Date: 2016-08-12

Oil Uncertainities due to Global Impacts

Alisha Prasad

Oil prices dipped on Monday due to the rising value of the dollar and the potential for an oversupply of oil. Global conditions and the turmoil in the Middle East caused oil barrel prices to rise, especially due to the gains that Islamic State militants made in Iraq after seizing the provincial capital of Ramadi. In addition, the dollar continued to rise against other major currencies, thus making raw materials less affordable to holders of the euro and other currencies.

However, oil prices slipped after Saudi Arabia reported its highest crude exports in nearly a decade and following the renewed air strikes by a Saudi-led coalition against Houthi militia in Yemen. In addition, market analysts have stated that the oil markets are oversupplied, which could be worsened if U.S. production increases while the OPEC output remains strong. Iran’s Deputy Oil Minister, Rokneddin Javadi, stated that OPEC would be unlikely to reduce its output as Iran hopes that its oil exports would return to pre-sanction levels of 2.5 million barrels per day within three months of the lifting of an oil embargo.

Kuwait’s OPEC Governor, Nawal al- Fuzaia, stated that the oversupply in global oil was due to the slow demand of oil, the rise of the output in shale oil output, and the steady production of the Organization of the Petroleum Exporting Countries. Goldman Sachs stated in a note recently published that it sees global oil demand being met by U.S. shale production, which has continued to benefit from efficiency and productivity improvements. The recent rally in oil prices has been called “premature” and that the market would re-balance the oil prices. A factor that has emerged in the fluctuation in the oil prices that is becoming more evident is the role that geopolitics plays in the global market. Comment below to let us know your thoughts on the fluctuations in the prices of oil and other commodities.

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