Another meeting. Lot of hopes prior to the meeting that the suppressed oil prices would rise. Nothing happened. Then they forecasted the prices would go down. Again nothing happened. What is actually going on? No sane expert in this world can seem to understand what is actually happening. Some speculate that it is the Saudi defence minister who is pulling the strings. Others speculate that Iran doesn’t want to cut production. As the blame game continues, jobs are being shedded across the globe. One of the reasons is the rampant and senseless cost cutting, which again is a direct consequence of this downward spiral of oil commodity prices in the industry. When will this end. Will oil be ever valuable again?
I believe that the lever for oil prices is in the hands of the two of the largest economies of the world- China and India. The slowdown in the Chinese economy coupled with a long term and astute strategy by the Indian government not to reduce the fuel prices thereby controlling a drastic and senseless development bubble which China witnessed in the early 2000s, eventually resulted in the stubborn low oil prices. The Indian government has been ever insistent on using sustainable forms of energy while stockpiling both domestically and internationally record volumes of oil reserves at these low prices. This strategy is well thought of and would help in preventing a China like economic bubble that only benefits the rich and would increase the ever widening class divide. The production glut has not helped in reducing the prices too.
The oil price might increase with the next Chinese development cycle and might hover around $60-70/barrel. It all depends on how the Chinese supreme leader manages to enforce anti-corruption while figuring out how to deal with the Panama papers leak which explicitly featured everyone related to him.
There is a radical shift happening in Saudi Arabia. The old order is slowly being phased out in favor a new order led by a ruthless young Prince who is hell bent on reducing the reliance of oil in his kingdom. Moves like creating the world’s largest fund or the wealthiest company from the privatisation of Aramco are aimed at weaning the pampered populace away from oil wealth. Already home to large reserves of uranium and gold, the Saudi prince knows well that radical steps are needed else the kingdom would soon be redundant in the coming decades having seen a complete failure of the Wahhabist ideology.
USA with a clear knowledge of its shale oil reserves and production capabilities has wilfully pitted Iran into the mix so that oil prices remain suppressed forever. This would help in neutralising Russia. With a never ending Syrian war which started because Qatar wanted to sell it’s gas to Europe and the only way such a pipeline would exist is if it went through Syria. Russia being the single largest supplier of gas to Europe not wanting to lose its major customer with whom it enjoys an ages old love-hate relationship ensured that the repressive regime of Assad remained in Syria thereby ensuring a brutal civil war and a never ending refugee crisis that has engulfed the Western civilization to its worst moral and existential crisis- which it has never seen since the Second World War.
The scariest part of all this is that no one has a clue what is going on. All the players in the fray have been preparing for this moment for a long time and hence some serious sacrifices has to be made before some normalcy returns- if it ever returns!
Ever doubted the power of oil. It simply drives the age we live in! Being in this industry for a decade, I remember this quote by Juan Pablo Perez Alfonzo everyday:
Ten years from now, twenty years from now, you will see: oil will bring us ruin… Oil is the Devil’s excrement