The oil price is on the rise and so is the US rig
count – and US crude inventories - yet there are no signs of oil price reaching
equilibrium, safeguarding the interests of both the consumers and producers.
The rising oil price is affecting the consumers and
economists warn about an inflationary storm, engulfing the entire world that
has the potential to derail the global recovery. The producers, meanwhile, are
worried that the rise in price at this rate is not sustainable.
The concerns of the producers stem from a reasonable
worry: although most major economies are limping back to normal, rather the new
normal, the crude inventories do not reflect an increased consumption by
consumers as a whole; on the contrary, it was the exact opposite, clearly
indicated by the recent API and EIA data. In short, it looks like a
self-induced-customer-restraint.
In these circumstances, the oil producers do not
want to go through what happened during the period of 2014 – 2016.
As of Friday this week, the price of WTI and Brent
stood at $82.28 and $84.86 respectively.
The US oil rig count, meanwhile, has risen
significantly in proportion to the price of crude oil. Analysts, however, are
far from talking about an imminent equilibrium in the crude oil markets.
One of the factors that stops analysts from making
predictions is the fact that the price of gas shows no sign of going down. On the
contrary, its upward march continues as President Putin of Russia has been
implying in the past two weeks that he was not for turning.
Not only did he blame the energy crisis on the
decisions made by the European leaders, but also made it clear that Nord Stream
is the solution to the crisis, in terms of price and availability of gas for
the European customers; Mr Putin has been saying that by cutting down on the distance
from source to the distribution ports by 2000 km in transit, the savings can be
made to be passed on to the consumers; whether the European leaders agree with
Mr Putin remains to be seen.
President Putin, however, just shrugged off the accusation
that Russia was weaponizing the gas shortage faced by Europe.
The shortage of gas in Europe came about as the power
from renewable sources suddenly dropped unexpectedly.
In the United Kingdom, for instance, the drop was
substantial in the past two months, going down from 25% of total contribution
last year to just 7%.
It was due to slow winds in the North Sea. No expert
saw it was coming and the government was caught off guard. It was not just in
the UK, though. It happened in the rest of Europe too.
In order to compensate for the losses from the
renewables, the power companies scrambled for alternatives, including the
much-despised coal. This led to a sharp increase in price of coal – and shortages.
Then the next alternative was on their radar – crude oil. That in turn pushed
the price up of that commodity too.
Since there are no signs of winds getting stronger
in the regions with high saturation of wind turbines, the demand for both coal
and crude oil remains strong at present. In this context, it is unthinkable
that the price of crude oil will come down any time soon.
Despite the gloom and doom, there is some good news
on the horizon, though: the Chinese authorities say that the floods in the
coal-producing regions have receded and life is coming back to normal. They
have asked coal producers to increase the production as a matter of national
urgency.
Analysts hope these measures will bring the price of
the commodity down, along with that of crude oil and natural gas too – to some
extent.
Oil producers, meanwhile, make it loud and clear
that years of underinvestment eclipses their ambition, when they try to
increase the production, demanded by major global customers.
The developments in the energy realms come at a time
when the world is not out of the woods yet. In this context, every move that
the decision makers make in connection with the energy crunch is going to cause
far-reaching consequences, beyond the energy sector.
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