Raed Al-Obaidi
in the last few weeks, oil price never stopped raising, with different expectations for this quick rise, when and how this rise will stop? is it possible for oil to reach 100$/barrel? why it is raising that fast? and for what reasons? how can this stopped? what is the NEW ENERGY CRISES? and what are its reasons?
Oil Price:
oil price term refers to the cash value of the crude oil barrel “42 US gallons” expressed in US dollars. it is very important to understand that crude oil is too different from other goods, because it is not affected by “supply & demand” factor only; but also by many other factors, here are some of them:
1. Oil Reserves:
when geologists give big numbers for the oil reserve, this pushes the producers to reconsider the costs “decreasing it” which causes the oil price to go down, but when the producers are convinced that the oil reserve is less than before, oil price will rise again till the evaluations are changed once again.
2. Shale Oil:
For being a source of Alternative Energy, this type of oil has big effects on traditional oil price.
3. Economic Growth Rate:
It is one of the main factors that determine the global consumption of crude oil, therefore it directly affects the crude oil price, any expectations of a rise in economic growth rate will lead to more demand on crude oil which leads to a higher oil price, and vice versa.
4. US Dollar Exchange Rate:
Crude oil price is in US dollar, so it is so normal that any change in its exchange rate will affect the oil price directly or indirectly, the direct effect is by increasing the speculations in oil contracts, while the indirect effect can be expressed by its effects on Oil Supply & Demand, any decrease in dollar value will lead to a decrease in the purchasing power for the exporting countries which will be unable to apply enough funds to increase oil production, causing a low supply compared to demand, thus a rise in oil price.
5. speculation in oil:
crude oil became a good for speculation, it is relatively a new phenomenon in oil markets, these speculations depend on the future expectations of crude oil or the oil demand levels, when these expectations refers to high oil demand, spectulars buy big amounts of oil and that leads to a faster rise in oil price, and vice versa.
6. Global Oil Stocks:
any rise in these stocks especially the American oil stocks will lead to a big rise in crude price, and vice versa, because it gives an indication of higher supplies.
7. Political Issues:
it is one of the most effective factors on oil price, because any political crises or tension will make the consumers worry about the oil supplies, any of political crises in the middle east will greatly affect the oil price because this region contains nearly 80% of oil in the world.
8. Weather:
Oil and natural gas are two of the most important energy sources in the world, so any climate change especially in temperature will affect the oil price, because it will lead to a big change in oil supplies.
the Recent Energy Crises:
when writing this article, oil price exceeded 85$, this tells us that there is a real energy crises because of the increasing global demand compared to a regular supply.
what are the reasons behind this crises? some people asked me: is there is a real energy crises?
the answer is YES, there is a real crises, and it can be known from the quick events, for example; China shut down many high power -consuming factories, while more than 60% of the Chinese districts suffer power outage, Electricity bills raised greatly in America and Europe, while in India; gasoline reached 1.5 $/liter, diesel reached 1.35 $/liter, a report from Oil Price website expects that this crises will reach to the United States.
the crises represented by an increase in power outage hours, lack in coal supplies, and a historical rise in electricity, coal and LNG prices, this crises is more intensive in the high-consuming big countries such as USA, Europe, China and India , in addition to other energy importing countries used to get cheap energy from 2014 to 2020.
Gas was the most affected for many reasons, such as increasing reliability in the last few years and low emissions, in the other hand; it is the alternate power source when sun set, or wind stops. this proves the failure of alternate energy sources to satisfy the global needs for energy, this thing will make such kinds of energy less reliable.
read also Crude Oil Price
what are reasons of this crises?
there are many factors caused this crises, we can summarize them as follows:
1. the low oil prices during (2015-2020) led to a sharp decrease in the investment in oil and gas industry.
2. the too cold weather in the northern half of earth, in addition to the expectations of a very cold weather in the winter of 2022.
3. the low production rate and the low oil price lead during the last few years led to a decrease in maintenance works in the oil and gas facilities, this in turn led to a low supply compared to the high demand right now.
4. the drop in the strategic stocks, especially in the European natural gas stocks, it reached 15% of the average in the last 5 years.
5. the Russian gas company was concerned only in long term contracts and neglected the short term contracts.
6. the global land degradation which led to a decrease in water levels in the dams, this affected the hydroelectric power production, while there was a sharp decrease in wind energy for the same reasons, all that led to a high demand on fossil fuel.
professor Anas Al-Hajji says ” the world now pays the price of the extremist climatic politics of the European countries, the environment protectors, the companies that made use of the huge governmental supports for the renewable energy and electric cars, in addition to the overstatement of their supporter media, or the ones who swallowed the bait, and the focus of the different energy conferences including the ones held in OPEC countries)
Some of the other experts attribute this energy crises to the wide economical consequences of COVID19, and the bad planning for reducing the energy supplies, and finally “zero-investment” in the diversification of energy sources.
Oil Price Future
Vladimir Putin, the Russian president; declared that reaching 100$/ barrel is a very possible matter, while Goldman Sachs expected that oil price will reach to 90$/ barrel at the end of 2021 in conjunction with the exacerbate of the energy crises in a crazy way, the change of the energy source from crude oil instead of gas and coal did not work, even the world bank stated that it is expected that the energy price will raise in the beginning of 2022 with an expectations of a decrease in the second half of 2022.
The raise in oil price has its own reasons, some are related to the recent energy crises, because oil has became an energy alternate for LNG in many Asian countries after the historical raise in its price. in the other hand we can see many expectations of a very cold weather in the northern part of earth.
in the existence of all these inputs; the high energy demand without any action from OPEC+ , the severe weather, the same supply levels, and the inflated expects for the alternate energy, I am quite sure that oil price will exceed 100$/ barrel at the beginning of 2022.
but what will happen after this? will this crazy raise continue? Will be a strict intervention from USA and Europe to restrain this crises?
I think the certain answer for these questions will be clear after the 100$ price, i.e.; after the end of the 1Q of 2022.
Resources:
1. crude oil price types – from AONG website.
2. the reasons of the global energy crises /Anas Al-Haji
3. the global energy crises – the causes & effects / Al-Jazeerah Net.
Raed Al-Obaidi – a chief petroleum engineer – AONG website manager.
more than 22 years of experience in oil & natural gas production & treatment facilities.
has many lectures and essays in the internet regarding the surface facilities, in addition to many lectures on YouTube.
the author of “Oil & natural gas production & Treatment” book.