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Growth in oil prices is not a long lasting trend


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According to the Organization of Petroleum Producing Countries (OPEC), the rally of oil to a value of 80 USD per barrel represents a short-term leap, predetermined by the geopolitical situation and not by a shortage of stocks. This was indicated by four representatives of the organization, which is a sign that it is not in a hurry to change its policy of reducing the yield.
The largest oil producer in Saudi Arabia believes that any short, spurred price spikes is not a sufficient basis for stimulating production, according to an OPEC source familiar with the kingdom’s position. According to him, such a decision could be taken after the growth was pushed by data pointing to repercussions on the reserves.
The four representatives of the cartel point out that the latest price increase came from concerns about US sanctions against Iran and the tensions in the Middle East rather than a sudden contraction in oil supply and demand.
Since last year, the crude oil has been boosted by an agreement between OPEC and other producer countries, including Russia, to cut production. Since the agreement began in January 2017, prices have risen by 40%.
The Brent variety reached a price of 79.47 USD per barrel on Tuesday, the highest since November 2014, before dropping again to 78 USD per barrel. According to some OPEC experts, the prices may rise even further before falling.
The price of crude oil may exceed 80 USD and then drop, according to the analysts. The pumping of the price by several geo-political factors may cause overheating of the market and speculators might start selling futures at high and drop the price. Others say the value is still not high enough to cause worries.
Last month, the US President Donald Trump accused OPEC of “artificially” increasing prices, stepping up pressure on manufacturers to calm the market.
The Cartel and its allies cut oil production by 1.8 million barrels per day, accounting for almost 2% of world production, and their program will continue until the end of 2018. The oil ministers in the group will meet again on June 22-23 to make an updated policy assessment.
Currently, OPEC countries have not joined around a single oil price. Saudi Arabia over the last year was one of the countries supporting higher prices. The Kingdom is hoping for a barrel price of 80 or even 100 USD.
Iran, for its part, wants lower prices than those of Riyadh and has already said that exporters should strive for a price of 60 USD per barrel in order to limit the increased US yield.