Is there an ideal oil price that safeguards interests of consumers and producers?

 

Ideal oil price

As the oil price did not go up the way the OPEC+ expected, apart from temporarily being on the crosshairs of the US, analysts believe only a strategy of maintaining a price, ranging from $70 - $80 barrel, could be the pragmatic approach. 

A move of that kind, they believe, safeguard the interests of both the consumers and producers without causing irreparable damages to the producers and the global economy as a whole.

Although the decision by the OPEC+ to reduce the production by over a million barrels a day, in theory, is supposed to push the price up for obvious reasons, the inflationary pressure on the consumers appeared to have effectively neutralized the effect.

As of 14:30 GMT, the price of WTI, Brent and LNG, liquified natural gas, were at $85.32, $93.25 and $5.08 respectively. It is clear that the price of natural gas has come down significantly that in turn plays role in determining the current oil price.

A few months ago, the price of crude oil went up in proportion to the price of natural gas, as the industrialists used to turn to the former in order to bring the costs down; the relatively warmer temperatures in the fall in Europe have reduced the demand of gas for heating homes.

On the other hand, the gas reserves of the members of the EU seem to be way above the critical level as they had been on a buying spree for months from various sources.

The temperatures in the coming months, however, can change dramatically in a matter of days, as there is no model to make an accurate weather prediction beyond five days ahead. 

Since the US crude stocks no longer remain a crucial factor in determining the price of crude oil on day-to-day basis, the price of LNG has moved into the position left by the former - as a temporary substitute. 

The Biden administration, meanwhile, according to the US media, is planning to release more from the country's SPR from October to December - and perhaps beyond that. It believes that the release of SPR works and the price at the pumps can be controlled with their strategy.

In addressing the concerns of those who are worried about the dwindling SPR, the US administration believe that the price of crude oil would come down closer to $70 a barrel, giving the US opportunity to replenish the stocks.

A fall of that nature, however, could potentially trigger off a diplomatic tussle between the US and the OPEC+ once again, when the latter responds to the interests of the members in such a scenario.

Although the US and Saudi Arabia publicly traded accusations when the OPEC+ announced the production cuts at the beginning of this month, the initial furore appeared to have died down gradually; both sides have a much bigger concern to focus on in the Middle East than bickering over oil supply issues - Iran.

The first sign of a thaw in the frosty relations emerged a few days ago, when the UAE and Saudi Arabia, the two key allies of the US in the Middle East, announced billions of dollars in aid to Ukraine - out of the blue. 

Since then neither side raised a spectacle of an acrimony over the oil production issue. Nor did the US start talking about the NOPEC bill - or its next phase during its move through the passage of time before becoming law.

With the prices of oil at pumps at the current rates, the fuel price may not be a major factor in determining the outcome of the US midterm election on November 8. 

That means the 'marriage of convenience' between the US and Saudi Arabia will survive in the short run.

 







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