Crude oil prices: factors beyond producers' grasp

As the price of crude oil shows no sign of abating, the risk of a global recession has increased alarmingly, according to economists.

With the conflict between Russia and Ukraine showing no sign of coming to an end soon, the supply side of the oil equation is not going to improve at all in the current circumstances. 

On the contrary, in the absence of a major global producer, Russia, the price of crude oil is going to remain at the current level for the foreseeable future, especially when the rest of the OPEC+ sticks to a modest increase in daily production.

As  the EIA, the US Energy Information Administration, clearly explains in the above image, contrary to the popular notion, producers are not the only key factor, when it comes to determining the crude oil prices at pump.

In short, nearly 50% of the cost is beyond the producers' realm and in the current economic circumstances, taxes and production costs are not going to decline at all, when the rampant inflation starts to bite.

The rising energy prices and political - and military -  uncertainties that stem from the Ukrainian conflict have already taken its toll on major economies in the world: in the US, for instance, the economy has shrunk at an annualized rate of 1.4% in the Q1, 2022 - completely reversing the impressive-post-pandemic growth; the precipitous fall of Amazon share price by 14% last week shows the declining trend of spending by the US consumers; in the UK, meanwhile,  the growth during the Q1 this year was 0.7% and the forecast for the Q2 is a dismal 0.2%, down from a growth of 1% in Q4, 2021.

 

 


With the threat of Russian gas taps being turned off for Europe ominously looming on the horizon, the economy in the Eurozone is already in the crisis mode; Poland and Bulgaria have already bore the brunt of the crisis, even before the latter going full-blown. 

If Germany, the economic powerhouse of Europe, suffers the same fate, the consequences in every sense will be pretty brutal and catastrophic.  

Some gas companies in the EU, meanwhile, have started paying for the commodity in rouble in compliance with President Putin's demand, despite the sanctions being imposed on Russia by the former.

Fortunately, the warmer weather in Europe has mitigated the immediate disastrous impact on Poland and Bulgaria when the gas taps turned dry last week.

Rising energy costs are leaving the politicians in a deeply troubling lurch across the world. 

In the UK, for instance, London local elections on Thursday are going to be a litmus test for prime minister Boris Johnson's government, especially the on way it handles the economy.


 


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