The wars in the Middle East and the speculation in the futures market failed up to now to create a jump of the crude oil prices. How long will it last?
Recently, the world has lived for some time, and still lives, in a situation that would lead, among other things, to an increase the price of crude oil. However, this has not happened. On the side of supply, there are uncertainties on production of Libya and of other countries, like Nigeria. The ongoing civil war in Syria has moved into Iraq and menaces to extend to other areas. On the other side , the supply of Russian gas to Europe may still be reduced or even cancelled, as the problems about Ukraine remain unresolved, and actually, seems to move to a sort of half way, which can’t last for a long time.
The supply of gas to Europe might become difficult if the two sides remain in such a rigid positions. The Ukraine problem has degenerated in a sort of confrontation, with United Europe trying to reduce the Russian position for new gas supplies from the producing countries, a strategy which should be corrected as soon as possible, as bad feelings with your main supplier of energy is the last thing you might like to have.
The last event in Ukraine, downing a big passenger plane is an act of war that must be punished. Such an event signals that the situation is definitely out of the hands of responsible people, and might indicate to the big countries the need to proceed quickly to a reasonable compromise before the situation of the area become similar to that of the Middle East.
In Europe, oil demand has not increased, reduced by the high price of gasoline: it is still growing strong in China and in the Far East. Notwithstanding all these tensions, the crude oil price has remained relatively stable in the last few years. Every now and then speculation in the futures market grows rapidly, with the usual procedure of offering high prices for future sales , which is the way to push the oil price until it will eventually increase. Up to now, the operation had no success. The wars in the Middle East and these attempts on the future market did not suffice, and failed to create a scare, and a jump of prices.
Perhaps, the great producer of the Middle East, Saudi Arabia, considered that the present political mess did not need, in addition, an increase in the price of oil. At the present price, the Saudi producers do not need more, and it is part of their way not to act to change things without a serious reason. There is no difficulty in satisfying the increasing demand all along the Far East, and there is no reason to increase price in the traditional market , Europe. At the present price , the Saudi producers do not need more , and they have a tendency of not being interested in changing without a definite necessity.
Furthermore, Saudi Arabia is no more tied to his great ally the , United States , and it has let the war to penetrate from Syria into Iraq without considering an increase of the price of oil . Also, it never believed in a large export of crude oil from USA, as it is well informed of the political and legislative situation in Washington and in New York. The old law, which forbids export of crude oil, is still valid and applicable. So the Saudi were quite safe that the price of crude oil would not slide down ,as the American exports was the action that could have done it .
A part from the law, there is also a dearth of pipeline and other equipment, especially for gas, to serve export points along the American coast. So, the Saudi did not play for an increase of the crude oil , and the USA perhaps did not realise that large exports of crude and gas proposed many times would have seriously reduced the oil price, or , possibly , they also wanted the price to stay up.
It is difficult to define the strategy of the other large producer, Russia. After the conclusion of the agreement for a pipeline to China, Russia would be delighted by a higher price of crude oil that would increase the flow of dollars without increasing production, which may be not easy for the Russian oil industry.
The increase of the oil price would have hit the consumers, and particularly the Europeans, who have a diminishing production of crude oil, and import large amounts from Middle East and Russia. An higher crude price would increase the difficulty of the European countries who are trying to reduce their debt , and have to follow an European dictated strategy that will not help their recovery. It also would be quite damaging for countries that are just trying to improve from a strong deflation dictated by the European Bureaucracy. However, up to now the conditions for avoiding an increase of the price of oil are not in the hands of the European countries.
The increase has not happened, but the danger is always present: the choice might be in the hands of the USA, but the general political situation in the USA might not allow the play in favour of its European allied. Europe started years ago to change its energy structure. The non conventional electricity has been developing quite fast, creating a difficult problem for the conventional sources, and for their structure of discontinuous sources operating only in the daylight hours, and in the windy hours.
Moreover, Europe today is not a homogeneous area. The difference among countries has become enormous, and not negotiable. Germany has an economic surplus bigger than that of the USA and of China, and it won’t be disturbed by any increase in the price of oil. The other countries, with a much weaker position, are considering a reorganisation of their energy consumption. Up to now oil has been the main energy source, and the cost of it, being a large part of the total cost of transport, determines the price of everything. Up to now the increase of the price of oil has been postponed. How long will it last?