Geopolitics Sends Crude Prices Higher by 2%, but Expert Thinks an Oil Crisis is Brewing

by Ship & Bunker News Team
Monday April 9, 2018

Even though crude prices of late are more like a seesaw than either a rocket or a lodestone, Monday's performance caused some observers to conclude that the market is still vaguely bullish, with a rebound in the stock market and tension between Syria and the U.S. resulting in a crude rally of more than 2 percent.

West Texas Intermediate rose $1.36 to settle at $63.42 per barrel, a 2.2 percent gain, while Brent  rose $1.53 to $68.64 per barrel; both benchmarks were on track for their largest daily percentage gain since March 23 - a dramatic turnaround from Friday, when oil prices fell about 2 percent after U.S. president Donald Trump threatened new tariffs on China.

Still, oil continues to be influenced mainly by global events - this time Trump vowing to hold Bashar al-Assad, president of Syria, accountable for a poison gas attack on a rebel-held town in that country - and the U.S. stock market, which on Monday rose by over 1 percent.

Matt Smith, director of commodity research at ClipperData, summarized the situation by stating, "Once again we find the oil market being swept up in broader market sentiment; after Friday's flight from risk, the positive mood in equities to start the week is encouraging a rebound in oil, with a weakening dollar providing a further shot in the arm."

Jim Ritterbusch, president of Ritterbusch and Associates, said in a note, "From a pure short-term fundamental perspective, odds still tilt bullish in our view."

Even though an outsider would assume, given crude's recent performance and influences, that prices will continue to seesaw for the foreseeable future, analysts can't resist predicting what may happen over the longer term, and as far as Robert Rapier, director of alternative fuels technology at Advanced Green Innovations is concerned, a crisis is brewing.

Writing for OilPrice.com, Rapier states that "Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil; meanwhile, consumption has totaled 360 billion barrels, [and] this 250 billion barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends."

Rapier justifies his concern by citing Rystad Energy data that oil companies discovered less than 7 billion barrels of oil and gas in 2017 — the lowest number on record (Rystad believes this would only replace 11 percent of 2017 oil and gas production).

He also cited everyone from Ed Morse, global head of commodities research at Citibank, to Adam Sieminski, former head of the Energy Information Administration, who think that many Organization of the Petroleum Exporting Countries (OPEC) members have overextended their production capabilities, and that U.S. shale won't be enough to meet rising global demand -  which will possibly result in the upcoming decade becoming "the decade of disorder," according to Sieminski.

Rapier also tosses in the specter of investment - or lack of - as another ingredient in the growing oil crisis, and mentions Mark Richard, a senior vice president at Halliburton, who last year stated that the $2 trillion in spending cuts in the global oil industry over the past few years will impact oil prices around 2020.

Last month, Khalid al-Falih, energy minister for Saudi Arabia, warned that "So far, the [crude] prices we've seen have not brought back the investments we need; we're still $1 trillion in investment levels below what we were before the downturn in oil prices, so that tells me that the pricing signals that have come out of the recovery have not been sufficient."