The oil market shows positive trend the second consecutive week.
In general, the balance of the oil market depends on the coordination of consumers, countries, and oil industry itself.
The consumers
The consumers in the ‘major’ countries – I mean countries of the major currencies – are preparing to reduce their demand for oil developing new ways to get energy, but the process will take years. The global world is still oil addicting. The world top oil consumers on a per-capita basis are Gibraltar, Montserrat, Saint Pierre and Miquelon, and Nauru. It sounds weird; nevertheless, the list of the small countries reflects the impact of the oil markets on the everyday living when a national industry feeds on oil and there is no better alternative. By the way, Saudi Arabia is the 10th in this list of the oil consumers. Based on the volume of oil consumption, the top list includes USA (19.6 million bpd, according to the U.S. Energy Information Administration), China, Japan, India and Russia (3.61 million barrels, according to the U.S. Energy Information Administration).
The five countries gulp 40 million barrels per day that equals almost 41% of daily global consumption (98.3 million bpd, according to the U.S. Energy Information Administration). Three out of five (China, Japan, India) represent the powerful Asian economies with great demand for oil. Two out of five top consumers, USA and Russia, produce more than 20 million barrels daily… That how it works these days. The U.S. differs from Russia, because the American economy gobbles up more oil, than the American oil industry can produce at the moment. Thus, the growth of the shale oil output in the USA aims to feed the national economy first of all. Russians prefer to get petrodollars selling oil.
The countries
In the global oil markets, OPEC pretends to articulate the rules. The current rules presuppose the prolongation of the cutoff deal and an agreement on long-term cooperation in cutting oil output with non-OPEC countries led by Russia. The oil output cuts are extended until the end of the 2018. This policy brought advantages for the markets to overcome the glut of the 2014 – 2015 oil crisis. At the same time the cutoff deal revived the American shale oil production. The USA will overtake Russia as the world biggest oil producer next year, according to the International Energy Agency. The number of rigs in the USA jumped to 799, the highest level since April 2, 2015. Saudis welcomed the rise in U.S. production and even considered shipping American crude abroad.
However, Iran is also fighting to recover after sanctions and to restore its share of the market, to rejoin the international community. Iranian would like to produce 6.5 million bpd, as in 1970s. At the moment they are pumping up to 3.9 million bpd. Tehran has got some special permissions regardless the OPEC cutoff deal, thanks to the permissions Iran is expected to reduce the oil production to 3.8 million bpd, while other OPEC members are reducing their production by 1.8 million barrels per day.
Hoping to rejoin the community, Tehran still continues to support terrorism and to confront Israel, instigating a new war in the Middle East. This way Tehran is coming hand in hand with Moscow, as Glen Segell clarified in his blog.
Nonetheless, tired of the recent crisis, the countries prefer to cooperate. However, they are watching each other and the mood of the markets.
The industry
The industry adopts new technologies. The crisis transforms the oil production from exploiting natural oil fields into operating with modern equipment in the thermal decomposition. Even the traditional oil extraction shifts from the onshore to the offshore. Producers prefer the deepwater drilling, because the platforms allow for drilling far from the cities and agricultural farms. In the oil industry, the distinction between West and East shows itself: the West looks forward, the East saves old benefits.
Four factors ground the trend these days: The shale oil production boom in the U.S.; the growing demand for petroleum in Asia; the intention of OPEC to arrange an agreement on the long-term alliance with Russia and other oil exporters to control output; the Iranian’s purpose to return to the mighty days of 1970s and rejoin the international community as a powerful economy.