April 24 – Oman crude closed at $71.32 on Tuesday, an increase of $1.05 from previous day, while the Brent crude, the global benchmark, rose above $75 a barrel to its highest since November 2014.
After a near collapse to $27 a barrel in early 2016, oil prices began to recover in 2016 as OPEC discussed a return to market management with the help of Russia and other non-members.
A supply-cutting deal started in January 2017 and has been deepened by a steep output drop in Venezuela.
Speaking to the Observer, Fabio Scacciavillani, chief strategy officer, Oman Investment Fund (OIF), said that the uptick in international oil prices has to do with prevailing market dynamics. “The demand has been growing as the global economy is doing well, while the inventory that was built up, is more of less exhausted.”
Scacciavillani added that this situation will continue in the foreseeable future as there has been no major investment in oil exploration or discoveries over the past few years. “Any new investment that happens now will take place at least five to ten years to yield results and more importantly recovery of oil from new fields will be not cheap.”
He said that there is no fair price as such prices are largely determined by the marginal players – both the clients and buyers.
He said the current geopolitical situation, including the possibility of the return of sanctions on Iran and the worsening of the crisis in Venezuela, Libya and Syria can help spur the oil price above $80 per barrel levels. The chances of going back to the $50 level is very less unless there is a major financial crisis like that of 2008.
For Oman, he said the $70 per barrel level will help have a balanced budget.
Brent crude oil futures LCOc1 climbed to as high as $75.20 a barrel in early trading on Tuesday, the highest since Nov. 27, 2014. Brent was still at $75 a barrel, up 29 cents, or 0.4 percent, from its last close.
Brent’s six-day rising streak is the most since a similar string of gains in December and it is up by more than 20 per cent from its 2018 low in February.
Markets have been lifted by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) which were introduced in 2017 with the aim of propping up the market.
“Crude prices are now sitting at the highest levels in three years, reflecting ongoing concerns around geopolitical tensions in the Middle East, which is the source of nearly half of the world’s oil supply,” according to global analysts.
“Oil strength is coming from Saudi Arabia’s recent commitment to get oil back up to $70 to $80 per barrel as well as inventory levels that are back in the normal range,” they said.
OPEC’s supply curtailments and the threat of new sanctions are occurring just as demand in Asia, the world’s biggest oil consuming region, has risen to a record as new and expanded refineries start up from China to Vietnam.