Dramatic events across the Middle East namely in Iraq and Syria have resulted in alarming fall of oil prices on the international markets, fuelling prospects that the global "oil map may be in the process of being redrawn." Analysts say the global markets are currently witnessing "a state of ambiguity," due to confusion with respect of determining the actual factors that have led to the prices' deterioration, where the oil price have fallen 20 percent over the past three months.
The Brent crudes lost 25 dollars, 21.7 percent, ending the past week at USD 90.21 per barrel, after recording the highest jump this year in June, USD 115.71 pb.
As to the Kuwaiti crude price, it shed USD 23.61 pb, ending the week at the level of USD 85.30 pb, as compared to USD 108.91 pb on June 23rd.
So far, experts have been unable to determine, in a consensus manner, the real causes for this record and sharp fall of the prices of the crude oil.
Contrary to previous forecasts, the international war on the Islamic State in Iraq and the Levant (ISIL) have not checked the downfall trend of the oil prices, amid a prevailing theme that the drastic drop of the crude prices is attributed to a major market glut, economic recession in major nations, namely China, Japan, Germany and the United States.
As a matter of principle, producers tend to trim output as a measure to enhance prices of the crude, however, some producers are doing the opposite, thus analysts cannot interpret such an approach on commonly known and standard grounds.
Experts, interviewed by KUNA, expressed divergent views regarding this key issue, with some speculating that it genuinely implies political calculations, others say that its grounds are of technical nature while a third party opines that the crude prices will rebound upwards, quickly.
Hajjaj Boukhaddour, a strategist in the field, said the oil prices fall had been anticipated with the launch of the military operations against the ISIL, however he noted that some influential states intentionally pushed the prices down to enable the market absorb any avert surprise rise of the prices.
Such a free rise of the prices may be caused by sabotage in oil-producing nations, Bokhaddour said, adding that "there is an international political decision behind the fall of the prices of oil, meant to preventing speculators from taking advantage of the military events." The current situation "warrants that we increase the production of oil and the reserves in the consuming nations," Bokhaddour said.
The hike of the output and the reserves can determine prices' tendency, where in case the output is abundant, prices fall, whereas when the reserves are high, to levels beyond the forecast, the prices may drop by three percent. When this happens, speculators have no justification to lift the prices; they rather get panicked and tend to abstain from speculation, he said, adding that the opportunity arises for them at start of military operations. "Now they have missed the chance and with the (forecast) conclusion of the military action, the prices will go up again," the veteran Kuwaiti expert explained.
Some of the causes for the oil prices' fall is the rate of the US dollar, Boukhaddour said. This is related to the US monetary policy, he said, indicating that the greenback is tied to the oil prices "in an opposite manner," for the dollar increases cost of the oil trade, thus speculation turns costly and the oil as a lucrative speculative tool loses attraction, therefore the price falls.
Growth rates "have played a major role in cutting the prices," and absence of major seasonal typhoons and storms contributed to the downfall tend.
Moreover, Boukhaddour anticipated the price of the Brent to remain within the USD 90-100 pb range, as long as the coalition operations against the ISIL continue. The prices in the first quarter of the year will not remain at the current level; they will either rebound or drop further, lower the USD 90 pb level.
As to role that can be played by OPEC, the Organization of Petroleum Exporting Countries, Boukhaddour said OPEC "can affect prices but cannot make them, thus the member states will not cut the production to lift the prices.
"The organization's resolutions in this respect will be political rather than technical and they will stress on abidance by the output shares at their upcoming meeting." Meanwhile, Dr. Talal Al-Bethali, a professor at Kuwait University, the Faculty of Engineering and Petroleum, said rise of the US dollar is the number-one cause for the the oil price fall, currently. Global economic slowdown is another major cause in this respect.
Oil prices had been forecast to drop to levels lower than the current ones, "however the Daesh (ISIL) problem and the air strikes have caused some balance," Dr. Al-Bethali said, also predicting continuing fall of the prices lower USD 80-75 pb.
He concurred with Boukhaddour that the OPEC producers would not trim their crude output in the foreseeable future. The OPEC states have suffered from the crude price decline because their budgets have been established on the basis of the USD 70-75 pb oil price, and "with the decrease they will need to boost the output and sales to spare themselves a budget deficit," he added.
Dr. Al-Bethali predicted further fall of the crude price next year, branding 2015 "the year of oil recession," however he stressed the crude "would remain the number-one energy source commodity across the world." The United States make very sharp calculations with respect of the USD rate, he said, expressing his belief that the current greenback bullish trend is attributed to strategists' considerations, related to the ongoing war, also pointing out that Washington could benefit from a high-level dollar for greater sales of arms. "Moreover, it is well known which party bears the cost of war," he hinted.
Dr. Al-Bethali expressed reservation at the term "collapse of prices," noting that they have been fluctuating since the crude discovery times.
As to prospects regarding the US shale oil, he said "the shale oil is an American trick ..," arguing that considering while it is being said that this type of crude is not feasible when prices are at the level of USD 110-120 pb, "how it can be feasible if the prices fall to USD 85 pb?" The professor reiterated the high cost of exploring shale oil and accused Washington of launching a public relations campaign for serving some political purposes and exert pressure on the producing countries.
Meanwhile, Dr. Khaled Boudai, an oil expert serving with Al-Ofoq consultancy, attributed the bearish trend of the oil prices to fall of global economic growth, 3.5 percent, instead of five percent as previously anticipated.
Other factors, he said, are the market glut, affirming that the downward trend to lower than USD 80 pb constitutes a threat to the shale oil schemes "which will prove unfeasible and cause bankruptcy of some companies investing in these ventures." The current situation would prompt those with aspirations to invest in shale oil "to have second thoughts." He forecast drop of the oil prices to USD 80 pb at start of the new year, however if OPEC intervenes, the decrease will be in the range of USD 85 pb.