Will the price of oil go up as the threat of US default recedes?
As the bipartisan discussions on the US debt ceiling appeared to have averted an impasse, the impact of yet another unexpected development on the energy markets drifts slowly into oblivion in proportion to the diminishing danger that could otherwise have wreaked havoc in the global economy.
Both President Biden and Kevin McCarthy, the Leader of the House, sounded conciliatory last week and compromises made are being defended on the grounds of doing it for the sake of the 'country'. Both sides, however, are struggling to sell the details of the agreement to the rank and file - and of course, to the ideologically stubborn elements of the respective party hierarchies.
At the beginning of the last week, the situation seemed grim with a potential default being likely; as an inevitable outcome, the US could have lost its credit rating too. Political analysts believe it is all history now, much to the relief of many economists and policymakers.
The positive news that emerges from the Capitol Hill, analysts believe, may push the oil and gas prices up. There is, however, no sign of it happening in the markets, because the factors that determined the commodity prices up until two weeks ago, remain the same; the discussion on the US debt ceiling was a relatively new factor that went out as fast as it came up.
There are speculations, meanwhile, about gas prices coming down to historical low values; they are not without merit: on one hand, there is plenty of gas in storage in Europe; moreover, Europe and north America will be in summer in a few weeks' time. That means, the consumption of gas for heating homes will be very low in the next few months.
In addition, the prices of crude oil have not gone through the roof as predicted by some investment bankers; it is just wishful thinking.
The price of crude oil at the current level, however, appears to be causing some dissension among the producers, despite the latter making hefty profits. Perhaps they fear the prices will be on a downward spiral soon.
President Trump's 'Drill baby drill' doctrine, and the heightened momentum of entering into the presidential race in 2024 on a wave of economic pain of the US consumers, meanwhile, add a new dimension to the fast-evolving anxieties of the oil producers.
On one hand, there are plenty of concerns over the global economic outlook; fluctuating forecasts from the 'experts' hardly help in instilling calm in the markets. On the other hand, the state of the Chinese economy, in particular, is still a major concern for the oil producers, especially for those from the Middle East.
Since two major buyers, China and India, are increasingly turning towards cheap Russian oil, the Middle Eastern producers have been completely caught off guard by the development. The latter made things harder for themselves by production cuts and increasing the price of crude oil for Asia.
A collapse of oil price, as they fear, but highly unlikely, has the potential to derail many of the gigantic projects that go on in the Middle East at present, especially in Saudi Arabia in the process of moving away from oil towards renewable energy and of course, tourism.
The recent outbursts from Prince Abdulaziz bin Salman, the Saudi oil minister, in this context, are perfectly understandable. "Watch out," he warned the speculators that they would face the 'pain ahead'.
Prince Abdulaziz clearly thinks that the speculators are to blame for the current stagnation of the oil price and even its future downfall; his ominous warning means that there will be surprises from the OPEC+ in the offing, although he did not spell them out for obvious reasons; he just wants to beat the speculators at their own game.
Since the price of crude oil still remains volatile to be predicted accurately in a few days' ahead, let alone months ahead, despite the advent of Data Science and of course, much hyped AI, analysts are as helpless as ever before, in the absence of a clear gauge that makes accurate, not perfect, sense.
