Middle East in the middle
Published by Callum O'Reilly,
Being in the middle is a constantly changing situation. Sometimes it means the ability to expand in all directions, while other times there is pressure from all sides.
The Middle East remains in the middle of the global oil market, but its ability to move the market waxes and wanes, and oil prices continue to cycle. The price spike of 2008 contributed to the Great Recession and a subsequent price collapse. Prices strengthened then fell as supplies expanded. At the end of 2014, Saudi Arabia launched an oil price war to drive higher-cost producers out and regain market share. The strategy was only partly successful. Brent crude spot prices dropped from US$108.56 in 2013 to a low of US$43.64 in 2016. Prices began to creep up in 2017 and 2018, averaging US$71.34/bbl in 2018. But the gradual increase in prices stimulated production, and 2019 is bringing a downturn once again. This time, the downturn coincides with greater uncertainty about global economic health pulling prices down, and with higher levels of geopolitical tension placing a floor under prices.
Sanctions against Iran have provoked confrontations in the Persian Gulf and elsewhere, with direct conflict with the US and the UK. The US is tightening sanctions against Venezuela as well, which restricts supply. However, global oil supplies have been ample recently, and incidents that could have caused prices to spike have had only modest effects on price. Indeed, there are fears on the other side: the protracted US-China trade war is bringing a potential economic slowdown. When US President Donald Trump announced tariffs on an additional US$300 billion in Chinese goods, stocks and equities fell in markets around the world. Oil prices entered bear market territory. Saudi Arabia jumped to the forefront once again, announcing that it would lead efforts among the OPEC-non-OPEC producers alliance to try to stabilise prices. Just as suddenly, the US decided to postpone the new tariffs, and oil prices strengthened. With elections and the holiday shopping season approaching, the current US administration decided to exercise caution.
Can the Middle East successfully play the middle, guarding against price spikes and defending against collapse?
Written by Nancy Yamaguchi, Contributing Editor.
This article was originally published in the October issue of Hydrocarbon Engineering. To read the full article, sign in or register for a free trial subscription.
Read the article online at: https://www.hydrocarbonengineering.com/refining/03102019/middle-east-in-the-middle/
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