Despite the crisis in Iraq and Ukraine, global oil prices have fallen this week. On 12 August, US benchmark West Texas Intermediate (WTI) for September delivery fell 71 cents to $97.37 a barrel on the New York Mercantile Exchange. European benchmark Brent oil for delivery in September tumbled $1.66 to $103.02 a barrel, its lowest closing price since July 1, 2013.
“There’s plenty of oil in the world,” Fadel Gheit, a senior energy analyst at Oppenheimer in New York, toldNew Europe on August 13.
“I think oil is overextended. I think oil should be under $80 and not over $100. All this threat on supply and all this jitter around the world and Ukraine and Russia and ISIS and anarchists and Libya, oil prices continue to decline,” Gheit said, referring to the Sunni militants from the Islamic State (better known asISIS), who have been seizing control of large swathes of Iraq.
The market has factored in the original risk factor. “Unless or until Iraqi oil production will come to a screeching halt, I don’t think that people are really paying too much attention to what’s happening there. But this ISIS thing has to be stopped. It’s more a nuisance, but it also could go out of control and spur through the entire region and the entire world,” Gheit said.
Chinaslowdown deepens
Meanwhile, there are concerns that demand from China will slow as demand has fallen for the past two quarters.
“China has signaled clearly that the top priority now for China’s leaders is not unbridled growth in the economy as has been the case in the last 10 years because now they see that there are tremendous social problems, including environmental,” Gheit said.
“Chinese demand for oil will fall short of expectation and that is a turning point and when China sneezes everybody will catch a cold which means the global demand for oil is definitely on the way down,” he added.
Oil prices seem almost eerily calm in the face of mounting geopolitical risks because there’s plenty of oil on the market.
In a report on 12 August, the International Energy Agency (IEA) said that while tensions in Iraq and fighting in Ukraine continued, other oil resources were available, such as those of the US, Libya and Saudi Arabia.
Sanctions imposed by the US and the EU on Russia over its role in Ukraine will probably not affect oil distribution. The IEA noted that the consensus in the industry seems to be that neither set of sanctions will have any tangible near-term impact on supplies.
US oil production highest in 27 years
Moreover, Gheit told New Europe that new technology opened resource bases. “Improving technology will unearth and discover more and more resources and bring them to the market more efficiently and we are seeing this in our operations here in the US almost on a daily basis,” he said.
According to the Energy Information Administration (EIA), the statistical arm of the US Energy Department, total crude oil production in the United States in July was the highest level in more than a quarter century.
It said in its monthly short-term market reporttotal US crude oil productionreached 8.5 million barrels per day in July, the highest monthly level since April 1987.The rise in domestic US oil production in turn means lower imports of foreign crude oil. EIA said imports nearly halved from 2005 to average 33% of the market share in 2013.
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