GS Paper - II

Oil prices have perked up recently from a spell of torpor because a political dispute in Libya has curtailed much of the North African country’s output.

Futures for Brent crude oil, an international benchmark, were selling for just over $80 per barrel, an increase of about 5% from 10 days ago, before falling back below that mark. Yet, considering the degree of political turmoil not only in Libya but in the Middle East, the world’s petroleum hub, the market seems surprisingly calm.

The oil supply is plentiful

• The world is well stocked with oil, analysts say. Demand continues to grow, but production seems likely to keep pace.
• Brazil, Canada, Guyana and the United States are all increasing their oil output, countering cuts from the OPEC producers group and its allies, which have held back production by about 5 million barrels a day, or about 5% of global demand.
• Knowing all that oil could come to the market helps restrain prices. That’s why geopolitical concerns really don’t have much of an impact.
• The market has even shrugged off the continuing attacks on shipping vessels in the Red Sea. The market just got tired of reacting to every single attack.

More oil may be coming.

• In June, Saudi Arabia, the de facto OPEC leader, and some of its allies agreed to begin gradually feeding what could be about 2.5 million barrels a day of oil back into the market, beginning in October.
• Whether the group follows through on the decision, which will be regularly reviewed by the producers, is the biggest question.
• Richard Bronze, head of geopolitics at Energy Aspects, a research firm, said the group would most likely begin increasing production this fall.
• The Saudis are trying to manage a tricky situation. They worry that any quick increase in supplies may swamp markets, yet they face pressure for increases from member countries such as the United Arab Emirates, Iraq and Kazakhstan.
• Those nations have agreed to make billions of dollars in oil field investments with foreign partners — investments that will be difficult to make profitable without higher output.

Demand for oil in China is slowing

• World demand is expected to increase by only about 1 million barrels a day in 2024, less than half the increase seen in 2023, according to the International Energy Agency.
• The main reason: China, which has accounted for roughly half of consumption increases in the last two decades, is no longer roaring ahead — a big worry for the oil industry.
• China’s shift to electric vehicles in passenger cars and trucks may lead to drops in demand there for diesel this year and for gasoline in 2025, according to the IEA. If there were no EVs, global oil demand would be about 800,000 barrels a day higher.