Uncertainty is leading in the oil market. What to expect? Can the soaring demand provide surge in oil prices, or would increasing supply exceed the demand? These are vital issues to explore, but are they the only ones to care for?
On 2014 the oil prices lost their ground and started their gradual decline. First the prices fell from 110 $ per barrel to 40 $ per barrel level, afterwards a little retracement to 60 $ per barrel, then again the prices slipped to 30 $ per barrel. This price was able to cause a great economic crisis in the countries which had huge dependence from oil production and exports. Therefore, many oil producing countries decided to cut their production, so In December 2016, the OPEC and some non-OPEC countries agreed to curb production. That decision improved the situation and prices stabilized near 50 $ per barrel level.
But why the prices lost their ground on 2014? The main reason was raising US shale production. Weekly reports from EIA provided information about increasing oil production in the USA, that made many speculative traders to believe that there is emerging global oil glut, so they sold oil to profit on decline. Thus, prices started falling, and the price lost about 50-60 percent.
Why did US oil producers threatened their own business?
There is an opinion that the long-term outlook for oil demand is sinking, as new electric means of transport have been emerged in the market, and we won't need such amount of oil as 67 % of oil is consumed for transportation.
On the other hand, as many countries can't survive during the period of low oil prices, many specialists believe, that the US producers lowered the prices to urge them to cut their production, and so the market would be empty for US drillers.
But let’s reflect a bit profounder. It is obvious that the oil is far from being only economic instrument. It has been used for political purposes many times.
The period of plunge of the oil prices was coincided with the period of escalations of US – Russian relations. Russia's economy is heavily dependent on oil market. The 63 % of Russian experts are Mineral fuels, oil, therefore oil price reduction caused economic crisis in the country.
So, the USA can easily use the oil as a tool against any oil dependent economy. What they need is just publishing continuous increase in production numbers and a huge tsunami in the market is ready.
And today we have another wave of increasing tensions between 2 historic enemies. The sanctions against Russians from the west, and their response is destroying new founded Trump – Putin relations.
This time US targeted Russia's energy sector, with new limits on U.S. investment in Russian companies.
Moscow is responding very heavily, as is wasn’t sufficient for them to pose sanctions against US diplomats, yesterday Deputy Foreign Minister Sergei Ryabkov said that, Russia will speed up work on reducing dependency on U.S. payment systems and the dollar as a settling currency. He qualified this as a vital need.
Is it a beginning of new economic war? - Probably yes! Will the USA use oil prices to cause another Russian recession? - only time will tell!