We said, at the beginning of the year, that it would be worth keeping an eye on the price of oil. And we’ve followed our own advice ever since. The last time we checked, the price of a barrel of Brent Crude was around the $39 mark. As the graph below shows, it is now closer to $44. This rise is good for oil-producing countries and corporations, but less so for consumers whose fuel costs have risen too.
The reason we mention this now is because there’s been quite a lot of recent speculation about where oil prices are headed. Or, more specifically, about where oil supply levels are headed. For this is why oil prices declined in the first place: there is an oversupply of the stuff. If the supply can be brought under control, then those prices should continue rising.
This is what the International Energy Agency suggests will happen. According to the forecasts in their latest Oil Market Report, the global oil surplus will fall from about 1.5 million barrels a day in the first half of this year to about 200,000 barrels a day in the second half. They put this down to non-OPEC countries, such as the United States, reducing their output in response to what are still relatively low oil prices. There’s less money to be made from black gold at the moment, so some countries are, basically, going to stop trying so hard.
But will this really diminish the oil surplus? The IEA caveats its own analysis by pointing out that other non-OPEC countries could rebel against the trends: ‘in the group of non-OPEC producers there are few areas of growth with only a handful of countries likely to increase production this year, unless Russia, which has surprised us all with continued growth in production, does not carry out its professed support for a production freeze.’
And then there are the OPEC countries themselves. Not long after the IEA published its report, it emerged that this group of oil-producing countries was unable to agree on a production freeze at a meeting in Qatar. The reason? Politics. Saudi Arabia said that it wouldn’t rubber-stamp the agreement unless their rival Iran was also part of it. The trouble is, Iran doesn’t appear to want to be part of it.
‘We concluded we all need time to consult further,’ is how Qatar’s energy minister summed up proceedings. Or in other words: watch this space. Perhaps that’s the ultimate lesson when it comes to oil. With so many actors involved, all with competing interests, and so many unknowable events to come, it’s hard to predict prices and supply levels for next week, let alone for later in the year. We shall continue simply to watch this space.