The barrel price surged to $80 but subsequently declined to $78 last Friday, reflecting an oil market saturated with ample supply. This can be attributed primarily to OPEC-plus’ steadfast commitment to maintaining a crude oil reduction exceeding two million barrels per day.

Simultaneously, a continuous influx of oil from non-OPEC+ markets, notably the USA, Canada, and the emerging global producer Brazil, openly intensifies competition with other OPEC members. Certainly, Brazil is setting its sights on Iran, Iraq, and Kuwait. The country has openly declared its objective and is eagerly anticipating an invitation from OPEC shortly. The ongoing incidents in the Red Sea, including attacks on ships and tankers, as well as the seizure of oil tankers in the Arabian Gulf, are confrontations that pose a potential threat to the stable oil market that the world has been experiencing for some time.

Crude oil will continue its journey, taking the longer route around the cape, but it is not expected to disrupt the steady oil market, especially in terms of pricing, which has rebounded to $77 per barrel. Another reassuring indicator is the confidence in the abundant supply, highlighted by OPEC+’s spare capacity of over three million barrels per day, ready to be deployed whenever necessary. On the other hand, OPEC+ is actively promoting and providing enhanced discounts on their selling prices, aiming to stimulate the market, increase revenue, generate additional US dollars for their treasuries, and, above all, avert deficits in the current year’s budget at all costs.

The demand for oil remains subdued due to the lack of China’s influential demand, as its economic strength has yet to fully awaken. Consequently, oil-exporting nations are compelled to offer increased discounts to entice buyers and engage in direct competition with other producers. In contrast, Iran may have misjudged its decision to reduce discounts to China, as the buyer is steadfastly rejecting the proposed terms. Now is not the opportune moment to reduce discounts, given the saturated market with numerous suppliers eager to seize any opportunity to fill gaps, and secure new outlets, volumes, and buyers. The quantity of oil is currently less significant, as any volume is poised to find buyers, and prices are subject to negotiation.

The primary objective is to facilitate the movement of oil. Certainly, commodity speculators are anticipating an increase in tensions in the Red Sea, which could potentially escalate and spread to the Arabian Gulf region. None of the Gulf countries are prepared for such a scenario.. The oil demand continues to be lackluster. While there was a brief surge in oil prices following the Red Sea attack, the market quickly stabilized, and oil prices reverted to the upper $70s, falling below the significant threshold of $80 per barrel. This outcome has thwarted the achievement of the targeted balanced budget equilibrium.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]