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Uncertainty in the Oil Market
A picture obtained by AFP from Iranian news agency ISNA on June 13, 2019 reportedly shows fire and smoke billowing from Norwegian-owned Front Altair tanker said to have been attacked in the waters of the Gulf of Oman. (AFP via Getty Images)

Uncertainty in the Oil Market

Al-Sharq al-Awsat, London, August 25

Where will oil prices go in the last quarter of 2019? How will they change in the early months of 2020? No one can easily understand the market these days because there are so many moving parts to it, each of which is volatile in and of itself. The beginning is always with the US-China trade war, which ebbs and flows. Yesterday, tensions again peaked after China announced the imposition of $75 billion worth of additional tariffs on US goods, which will affect US exports of cars, oil, and soybeans. A US response from President Donald Trump is expected. This war is of great concern to the oil market, as everyone expects Chinese demand for oil to fall by about one million barrels per day. Now we move to another dynamic part: Russia and the role it plays in the market. Russia is an important part of the alliance of the Organization of the Petroleum Exporting Countries (OPEC) and contributes a significant share to the production cuts agreed upon by the alliance. But Russia is not a predictable producer, as Russian production rates consistently fluctuate, shifting between reduction and non-compliance. In recent months, Russia has been committed to cutting its production, but much of Russia’s cuts are not due to its willingness to commit to the alliance voluntarily, but rather because of internal factors such as the contamination of the Druzhba pipeline the world’s longest oil pipeline, originating in the Russian heartland. Another source of price instability are the three countries whose behavior no one can predict given their geopolitical conditions: Iran, Venezuela, and Libya. Then there is the state of the global economy. The global economic situation seems already difficult in many countries such as Britain and Germany. The British pound fell and British stocks were sold after data showed that the output of the world’s fifth-largest economy fell 0.2 percent in the past three months. Data also show that the German economy shrunk in the second quarter of this year amid growing trade tensions between the United States and China and Britain’s threat of a disorderly exit from the European Union. Amid these moving parts, oil prices could remain anywhere between $60 and $65 per gallon until the end of the year. What will happen in 2020 is beyond our current ability to predict.  – Wael Mahadi

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