Three-digit oil price unrepeatable

Friday, 20 February 2015 08:56

http://english.irib.ir/component/k2/item/205052-three-digit-oil-price-unrepeatable

The rise in oil prices can have a positive impact on the national economy since Iran is a major seller of the commodity. Hence, rising crude sales will provide the county with more revenues. Since late January the price of black gold has rebounded although it was not noticeable. This is because prices that stood at over $100 in the middle of last year slipped to below $50 in January and oil is now traded at about $60 per barrel.

A number of factors were responsible for the nosedive in the prices of black gold. Lackluster demand struck a serious blow to the oil market. Major oil consumers cut their purchases due to a number of reasons, including economic crisis. Likewise, an oversupply of hybrid cars, which has replaced vehicles that run on fossil fuel, can still lead to a fall in world oil prices.
Such factors have spelled trouble for the demand for oil and its byproducts.
Besides, the rise in the production of unconventional oil has posed another challenge to the oil market. Oil shale projects in countries such and US and Canada attracted huge investments in the last few years and gave rise to drilling operations.
Shale oil is not a new phenomenon since its technology was introduced 50 years ago. Oil shale projects remained dormant for decades because low oil price had driven them out of the market. Once the value of black gold surged to above $100 per barrel, the output of shale oil gained momentum and the oil market became saturated.
The drilling costs of oil shale cost a fortune making the business uncompetitive when prices are low. When crude prices fall below certain levels, the number of rigs drilling for shale oil decline sharply.
The collapse in crude prices has caused a progressive decline in shale oil output. This has helped oil rebound after more than six months.

However, the market will not witness prices of over $100 per barrel again.
It is even highly unlikely that crude prices would reach to the level envisaged in the budge bill for the fiscal year which starts on March 21 which is $72 per barrel.
Despite plummeting petrodollars, the government may not face a budget deficit provided oil stands at over $60 per barrel and the lifting of unfair US-led sanctions is within reach.
As the largest world oil producer, Saudi Arabia can give a nudge to cheap crude prices by cutting its output and prompting a rise to the price of the commodity worldwide.
The policies adopted by Russia can also bear fruit. The Caspian Sea state can help stabilize the oil market by regulating its output.

By Jamshid Pajouyan, an Iranian economist.

Taken from Iran Daily website.

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