Rising Oil Price: OPEC+ members can rub their hands with glee!

opec production cuts

Crude oil prices are increasing at a steady pace, proving doom-mongers wrong once again, while defying the factors that potentially could diminish the demand in the middle of the second wave of the pandemic in the West.

Not many analysts believed that the production cuts by the OPEC+ would have such an impact on the price of oil; Brent crude hit above $55 on Friday, with WTI closely following the pattern.

The resurgence of oil price, having been battered by the effects of the Coronavirus for months, has excited key players at the heart of the industry – for obvious reasons.

The US rig count, for instance, went up from by 8 during the past week, in the hope of cashing in on the loss of supply by the OPEC+. If the trend continues, the shale oil producers, both in the US and elsewhere, will take wing and become part of the diminishing supply side of the equation due to productions cuts by the OPEC.

US Oil rig count

The weather has been on the side of oil producers too: in Europe, China, Japan and the US, the temperature has been plummeting in winter and demand for fossil fuels has shot up in inverse proportion to the falling temperatures.

In China, meanwhile, the dearth of coal due to dwindling imports from Australia that stems from a political dispute between the two countries, has forced authorities to look for alternatives to deal with the shortage; in short, the demand for oil and gas in these circumstances is fully understandable.

In a further sign of the much-needed boost for the industry, the US crude oil inventories have been falling for three successive weeks as well.

Having buoyed by the success of its game-plan at the recent OPEC+ meeting, Saudi Arabia lost no time in exploiting the current market conditions; it increased the price of light crude oil that it sells to Asia.

Saudi Arabia, facing a significant budget deficit at home, wants to make hay while the sun shines, knowing very well about the volatility of this particular commodity sector. For now, it seems to be a winner, when the Western economies are slowly grinding to a halt.

Oil producers deserve to get a fair price for their exports for the survival of the very industry, as there is no perfect substitute at present for fossil fuels.

Otherwise, they cannot fund research or exploration, something that is in nobody’s interest. Moreover, millions of folks in Asia, whose livelihood directly depends on the health of the Gulf economies, can breathe a sigh of relief while seeing the positive development in the oil markets.



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