unable to put their vehicles on
the roads when the price plummeted at the pumps – for obvious reasons.
World’s top consumers, meanwhile, cry foul for not
increasing the crude oil output by the OPEC+, fearing what could potentially
happen to their fragile economic recoveries.
These countries, however, made hay while the sun
shone: both India and China, for instance, bought millions of barrels on the
cheap at the height of the pandemic last year when the producers, especially in
the Middle East, could not sell their crude oil; they went on a buying spree up
until they ran out of storage facilities; both Saudi Arabia and the UAE even
lowered the oil price for Asia during this period, giving buyers yet another
opportunity to maximize their gains.
In this context, it is understandable why the
members of the OPEC+ did not heed the concerns expressed by world’s top buyers.
The rising oil price, meanwhile, will create a
lingering headache for the Biden administration, if it continues unabated. If the
price continues at this rate, the transport costs will rise and that will, in
turn, increase the price of essential items, at a time when millions of
Americans are making ends meet with the aid of government handouts.
Since the administration is against fracking in
principle, it will be a monumental challenge for the American oil producers to
get the production back to pre-pandemic level.
In short, President Biden will be forced to walk a
tightrope of energy in a matter of weeks, unless he makes a
politically-suicidal policy change.
If President Trump was in power, he would have
expressed his displeasure at the rise in oil price by now, even if it bordered
on not-being-very-presidential; being a businessman, he could sense the impact
on businesses weeks before it actually hit.
At present, there is no cohesive political will to force
the OPEC+ to do at least a partial ‘U-turn’. Apart from the murmurs from Asia,
neither the US nor Europe voiced concern over the production cuts, perhaps not
to upset green lobbies in their respective countries.
That means the OPEC+ will stick to its guns,
perhaps, justifying it on the grounds of past losses it had been suffering
since 2014 – up until the third quarter last year.
