A probable OPEC agreement – to which Russia too would join – could lead to a significant price increase of crude oil; however, such an increase would not be steady even if it meant cutting back the production substantially. Oil producers and exporters have to acknowledge that the tendency of worldwide demand for hydrocarbons is decreasing, while alternative energy carriers are becoming more popular. Evan Kelly, lead analyst at oilprice.com elaborates on this situation in the interview he gave to alapblog.hu.
Market operators are expecting a steady and significant increase of oil price, even though prices started dropping over the weekend and kept doing so on Monday. Despite the communication of big oil producer and exporter countries, saying that they have become united and ready to seriously cut back production, OPEC countries have been demonstrating their unreliability over the last decades, rather than making their words worth taking.
According to the analyst, if OPEC member states could arrive at an agreement that would result in dropping oil production by 1.6 percent in one week, then the total production of OPEC – which is 32.5-33 million barrels a day – would decrease by one million barrels. This scenario would cause a significant and an almost immediate ten percent increase of the price. Our interviewee also added that the International Energy Agency expects a 60-dollar price in the next months if the majority of oil exporters cut back production.
However, these prices are not likely to be long-lasting. Our interviewee says that the American president supports the re-opening the previously closed-down oil fields. The president is not against increasing the market shares of shale oil and natural gas either; something that the Federal Government would also support. This area of expertise has already begun expanding – regardless of changes in politics; since it closely follows market developments –; the cost of extraction, transport and utilization of shale products is plummeting.
For this reason, we cannot anticipate a probable, long-lasting, significant increase of crude oil price. As it keeps going up, shale oil becomes more economical and the increasing American extraction might have substantial impact on the market. This further intensifies the competition between crude oil and shale products: classical oil producers will have no other choice but to further increase extraction, forcing prices to drop.
The expert is one hundred percent certain that Fed will increase interest-rate within weeks, and numerous other expected political and economic changes in America will also contribute to the dollar becoming stronger. He also adds that the more expensive the dollar is, raw materials, especially crude oil, become cheaper, since they are calculated in USD. Besides that, a number of experts and economic research institutions concluded the same: the demand on oil has been steadily decreasing around the world.