Crude Oil Markets: Saudi Arabia makes a generous gesture to ease the pain of consumers
In a tangible gesture of goodwill, Saudi Arabia has
reduced the price of oil for Asia, Europe and the US, as the energy shortages
have evolved into a major crisis.
The OPEC+ meeting that lasted just over 20 minutes
on Monday did not result in an increase in oil production, despite the direct
pressure from the US.
In the aftermath of the OPEC+ decision, however, the
US did not react angrily either. That means Saudi Arabia, the world’s top crude
oil exporter, may have told the US that it would do everything in its power to
ease the burden of rising fuel prices on masses, both for the developing and
developed world.
The development also shows that even if oil
producers want to increase the production, they have been handicapped by a
combination of factors, ranging from years of underinvestment to manpower issues;
when oil price hit rock-bottom values a few years ago, even before the
pandemic, the producers tried just to stay afloat by cutting down on research
and of course, manpower.
In short, the producers cannot swiftly react to a
global emergency, if the demand surges due to unforeseen circumstances; no
analysts saw the crisis that we are in now, coming, a few months ago; nor did
they imagine crude oil becoming a substitute for gas – at least in the
short-run.
With the Saudi gesture, the OPEC+ managed to deviate
the blame of rising crude oil price away from it to some extent; the other key members
of the OPEC+, mainly the UAE, may do the same in the coming days.
Iran, the regional rival of the Kingdom, meanwhile, says
if the former is allowed to sell its oil in the open markets, it could ease the
pain on consumers. The West is not keen on giving an ear to Iran’s move,
though.
The fuel situation in the UK, meanwhile, is far from
over.
In West London where I live, it is difficult to find
petrol stations that offer the full range of fuels: for instance, some offer
petrol, but not diesel and vice versa.
Although the army personnel have been called in to
ease the bottlenecks in the supply chain, it will take days before it gets
better and then become normal again.
The British government insists that there is no shortage
of fuel, but admits that the shortage of qualified tanker drivers is a
lingering issue.
The demand for crude oil soared when gas is in short
supply, as power producers turn to the latter to run the turbines.
Having relying on the renewables for a significant contribution
to the national needs, the decision makers got a bolt from the blue, when the
regions with heavy presence of wind turbines had static atmospheric conditions
that in turn severely reduced the power generation.
As far as Europe is concerned, the possibility of
electricity generation by sunlight is just a pipe dream; the wind power is an
alternative to fossil fuels, but its reliability of being so, judging by what
we have seen in the UK and China, remains to be tested.
The energy crisis, analysts say, is a wake-up call
for decision makers in the developed world. It’s clear that turning our back on
fossil fuel without a proven substitute to fall back on, can be catastrophic in
the long-run.
