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Who really influences the price of oil?



  Quote from President Trump

Opec, the organization of the oil exporting countries, has certainly been criticizing for years.

President Trump recently accused the group of "demolishing the rest of the world" and keeping oil prices "artificially high."

She was sometimes accused of ransoming the world ̵

1; especially in the mid-1970s, cutting inventories and tripling the price.

But, while the energy ministers of Opec come together in Vienna, does the group really have such a big influence?

Production Control

Some non-oil producing countries, especially Russia, join them.

The group wants to stabilize or increase crude oil prices, which trended sharply lower in early October.

The main tool is to manage their own production – either by cutting it down when prices go up or increasing supply if they want to give in, at least to a point where prices would not collapse. [19659003] Opec's presence in the market is certainly big enough to be effective.

It accounts for more than 40% of world oil production.

It was higher – more than half in the early 70s – but the current figure is still a significant proportion.

But the other 60% of the industry is important.

Two non-OPEC countries are particularly important in different ways: Russia and the United States.

Russia's influence

Russia has contributed to Opec's current efforts to raise prices.

It began in 2016 with Opec's decision to "make a production adjustment", which means a reduction of 1.2 million barrels per day.

Crucially, Russia and a number of other non-OPEC members have joined forces with their own commitments to curtail production.

Thereafter, prices rose at the most important international price, Brent Crude, reaching $ 86 ($ 67) per barrel in early October – below $ 50 a barrel in the period prior to that decision.

That does not mean that Opec's and partners' decision was the only factor.

Political unrest in the OPEC countries Venezuela, Libya and Nigeria have made it impossible for them to produce the quantity of oil that would theoretically be possible.

Iran sanctions

Iran was hit by the reintroduction of US sanctions for its nuclear program.

The possibility that Iran's oil would be unavailable to the world market – or that there would be less – was an important factor that raised prices this year.

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AFP

Caption

Iran continues to sell oil to some countries

However, some of Iran's biggest customers – China, India and Japan – have been temporarily exempted and can continue to buy Iranian oil without US intervention.

As a result, prices actually fell as other manufacturers' demand for oil was lower than expected.

However, the price increase since the end of 2016 had something to do with the agreement between Opec, Russia and Others.

Within Opec, Saudi Arabia was the key to success.

According to International Energy Agency estimates, Saudi Arabia accounts for more than a third of Opec's total production capacity and more than half of the group's spare capacity.

This is an indicator of how limited production is.

Although Saudi Arabia is important, it did not hesitate to act on prices alone.

It was expected that other Opec members would make sacrifices, as usual, but also that Russia was involved.

US Largest Producer

There is a third very large player in global business; the United States, currently the largest producer of all.

The US is a very different animal than the others.

Oil is produced by the private sector, making decisions based on profitability.

Russia's big oil companies are close to the government and the dominant company in Saudi Arabia – Saudi Aramco – is state-owned.

American oil producers do not cooperate with Opec to control prices, as this would be illegal under US antitrust or competition law.

In the US, however, something has changed in the last decade that has changed the global industry – the rise of shale oil.

This has two important aspects:

Impact of shale oil

The exploitation of a relatively new type of resource has reversed a long-term decline in US oil production.

The country still has to import oil. But now it can cover two-thirds of its needs, while just over a decade ago it was a third.

Also, slate can react faster to a changing market.

It does not require as much investment as conventional oil. The investor can get his money back much faster so that shale production can rise faster as prices rise.

Shale was one of the reasons why oil prices dropped sharply after mid-2014.

One possible reason why Opec did not respond earlier was the desire of some members, especially Saudi Arabia, to visit the US. Slate producers were pushed by lower prices.

Opec is still important, but it is far from fully responsible for the global oil market.

If global efforts to tackle climate change are overcome in the longer term, we will become less dependent on oil – a big If so, then Opec will be much less.

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