Our translation of an article from gazeta.ru appears below. Commentary by Vince Dhimos.
Ok, Trump keeps saying he wants low oil prices, and certainly, high prices at the pump are not a good harbinger of re-election.
Yet, Trump has made all the right moves for raising oil prices, particularly with Iran and Venezuela, two countries that are essentially forbidden to do business because Trump wants to please the voters who want a president who, unlike Obama (or so they believe), knows how to put his foot down. But what good is acting like a bully when it screws up the economy so thoroughly that, as in the case of the Rusal sanctions (as I pointed out here), you wind up having to reverse course and wind up with egg on your face. A very elementary fact of economics is that when a commodity becomes scarce, its price rises. There is no better way to make oil scarce than preventing two major oil-producing countries from producing and selling their oil.
Gaddafi’s curse: the oil market is about to explode
Oil prices went up amid the crisis in Libya and US sanctions
Ekaterina Katkova 04-12-2019
The head of the National Oil Corporation of Libya warned of a possible cessation of production due to military aggravation in the country. Up to 300 thousand barrels per day may exit the market. Given the decline in deliveries from Venezuela and the sanctions risks for Iranian oil, quotes in the coming weeks could go to $75-80. OPEC is already preparing a plan to contain prices.
Every time oil prices skyrocket, analysts think about how the pendulum will swing and how fast it will head in the opposite direction. So far, however, the rapid decline of quotations foretells nothing.
According to the data at 22:00 Moscow time on April 12, the price of Brent crude for delivery in June rose in price almost one percent, to $71.54, since opening. For almost three and a half months, oil has shown positive dynamics with varying success, adding almost 40% since the beginning of the year, following a slight decline.
The balance of supply and demand is already beginning to shift towards a shortage of supplies, and world reserves of raw materials are declining, notes the main analyst at BCS Premier, Anton Pokatovich. According to the analyst, this suggests that by this summer a full-fledged supply shortage may develop in the oil market.
It is possible that the deficit will occur earlier: the head of the National Oil Corporation of Libya (NOC), Mustafa Sanalla, warned that the escalation of the conflict in the country could lead to a complete halt in oil and gas production. It may be necessary to evacuate workers from the country's largest oil fields, he said in an interview with the Financial Times (FT).
The civil war in Libya has been going on since 2011, when after the overthrow and murder of the former leader of the country, Muammar Gaddafi, the opposing forces failed to form a unified government. Libya is still divided into several warring clans that govern different parts of the country. Periodically there is an escalation of the conflict between the parties, including near the zones of oil production.
Thus, in early April, Field Marshal Khalifa Haftar, head of the Libyan National Army, announced an attack on Tripoli. The first clashes of his army with the troops of Fayez al-Sarraj - the head of the Libyan Government of national unity – began almost immediately. Sarraj responded by announcing the start of a military operation against the Libyan National Army.
At that point, the country's energy sector faced the most serious threat since the beginning of the civil war, points out Mustafa Sanalla.
“I am afraid the situation may be much worse than in 2011 due to the number of forces that are involved today,” he said. Sanalla has repeatedly stressed that it is important to keep production independent of the different groups.
Experts believe that this time the escalation of the conflict in Libya could cause significant damage to the country and actually destroy oil production.
Last year, oil production in Libya was about 900 thousand barrels per day (b/d), but now during the period of military operations, this figure may be reduced by half, said Gaydar Hasanov, an expert at the International Financial Centre.
Libyan oil deliveries mainly go to Europe, to countries such as Italy, France, and Germany, Denis Lisitsyn, director of the asset management department of ERARIUM Group.
According to Lisitsyn, theoretically, Libya can be covered by Saudi Arabia - one of the few countries with the technological ability to quickly increase production.
However, Riyadh itself is now more than ever interested in high oil prices and to achieve them even over-fulfils the plan to reduce production within OPEC+. According to the cartel, in March, production of Saudi Arabia decreased by 324 thousand b/d - to 9.8 million b/d.
Sanctions, electricity, cartels
Not everything is going smoothly with Iran. The country, and with it the entire world community, is anxiously awaiting May, when Washington may tighten the sanctions pressure on Tehran and impose those very restrictions on Persian oil, the anticipation of which kept the market in suspense throughout the third quarter of last year.
Recall that at that time only a few, not the largest buyers, refused to buy Iranian oil, and a number of countries, including China, India, South Korea, and Japan, received an exemption for the purchase of Iranian oil for 180 days. According to the latest OPEC report, oil production in Iran in March averaged 2.7 million b/d.
It is difficult to say how many “sanctions” will be removed from the market: it is not known how the restrictions will be tightened and whether there will be exceptions this time. In any case, this market situation is now viewed as another uncertainty factor.
Here you can add Venezuela, where the crisis - economic, political, humanitarian, and for some time even energy - is only aggravated. According to OPEC, in March alone, production in the country fell by 289,000 b/d, to 0.73 million b/d. Recall that in January Washington imposed sanctions on Venezuelan oil, while the United States itself temporarily stopped purchasing hydrocarbons from the Bolivarian Republic.
They add fuel to the fire and technical problems with electricity outages in Venezuela, which affects not only the lives of citizens, but also the ability to ship oil.
In addition, the OPEC+ cut-off agreement continues in effect. At the end of last year, the OPEC and non-OPEC countries agreed to reduce production by 1.2 million b/d from the level of October 2018. According to the International Energy Agency (IEA), only OPEC countries in March reduced production by 1.24 million b/d (against the promised 812 thousand b/d), meeting their obligations by 153%.
World oil demand may be increased by another 10 million b/d, with more than half coming to China, said Gaidar Hasanov. Whereas supply in the market is declining, and therefore oil prices will continue to grow, and in the second half of the year we can already see $75-79 per barrel, the expert believes.
Anton Pokatovich is confident that the fundamental basis and geopolitics in the coming weeks will contribute to the formation of oil prices in the range of $70-75.
Meanwhile, according to Reuters, citing sources in OPEC, the cartel may begin to increase production since July. Highly inflated oil prices threaten a new round of speculation and a downturn in the market, as had occurred several years ago, and therefore in the long run a high-amplitude “swing” is not beneficial to anyone.
According to one of the spokespersons of the agency, OPEC will increase production if prices reach $85 per barrel, the other does not exclude such a development of events at $80 per barrel. The next OPEC meeting will take place on June 25 and 26.