Crude Oil Markets: Saudi Arabia makes a generous gesture to ease the pain of consumers


Saudi oil price cut October 2021

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.



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