Oil Prices Swinging Every Which Way: What Next?

Why oil prices may go up

All in all, about 3.5 million barrels of oil a day have been off the market around the world since last fall

Historical Disruption in Oil Prices US EIA  via Quartz

Historical Disruption in Oil Prices
US EIA via Quartz

Up until 2011, an average of 500,000 barrels of oil a day was off the market at any one time for maintenance and other reasons, a volume that triggered no perceptible price volatility. Temporary aberrations like Hurricane Katrina took 1.5 million barrels off the market in 2005, and the 2003 attack on Iraq removed 2.3 million barrels a day.

But starting in 2011, the disruptions often began to exceed 2 million barrels a day. Among the culprits were the Arab Spring and follow-on uprisings, the chaos in Nigeria, Iran sanctions and of course Russia president Vladimir Putin’s crypto-invasion of Ukraine.

Then last July, Libyan militants stormed oil export facilities and shut them down. As of now, the country pumps just one-eighth of the 1.6 million barrels of oil a day it produced before Muammar Qadhafi’s ouster in 2011. All in all, about 3.5 million barrels of oil a day have been off the market around the world since last fall. Those barrels have offset a 1.8 million-barrel-a-day surge of supply from the US.

… The direction of events in Iraq suggests reinforcement of this trend. Militants from an al Qaeda offshoot known by its acronym ISIL appear to be marching on Baghdad (paywall) while also working their way into a possible battle with autonomous Kurdistan. __Steve Levine

We can expect upheavals of various kinds to periodically remove millions of barrels-a-day of oil production off the market. But due to the potential profits from selling oil, most upheavals are generally settled, one way or another.

We should keep in mind that Russia’s President Putin desperately needs for global oil prices to rise near or above $150 bbl, to keep pace with his grand spending needs. If prices fall for any period of time, the dictator loses face locally in Russia and overseas with international partners and investors. This keeps the pressure on Putin to foment unrest across the third world areas of oil production.

Russia’s lopsided dependence on its petroleum revenues (which account for 70 percent of the country’s annual exports and 52 percent of the federal budget) undermines its political stability in the long run. _Source

Why oil prices may head downward

… the global economic recovery that has driven oil prices higher is actually an artificial, bubble-driven recovery that I call a “Bubblecovery.” In a desperate attempt to prevent a deflationary depression, central banks pumped trillions of dollars worth of liquidity into the global financial system and cut interest rates to virtually zero percent. In short order, new economic bubbles started ballooning in China, emerging markets, Canada, Australia, Nordic countries, commodities, tech startups, and U.S. equities and housing prices, to name a few (read my Bubblecovery article for more information). Property and credit bubbles are inflating once again all around the world in a pattern that is very similar to the last decade’s bubble that caused the financial crisis in the first place. _Jesse Colombo

New North American production has cushioned the price effects of unrest in Iraq, Syria, Nigeria, Libya, Afghanistan, Iran, Ukraine, Mexico, Venezuela, and other parts of the oil producing world. But what happens if either the global economic bubble bursts — starting with China — or most disruptions in oil production are settled somehow?

In that case, we would have a relative excess of production, and oil prices would come down. Oil prices have never been particularly stable, and there is no reason to expect that they will be stable anytime soon — under the current anti-energy global regime in the west, and under the current regime of disruption in Russia.

How are Obama’s energy policies affecting this dynamic picture?

Obama’s Energy Plan is a Gift to Russia and China :

Putin desperately needs higher oil prices, to fund his adventures overseas and his promises of higher pay and benefits made to Russians and Crimeans alike. Russia’s growth has slowed, the government has promised to spend $48 billion building up Crimea, and foreign capital is leaving the country. With 70 percent of Russia’s exports and17 percent of the economy dependent on oil, an aggressive U.S. energy policy could have been a powerful weapon.

Instead of declaring a full-out program to boost domestic energy, we will now spend our great energy bounty to drive carbon emissions lower. Americans are being told this is an urgent need – with President Obama speciously linking carbon emissions with weather disasters and respiratory ailments. This program will be another unpopular, divisive quest by Mr. Obama to secure his legacy; instead it may become an anvil around the country’s neck.

Obama’s green energy delusions added to those of Europe and other modern nations, make higher oil prices more likely. But as long as innovators and entrepreneurs can push the envelope of energy production faster than Mr. Obama’s bureaucratic army of energy starvationists — and their cohorts in the EU — can close it off, the engines of modern societies can continue running.

The answer to the question in the title is that no one knows exactly how oil prices will swing from day to day, week to week, month to month. We can only watch the actions of governments and armed rebels, and balance them against the actions of inventive engineers, geologists, and entrepreneurs. Then sit back and watch what happens.

For purposes of survival in the face of government-instigated disaster, connected networks of R & D communities should serve as bridges to future openings of opportunity.

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