Will shale oil producers chip in to fill supply gaps?

oil price tuesday

The oil price rally continues and the fluctuations that we saw on Monday can be mainly attributed to the relative strength of the US dollar – a development that some analysts see as a correction.

Normally, there has been an inverse relationship between the strength of the US dollar and the oil price: the stronger the dollar, the lower the price of a barrel of crude oil.

The oil price on Tuesday, however, continued to rise, perhaps reflecting the real fall of supply and other key factors that potentially influence the markets:

·       Followed by Saudi Arabia and Iraq, the UAE and Kuwait also raised the crude oil price for Asia

·       The daily output cut of 1 million barrels a day by Saudi Arabia

·       Due to a severe cold snap, Kazakhstan could not contribute its hike in output, a part of modest 75,000 barrels per day along with Russia that was agreed upon at the recent OPEC+ meeting

·       Unusually cold weather in some parts of Asia, especially in China and Japan

In another development, meanwhile, India announced its oil consumption has fallen in 2020 for the first time in over 20 years, indicating the impact of the Coronavirus on its economy.

India’s growth for the calendar year 2020 was -8.9%; since its rural economy is much more resilient that that of the rest, the figure will improve despite the spread of pandemic not being static.

President Trump at the height of his power used to berate at the oil producers when the price of oil became very high, fearing it would damage the US economy in particular and global economy in general; he did in public first, and then must have used diplomatic channels to vent his fury.

The new US administration led by President-elect Joe Biden is full of avowed green enthusiasts and will look at the production issue from a different angle.

Since getting the economy back on track is a major issue for them too, they may not allow oil price to make the upward trend exponential, fearing a lasting damage to growth in the long run.

In this context, the shale producers can chip in to fill the gaps in supply side of the equation and control the oil price to make it sustainable and mutually beneficial to both producers and consumers.



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