An oil price range that everyone is comfortable with

As in the past, the Opec meeting in Vienna last week was not usual; rather it came on the heels of statements and counter-statements by both oil consuming and exporting countries. President Donald Trump seeks to reduce oil prices to $30 (Dh110) a barrel and accuses Opec of monopoly, despite the positive role being played by the organisation in striking a balance in the market and curbing price hikes to harmful levels while at the same time obtaining a fair price for their exports.

Therefore, Opec decided at the meeting to increase production in cooperation with non-Opec exporters by 1 million barrels a day starting from July. This is to further contribute to price stability, which now range between $70-$75 a barrel, a price suitable to all parties. This also comes in anticipation of possible developments in the global energy market and to avoid any potential shortage of supplies.

In addition, the US President is expected to include Iran’s oil and gas sector in the sanctions imposed on Tehran, meaning Iranian oil exports will be reduced by more than 1.3 million barrels a day. And especially as Asian countries importing Iranian oil and gas have been subject to US sanctions despite their dissatisfaction.

Are these oil output increasing decisions enough to reassure markets and keep prices at current levels? This is definitely uncertain for many reasons. In addition to the decisions taken to maintain supply and demand balance sought by producing countries, which are undoubtedly necessary, there are geopolitical developments, particularly in the Middle East, that have a direct and significant impact on prices.

The sanctions against Tehran and its recent failure to respond to US demands for its nuclear and missile programmes would stoke the fire of tensions. Add to this Iran’s attempt to set up military bases in Syria, which would inevitably lead to a confrontation with Israel and affect the region as a whole.

China threat

In addition, there is an increase in the global demand for oil, estimated at 1.6 million barrels per day, according to the International Energy Agency. This coincides with China’s threat to impose duties by almost 25 per cent on US oil imports, which amount to 363 million barrels per day, in response to the tariffs imposed by the US by the same percentage on some imports from China. It means increasing Chinese demand for Gulf, Russian and African oil imports.

These developments make up a conducive environment for increased speculation in the global markets, which will lead to sharp fluctuations in prices. Speculators are always waiting for opportunities to influence market ups and downs for quick profits. It is clear Opec’s decisions — backed by exporting countries — are vital and influential in the markets.

But they are not the only determinant of market trends and price levels, which requires consuming countries, especially President Trump, to stop blaming Opec, for price hikes.

Although Opec is a major player, it does not have all the cards as it did in the 1970s and 1980s. Since then, much of the realities have changed and new players have emerged, especially the steadily growing US shale oil.

In general, oil prices will remain at current levels in the coming months, with some ups and downs resulting from the factors we mentioned. For oil producers, this means achieving higher oil revenues this year compared to recent years and more stability and growth for their economies.

— Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.