New Equilibrium of Oil Price:$110 a barrel to stay for long...
Having crossed the psychologically-sensitive $100 a barrel a few months ago, the crude oil markets are convinced that it is going to be the new-normal for months to come in the current circumstances.
As the West has not lost the momentum in tightening the screw of the sanctions against Russia, there is no possibility of oil and gas flowing into the international markets legally from the latter at any time in the foreseeable future.
That means, the serious supply woes are going to continue for a prolonged period, as the major producers are not in a mood to boost the production in order to meet the demand; they simply drag their feet despite being under tremendous pressure - and for the obvious reasons.
Both the UAE and Saudi Arabia have shown remarkable growth in the first quarter, Q1, in 2022, thanks to high crude oil prices; it was a far cry from what they went through in 2020, when oil prices crashed at the peak of the Covid-19 pandemic and the global demand plummeted in proportion to the prevailed mood.
Even before the war broke out between Russia and Ukraine, the rising energy prices caused alarm in the corridors of power in the West. The enthusiasm shown by the Biden administration to revive the JCPOA, 2015 Iranian nuclear deal, was, more or less, an attempt to get Iranian crude oil back into the markets to boost the supply.
During the multiple rounds of discussions, both sides of the divide were optimistic about a breakthrough that never happened.
At present, they are as far apart as they had been before, although both sides blew hot and cold on the issue for months before the talks reached the current impasse.
In short, the revival of the JCPOA no longer bothers the crude oil markets.
In these circumstances, the price of crude oil even hit the $120 mark on Thursday, only to come down later before the markets were closed; it may have been due to the crude draw reported by the EIA, US Energy Information Administration, on the day before, referring to the activities in the US crude oil stocks for the week ending May 27.
Although the US Crude stocks fluctuate on weekly basis, from unexpected draws to builds, analysts are convinced that there will be no so-called 'demand destruction' in the offing; it is not rocket science to understand.
Trucks are on our roads and aeroplanes are flying. In addition, motorists still go about doing their business despite being badly hit by the rising fuel costs. In short, economies are hit, but they struggle to survive the impact.
In this context, the price of crude oil will remain above $100 a barrel for the foreseeable future, unless a miracle of biblical proportion takes place in the energy sector, buoyed by an unthinkable political catalyst.
