Oil price rises: demand breeds dynamism, eclipsing political factors

 

Weekly oil price

The price of crude oil gained momentum at the weekend again, as the possibility of a deal being struck during the sixth round of talks among the signatories of the 2015 Iran nuclear deal in Vienna, Austria, diminished.

The talks, however, are going to resume in a few days’ time after the teams involved in the process consult their corresponding political leadership in seeking the green light for what Iranians called, the ‘document’.

At present, the demand of crude oil is rocketing, especially in the US and Europe with strong signals from the aviation sector too. The following image, for instance, shows the sky near Heathrow airport at 11:35 am on Monday, 21, in the United Kingdom; this is in sharp contrast to what we saw a year ago with a less than a half a dozen planes in the skies over the same area.

Heathrow sky June 2021


The OPEC+, meanwhile, is under pressure to increase the production to meet the growing demand. The latest appeal came from an unexpected source, though – the IEA, International Energy Agency, which a few weeks ago grabbed the headlines for all the wrong reasons: the agency did not want any more investments in the fossil fuel sector in order to reach its sacred goal, net zero emissions by 2050.

The next meeting of the OPEC+ is due to be held on 1 July via videoconference. It’s going to be tough meeting, given the uncertainty over Iran supply potential; the group will have to weigh the available options as the international demand for more oil cannot be swept under the carpet.

If Iran strikes a deal with the international community, it will inevitably demand its right to sell more of the commodity in order to compensate for the losses it suffered due to sanctions for three years; the loss is estimated to be more than $100 billion. If Iran gets preferential treatment, the entire quota system could potentially explode, leaving all the members in an uncomfortable lurch.

It goes without saying that the OPEC+ members see eye to eye on just one thing: maintaining the price of oil by adjusting the production. Apart from that, they are divided on many fronts – both politically and regionally.

Even if the members are in unison to keep the production level as it is at present, a last-minute intervention by a global superpower can change dynamics instantly; this has happened before the final communique being issued in such meetings.

All in all, the price of crude oil at present reflects the good, old economic doctrine:  the growing demand means higher price. It will stay so unless a breakthrough comes out of the talks on the JCPOA, the 2015 Iranian nuclear deal.

 

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