Plummeting oil price leaves the OPEC+ in a slippery lurch

 

The price of crude oil fell precipitously on Friday when analysts were gauging the combined impact of the joint release of petroleum reserves and the discovery of new Covid-19 variant in Southern Africa.

As of 18:00 GMT on Friday, the prices of WTI and Brent were $68.15 and $72.72 respectively.

When the news broke out on Tuesday about the joint release of the petroleum reserves by the major global consumers last week, despite the speculation being in the public domain for days, the crude oil markets defied the obvious: the price of crude oil did not fall dramatically.

The critics of the Biden administration and those who harboured the bullish sentiments lost no time in branding the move, at best politically disastrous and at worst an economic boomerang with a potential to harm many layers of the US administration.

They were emboldened, perhaps, by the mysterious silence from the OPEC+ members in the aftermath of the joint release of the SPRs – the proverbial calm before the storm situation.

As the news regarding the new variant, found in Southern Africa, grabbed the headlines, it suddenly changed the hypothetical positions held by both analysts and traders and they, metaphorically, ran helter-skelter in looking for safer territory to put their money in.

As a result, the price of crude oil plummeted steeply, leaving the producers in a lurch of growing anxiety – once again. They have been there before: the previous new variant, the Delta variant, did cause havoc globally before died down; the oil producers are aware of the short-term impact on their revenues, especially in the aftermath of a painful recovery.

Of course, the prices will recover in the days ahead as there is no substitute for fossil fuels, yet in order to get cars, trucks and even aeroplanes into motion.

When it comes to a steep drop of this kind, however, recovery has always been slow, as the investors and traders exercise extreme caution in using their money.

The OPEC+ is meeting, against this backdrop, next week. There is no doubt that the unexpected development took them by surprise.

Earlier on, some analysts thought the cartel would hit back by reducing the output in retaliation against the joint release of SPRs, despite the serious political repercussions associated with such a move.

The OPEC+ was anticipating a drop in demand in the early part of the next year due to certain circumstances that the group did not spell out clearly; they used it as an excuse not to increase the production.

In light of the new developments, the organisation will face a massive challenge in order to respond in a reasonable way without making matters worse for the consumers in the short run – and for the cartel in the long run.