The current oil crisis is celebrating two years these days. Since July 2014, safety and security of all petrodollar-addicted economies have been called into question. Since then the price per barrel has fallen losing 70%, therefore oil exporters were forced to reconsider their budgets and to find some fresh resources for the money.
Seven features characterize this crisis completely.
- The crisis was planned and scheduled. The current oil glut has been initiated by Saudis, who have reacted to the successful development of new drill technologies in the USA. Riyadh persuaded OPEC to intensify oil production holding down the share of the market. However, “There are more things in heaven and earth, Horatio, Than
are dreamt of in your philosophy”. The initiators did not foresee oil for $26.05 per barrel; the lowest price since May 2003 has been reached on the 11th of February 2016. So even Saudis themselves suffer from the scheduled crisis. The Kingdom creates a new Fund to cover the gaps.
- The crisis was inspired by a famous contradiction between old good tools and new hi-tech innovations. The shale energy boom in June 2014 has promised forthcoming termination of the Gulf dictate in the commodity markets. The intensive production from natural oil fields has aimed to drown the hi-tech in the oil industry, but without any damage to the oil field owners. Rigs all over the globe have been drilling “easy” oil for eighteen months to transform the American shale crude into a very expensive product. The Gulf producers with their comrades-in-rigs achieved the middle of the road. Half of the employees in the U.S. oil industry have lost their jobs. Only 447 rigs are working at the moment in the USA, in previous July 857 rigs drilled, in July 2014 – 1876, according to Baker Hughes Incorporated. OPEC did not celebrate the Pyrrhic victory, being too occupied by counting losses of its own and surviving through inner conflicts and troubles.
The conflict between Iran and other Gulf countries hurts the OPEC. Iran returned to the oil markets in February 2016. Tehran always emphasizes the intention to achieve the pre-sanctions level of oil export as soon as possible. At the moment Iranians are producing 2.2 million barrels per day, so they have no plans to slow down the activity or support a lower ceiling for daily supply to the global markets. The Islamic republic is working hard to fight back their market share, even the prices will freeze at $45 per barrel for years.
Low interest rates in banks impact the money outflow from commodities markets. Besides Machiavellian Riyadh, the overvaluation of the asset during the period oflow interest rates of the major central banks has affected the decline of the market price for a crude barrel after July 1914. In the 1914summer investors have been greedy for oil futures, so the opposite “sell” trend strengthened in the autumn. Thus theglide of prices to $30 per barrel escaped from the Saudis control.
- The slowdown in China and Asia, the fluctuations in global demand for energy influence the balance of production and consumption. The glut overlapped the end of Chinese miracle, so oil and its derivatives were abandoned by one of their best fans.
- Russians do their homework but failed to keep the market share. Russia has been increasing production till the end of 2015; however, the biggest non-OPEC oil exporter postponed the exploration of new oil fields. Maneuvering between Riyadh and Tehran, meddling inner OPEC conflicts, Moscow demonstrates its dependency from petrodollars and desperate attempts to return the golden age. The Kremlin is willing to move in any direction and click every button to push the price per barrel higher. Russians are losing the game because of the uncertainty of their strategy.
- The last, but not the least among the crucial factors is ISIS, destabilizing the situation and ruining oil production in Syria and Iraq. The ISIS provides the cheapest illegal oil to the markets, confusing plans and breaking agreements.
Oil has been re-valued to affordable levels according to the real value of money. The path to the golden age with $100 per barrel is covered under the ruins of the traditional oil industry when the power of natural oilfields kings was above common sense.