Rate of oil price surge: will the politicians get involved again to cap the price?

 

The price of crude oil is steadily rising and its ceiling, if any, is anybody’s guess at present, because getting a perfect prediction by analysing past data, by means of an Excel spreadsheet or the ‘best’ available ML algorithm, is like predicting the exact date and ferocity of the first Atlantic hurricane.

The unpredictable nature of outbreaks of the Coronavirus across the world, even in places that we thought it was under control, clearly shows endless data-crunching can become redundant unless we identify every single factor that determines a given event.

The prediction of the price of crude oil in the international markets is no different. Who can predict the exact price of crude oil in two weeks’ time – with or without a model?

This is the nightmare faced by both analysts and traders alike in the volatile commodity markets.

When the price of crude oil rises at this rate, the oil producers are understandably come under immense pressure and they in turn look for a scapegoat or a shoal of red-herring, depending on the individual or collective PR skills.

Short-sellers in the commodity markets, for instance, came under spotlight last week again when Prince Abdulaziz bin Salman, the Saudi Energy Minister, picked on them for their ‘destructive’ role in the markets and wanted them to learn a ‘lesson’.

Of course, short-sellers are no saints. The Saudi minster, however, could have gone further by exposing the real factors that determine the price of oil at the pumps – the taxes levied on the fuel by governments that show huge inconsistencies, for instance.

The oil producers, having suffered for many years due to falling oil prices, just saw the light at the end of the tunnel; they just began making up for the past losses. Their activities in the Middle East directly determine the livelihood of millions of folks in Asia and Africa, who in turn support the economies of their respective countries in a significant way.

In short, the remittances of the expats are inextricably linked to the internal politics of many Asian countries.

Unless oil producers make a reasonable profit, the investments will suffer and environmental priorities that everyone talks about will be dealt a mortal blow.

On the other hand, if the price of oil at the pumps increases at the current rate, political leaders will start calling the shots and the oil producers will be forced to increase the production in order to keep it at bay.

This is what happened in April, just before an OPEC+ meeting, when the US Energy Secretary telephoned the Saudi Energy Minister to tell him – and the organisation that he represents – that the price of oil was too high; what happened following the phone call was history!

The rise in oil price at the pumps is already causing mayhem in the developing world and the producers, especially the OPEC+, will inevitably attract disproportionate attention in the coming days – once again.

The politicians will argue that the current oil price is unsustainable, especially at a time that the world still goes through once-in-a-century pandemic. It’s high time the oil producers prepared themselves for something more than a feeble PR move in order to address a genuine need.

The OPEC+ expects that the arrival of Iranian oil, in the event of sanctions being lifted, to be transparent and orderly. If the price at the pumps goes up at this rate, the arrival of Iranian oil will be neither orderly nor transparent, when the affected buyers turn for cheaper sources while the seller in question is in dire need of earning its petro-dollars, having suffered for years under sanctions.