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In an article I wrote for the Research Centre of Energy Management (RCEM) at ESCP Europe Business School on the 2nd of March 2017 under the title “Oil Prices Will Be Mostly Bullish in 2017”, I said that the oil price will break through the $60 level in 2017. This the oil price did when it has risen to more than $66.78 a barrel in December 2017.
And despite efforts by vested interests including the International Energy Agency (IEA) and the United States Energy Information Administration (EIA) to dampen oil prices, I am now projecting that the oil price could be heading towards $70/barrel or even higher during 2018 and $100 in 2020.
Russia’s cooperation with OPEC has led to the OPEC/non-OPEC production cut agreement credited with virtually rebalancing the global oil market and pushing oil prices towards almost $70/barrel and also putting a $60 floor under oil prices, up from $50 in 2017.
Russia and Saudi Arabia, the architects of the production cut agreement made it clear that the agreement will go beyond 2018 but in a format that reflects the changing market conditions such as a rebalanced market and rising oil prices. After all, both Russia and OPEC face a major rival: US Shale. It looks as if Russia could become a member of OPEC in all but name.
In February 2018, an international consortium led by France’s Total and also comprising Italy’s Eni and Russia’s Novatek, signed two exploration and production agreements covering Blocks 4 and 9 offshore Lebanon, providing for the drilling of at least one well per block in the first three years. The consortium’s priority will be to drill a first exploration well on Block 4 next year, Total said.
As for Block 9, Total and its partners are fully aware of the Israeli-Lebanese maritime border dispute in the southern part of the block that covers only a very limited area (less than 8% of the block’s surface). Given that the main prospects are located more than 25km from the disputed area, the consortium confirms that the exploration well on Block 9 will have no interference at all with any fields or prospects located south of the border area,” the French company said (see Figure 1).
The 26th of March 2018 will go in history as the most momentous day for the United States’ economy, China’s economy and the petrodollar and also for China’s status as an economic superpower. In that day China launched its yuan-denominated crude oil futures in Shanghai thus challenging the petrodollar for dominance in the global oil market. And in that very day 15.4 million barrels of crude for delivery in September 2018 changed hands over two and a half hours—the length of the first-day trading session for the contract.
Exactly one week after China launched its crude oil futures, the petro-yuan surpassed Brent trading volume. How long will it take it before overtaking the petrodollar? (see Chart 1).
US President Trump announced on the 8th of May 2018 that he is walking away from the 2015 nuclear Iran deal known as the Joint Comprehensive Plan of Action (JCPOA) into which the United States had entered with Iran and the five permanent members of the United Nations Security Council plus Germany (the P5+1) in order to exclude the prospect of Iran developing an indigenous nuclear weapons capability until at least 2028.
But the Trump decision is unlikely to bring about a meaningful improvement in the security situation of the US, Israel, or the Middle East generally, nor significantly damage Iran’s strategic capabilities. However, it changes some of the dynamics with regard to the President’s anticipated summit with North Korean leader Kim Jong-Un.
Oil prices don’t lie. They reflect the true picture in the global oil market from an economic and geopolitical angles. In the aftermath of the historic summit between US President Trump and North Korean Leader Kim Jong Un, oil prices were flat. What does this tell us?
The fact that the oil markets largely ignored the much-anticipated summit could mean that they viewed the summit as all flash with little substance. And though both sides hailed the summit as a breakthrough, there was nothing to show except a declaration pledging to work towards denuclearization with no details about how this is to be achieved.
US President Trump broke all norms of diplomacy and protocol during the NATO meeting in Brussels on the 11th of July 2018, when he accused Germany of being “a captive of the Russians” because of its dependence on Russian energy supplies. He went on to say that “Germany is totally controlled by Russia because they will be getting 60-70% of their energy from Russia and a new pipeline”.
He was, of course, referring to the jointly European and Russian-financed Nord Stream 2 gas pipeline that would deliver a total of 110 billion cubic metres per year of Russian gas supplies under the Baltic Sea, to Germany and the European Union (EU) thus bypassing the Ukraine. It will be completed by the end of 2019.
The recent attack by the Houthi rebels in Yemen on two Saudi oil tankers each carrying 1 million barrels of oil in the Strait of Bab al-Mandeb and Saudi Arabia’s suspension of oil shipments through the Strait have demonstrated how vulnerable the world’s key oil chokepoints are and how easy it is to disrupt global oil traffic.
Some experts are projecting a peak oil demand by 2036. Others like Fitch Ratings are saying that greater product awareness and technological changes could fast track the adoption of electric vehicles (EVs) that could plausibly lead to a peak oil demand before 2030.
It is, however, debatable as to whether a peak oil demand could be reached during the 21st century. The one certain thing is that oil is expected to remain the world’s primary energy source throughout the 21st century and probably far beyond. A major underpinning factor is the growing world population.
Since the withdrawal of the United States from the Nuclear Deal with Iran and its decision to re-introduce sanctions on Iran particularly Iranian oil exports, analysts and experts alike have been competing with each other in their projections about how much Iran will lose from its oil exports as a result of the sanctions. Their projections have ranged from 500,000 barrels a day (b/d) to 1.5 million barrels a day (mbd) out of estimated Iranian oil exports of 2.125 mbd.
Most of these projections were, in my opinion, based on faulty assumptions and lack of understanding of the dynamics of the global oil market and virtually bordering on daydreaming and wishful thinking.
Sustainability is the practice of maintaining processes of productivity indefinitely—natural or human made—by replacing resources used with resources of equal or greater value without degrading or endangering natural biotic systems. Sustainable development binds together concern for the natural systems with the social, political, and economic challenges faced by humanity.
The three pillars of sustainable development are the economy, energy and the environment. Interaction between these three pillars sustains a growing global economy which provides employment for millions of people and a decent standard of living in a healthy environment and the energy means that help enhance the quality of our life and mobility. The global economy has to be in a continuous state of healthy growth if it is to be able to feed 7.5 billion of people.
The Founding of OPEC
The Organisation of the Petroleum Exporting Countries (OPEC) is an intergovernmental organisation of 15 nations founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia and Venezuela) and headquartered since 1965 in Vienna, Austria. OPEC accounts for an estimated 42.6% of global oil production and 71.8% of the world’s proven oil reserves giving it a major influence on the global oil market and prices that were previously controlled by the so-called “Seven Sisters” (Exxon, Mobil, Chevron, Gulf Oil, Texaco, BP & Shell) cartel of the world’s largest multinational oil companies.