Oil price closer to $70 a barrel: it's more realistic, sustainable and better than pursuing unrealistic goals

 

oil price and cash cow

Crude oil price that has been rising for the past three weeks at a slower, but steady rate, appears to be facing a formidable ceiling to slip through - for months.

Although the analysts from certain investment banks have been predicting a price, ranging from $80 to $100 a barrel this year, in reality, it has been just floating below $70 with irregular peaks and troughs, caught up in gentle draughts of mere speculations.

The major oil producers, meanwhile, are pleased with the current crude oil price; they no longer make huge losses, something they experienced about 4 or 5 years ago; they can balance their books and get their economies back on track; they can make plans for the future on solid, realistic grounds rather than spongy carpets of imagination.

On domestic front, especially in the Middle East, companies can revive their operations and create jobs for the local workforce, something that had been on decline even before the pandemic struck the world.

In addition, these companies can employ millions of people from Asia in supporting roles; even before the pandemic, millions of them lost their jobs due to plummeting oil prices; the pandemic just made the crisis worse.

The countries in Asia that heavily rely on the remittances of the expatriates, can breathe a collective sigh of relief, when the Middle Eastern economies are improving; when the economic outlook of the countries in question improves, the stronger nations that sell products to them, inevitably, find their fortunes growing in turn as well. In short, the gains are universal, not just region-centric.

If oil prices go up too high, by contrast, the developing countries are going face a catalogue of hardships, ranging from high unemployment rates to facing the prospect of restricting imports due to lack of dollars at their disposal; that means, the storms of discontent are just around the corner that can easily get out of hand.

Oil producing nations in the Middle East are fully aware of this aspect of the oil story in a region closer to them than the rest of the world; that’s why they do not dream of seeing an exponential rise in oil price; it simply is not sustainable; they would rather strike a balance than chase after unrealistic goals.

Although the achievement of the highest price for something they produce is every producer’s ultimate goal, the oil producers are fully aware of the consequences of excesses when it comes to a major, essential, global commodity such as crude oil; global politics and the crude oil price are inextricably linked.

When President Trump was in power, he assumed an additional role of becoming the human equivalent of a megaphone when the oil price went too high, often facing the direction of the Middle East to vent his fury, coupled with frustration – despite the US being the top crude oil producer; it usually did work at that time!

Even at the current price level, consumers feel the pinch at the pumps – even those who are in the West, because the taxes levied on by the government is pretty substantial.

In this context, the oil producers have a point to make when the consumers complain about high oil price at the pumps: the producers are not to be blamed entirely for the development.

On the other hand, the governments have very little choice to make when it comes to raising taxes in order to fund various welfare measures that they have been compelled to take due to the pandemic.

All in all, although the crude oil price around $70 a barrel is not ideal as far as the producers are concerned, it is much more realistic to keep the sector’s dynamism alive for years to come, without being subjected to destructive fluctuations that spell disaster for the whole world in the long run.

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