Effective Components of Global Oil Market Supply & Demand

2020/04/25 | Economy, Note, top news

Strategic Council Online: In the context of global oil demand, corona epidemic has the greatest impact on future demand, and the likelihood that global oil demand will continue to be small in the next three months is high. Reza Majidzadeh - Developmental Political Economy Researcher

Although Trump’s tariff threat and his Twitter showoff urging Saudi Arabia to cooperate with Russia in reducing OPEC Plus oil supply were accompanied by OPEC Plus agreement to cut output, the oil market is still sluggish and even the International Energy Agency has warned that declining production cannot offset the consequences of declining demand due to corona’s global epidemic.

The International Energy Agency predicts that global oil demand will fall to its lowest level in 25 years in April. Now the question is what is the outlook for the global oil market and oil prices? Will the fragile market conditions of the oil market continue? Can these questions be answered clearly now?

Currently, the global crude oil market is affected by several important factors, including the state of production of substitutes for crude oil; the growth of technologies related to the possibility of commercialization of potential substitute fuels; conditions of global recession or prosperity in 3 months, 6 month and 12 month time span ahead; the US presidential election and the winner’s approach to the energy; the outbreak of the coronavirus and the associated economic downturn; new developments in the Middle East, especially in Iraq, and tensions in the Persian Gulf and the changing value of OPEC Plus for Russia.

Each of these factors affects expectations about the amount of supply and demand on a given time horizon. Given the time span of at least a few months for the corona vaccine to be discovered, it seems that the increase in demand for summer travel this year is not enough to have an impact on the market, i.e. the amount of future demand and feedback.

The future picture of the oil market is highly dependent on the cross-sectional effects of the aforementioned factors, and if we ignore surprises other than the elements of each of these factors then in the context of global oil demand, the corona epidemic has the greatest impact on future demand. It is very unlikely that global oil demand will remain low during the next three months. Although low oil prices are a good opportunity to increase strategic reserves for emerging oil-dependent economies in their manufacturing sectors, countries such as India, China, South Korea, Japan, the Netherlands and Germany can apply for oil for such aims. China’s crude oil import value is more than 20 per cent of global crude oil imports.

Therefore, the timing of China’s definitive control of the corona crisis and the repercussions of its recessionary consequences could be a stimulus for the global oil market and increased demand. However, countries with trade ties with China or supply chain relations are still embroiled in a crisis over the corona epidemic, which could slow a shift in China’s oil imports. However, the opportunity to maintain strategic stocks during the low oil price period is also a factor in preventing further oil price cuts over a period of 3 to 6 months. But such a scenario depends on the process of controlling or cutting off the coronavirus transmission chain in these countries (especially accuracy of China’s statistics). From a demand perspective, the likelihood of a significant increase in demand during the first three months is very low and during the first six months is little.

On the supply side, the possibility of military tensions and cross-cutting or more political confrontation, on the one hand, affects Putin’s achievement of cooperating with OPEC Plus and Russia’s assessment of its influence in the global oil market compared to the influence, goal and approach of US foreign policy. On the other hand, maintaining the existing agreement on output cut or increase in the likelihood of a sharp decline will affect supply. Trump has been criticized for his performance in the corona crisis and given the negative impact of low oil prices on the state of US oil companies and related employment, it is likely that Trump this time instead of trying to reach an output cut deal will count on creating tension in the Persian Gulf and Iraq.

Of course, Trump is not worried about the Middle East oil, but this stimulus of expectations over the possibility of a drop in supply from the upward price stimulus channel will improve the situation of shale oil production in the United States. In terms of assessing the value of adherence to the OPEC Plus agreement with Russia, if the demand for strategic reserves is high enough to make a unilateral approach in attracting clients and bypassing OPEC look like useful then the supply deal is likely to break before big players; but this approach carries a high risk at the cost of a sharper drop in oil prices, which in the current price range, the probability of accepting this risk is not very high.

The overall supply and demand conditions, especially in terms of expectations for future supply and demand, mean that exporting countries are willing to keep the current situation afloat and prevent further price falls and the likelihood of a significant increase in oil prices. However, these statements are based on the above assumptions and the current state of the variables, and unexpected events may occur.

 

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

LATEST CONTENT

Claims of a US Arms Embargo against Zionist Regime Reveal America’s Deception

Strategic Council Online – Interview: An expert on international issues said that the US claims to have suspended sending weapons to the Zionist regime is a political deception to silence public opinion because this would make no difference in the nature of Washington’s support for the Zionist army and the existence of this regime.

Goals of Blinken’s Recent Trip to Saudi Arabia

Strategic Council Online—Interview: A researcher of Saudi affairs said that US Secretary of State Anthony Blinken arrived in Riyadh recently during a regional trip and had consultations with the Riyadh officials. It seems that one of the items on the agenda between Saudi Arabia and America, in addition to the Gaza war, is the process of normalizing relations between the Israeli regime and the Arab kingdom.

Dr. Kharrazi's response to the new US position on Iran's nuclear program:
It Was America That Abandoned Nuclear Diplomacy/ Iran Also Considers Diplomacy the Best Approach

Strategic Council Online: The President of the Strategic Council on Foreign Relations stated: “The US State Department spokesperson, after my interview with Al Jazeera, reiterated their past remarks, stating that they won’t allow Iran to build nuclear weapons, but ultimately said diplomacy is the best approach. Yes, we too prefer diplomacy since based on the Fatwa of our Supreme Leader are not for nuclear weapons; rather, we are advocates of diplomacy to make the Middle East a nuclear-free region. But, in case the Israeli regime threatens us with nuclear weapons, we surely cannot sit idle and wait for permission from others.”

Europe’s Confusion in Securing Bab al-Mandab Strait and the Red Sea

Strategic Council Online – Opinion: The strategic Strait of Bab al-Mandab and the Red Sea have recently faced serious problems and crises due to the Gaza war. This is because of the protectionist approach of the Yemeni army forces toward Palestine, which, since the beginning of the Israeli regime’s attacks on the Gaza Strip, has included attacks on ships bound for or from the origin of the regime in the Red Sea.
They said they will continue their attacks until the Israeli regime’s military aggression in the Gaza Strip ends. The United States, as the most important supporter of the Israeli regime, was the first country to respond to this policy of Yemeni army forces and tried to form a global coalition to counter these attacks under the cover of supporting freedom of navigation, which, of course, failed because of conflicts of interests of Western countries and ended in the actions of the US and British attacks on positions in Yemen. Of course, although European countries were not seriously involved in the American coalition, they have numerous and complex interests in this inflammatory, and as a result, have adopted a particular and independent approach.
Dr. Mohammad Mehdi Mazaheri – University Professor

The prospect of Possible Departure of Hamas Political Office from Qatar

Strategic Council Online – Interview: An expert on regional issues said Qatari authorities will definitely resist Western pressure to expel Hamas leaders from their territory, and probably the United States will not move towards a zero-hundred equation in this regard because if the Hamas leaders remain in Qatar, which is an ally of the United States, is better than moving to a country outside the power of the United States to exert pressure.

Messages and Consequences of Student Protests in the United States

Strategic Council Online – Opinion: Student protests in America take on new dimensions every day.
Because the university enjoys higher public trust and social capital than other civil and social institutions and is, therefore, more effective, the current protests put the U.S. government in a “difficult situation” that is clear in the statements of current and former U.S. officials.
Hamid Khoshayand – International Affairs Expert

Loading

Últimas publicaciones

Claims of a US Arms Embargo against Zionist Regime Reveal America’s Deception

Strategic Council Online – Interview: An expert on international issues said that the US claims to have suspended sending weapons to the Zionist regime is a political deception to silence public opinion because this would make no difference in the nature of Washington’s support for the Zionist army and the existence of this regime.

Goals of Blinken’s Recent Trip to Saudi Arabia

Strategic Council Online—Interview: A researcher of Saudi affairs said that US Secretary of State Anthony Blinken arrived in Riyadh recently during a regional trip and had consultations with the Riyadh officials. It seems that one of the items on the agenda between Saudi Arabia and America, in addition to the Gaza war, is the process of normalizing relations between the Israeli regime and the Arab kingdom.

Dr. Kharrazi's response to the new US position on Iran's nuclear program:
It Was America That Abandoned Nuclear Diplomacy/ Iran Also Considers Diplomacy the Best Approach

Strategic Council Online: The President of the Strategic Council on Foreign Relations stated: “The US State Department spokesperson, after my interview with Al Jazeera, reiterated their past remarks, stating that they won’t allow Iran to build nuclear weapons, but ultimately said diplomacy is the best approach. Yes, we too prefer diplomacy since based on the Fatwa of our Supreme Leader are not for nuclear weapons; rather, we are advocates of diplomacy to make the Middle East a nuclear-free region. But, in case the Israeli regime threatens us with nuclear weapons, we surely cannot sit idle and wait for permission from others.”

Europe’s Confusion in Securing Bab al-Mandab Strait and the Red Sea

Strategic Council Online – Opinion: The strategic Strait of Bab al-Mandab and the Red Sea have recently faced serious problems and crises due to the Gaza war. This is because of the protectionist approach of the Yemeni army forces toward Palestine, which, since the beginning of the Israeli regime’s attacks on the Gaza Strip, has included attacks on ships bound for or from the origin of the regime in the Red Sea.
They said they will continue their attacks until the Israeli regime’s military aggression in the Gaza Strip ends. The United States, as the most important supporter of the Israeli regime, was the first country to respond to this policy of Yemeni army forces and tried to form a global coalition to counter these attacks under the cover of supporting freedom of navigation, which, of course, failed because of conflicts of interests of Western countries and ended in the actions of the US and British attacks on positions in Yemen. Of course, although European countries were not seriously involved in the American coalition, they have numerous and complex interests in this inflammatory, and as a result, have adopted a particular and independent approach.
Dr. Mohammad Mehdi Mazaheri – University Professor

The prospect of Possible Departure of Hamas Political Office from Qatar

Strategic Council Online – Interview: An expert on regional issues said Qatari authorities will definitely resist Western pressure to expel Hamas leaders from their territory, and probably the United States will not move towards a zero-hundred equation in this regard because if the Hamas leaders remain in Qatar, which is an ally of the United States, is better than moving to a country outside the power of the United States to exert pressure.

Messages and Consequences of Student Protests in the United States

Strategic Council Online – Opinion: Student protests in America take on new dimensions every day.
Because the university enjoys higher public trust and social capital than other civil and social institutions and is, therefore, more effective, the current protests put the U.S. government in a “difficult situation” that is clear in the statements of current and former U.S. officials.
Hamid Khoshayand – International Affairs Expert

Loading