Amongst a plethora of news, comment and opinion, it is often like struggling through a jungle when trying to get clarity on the commodities landscape. Sometimes, there is almost too much information.
So, an analysis in the Financial Times entitled “Five things to watch as Brent crude oil nears $70” makes a refreshingly simplified but no less comprehensive summary of the key issues currently driving the oil price.
The crude oil price rise has been relentlessly rising for the last 3-4 months and while plenty of opinion has been espoused — in these columns too, I should add — about the moderating effect of U.S. shale oil on global supply (and hence, prices), the reality is so far the impact has been minimal. Prices have continued to show stubborn resistance to any such moderation.
Iran has certainly been a factor. Opinions differ as to how much impact unrest in the region has contributed to price rises. However, as the third-largest oil producer in OPEC, contributing to some 4% of global supply, civil unrest was a reminder that nothing can be taken for granted.
In practice, protests had no impact on oil output. The street protests have now subsided, but Iran remains a source of tension in the region, with an antagonistic stance towards Saudi Arabia with respect to its military intervention in Yemen providing the potential for a flare-up. Oil output in the region generally has suffered some setbacks, with output in Kurdistan dropping after Baghdad took back control of disputed oilfields in October.
Output elsewhere has remained restrained in those countries participating in the Saudi-Russian led coalition to reduce inventories, but question marks remain as to how well they will stick to the deal as the oil price remains firm in 2018. Many may believe the heavy lifting is done and treasuries now deserve replenishing.
Not so fortunate to have a choice is Venezuela, which is quietly imploding.