Will Biden’s visit to Saudi Arabia help stabilize oil markets?

Will Biden’s visit to Saudi Arabia help stabilize oil markets?

Will Biden’s visit to Saudi Arabia help stabilize oil markets?
US President Joe Biden. (Reuters)
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Crude prices are still on the rise, as investors remain focused on global supply dynamics in Eastern Europe and North Africa.

Concerns of supply shortage were not outweighed by possible demand pressures caused by a rise in COVID-19 cases in China and more interest rate hikes.

The global political backdrop is also creating a fragmented world, increasing market uncertainties. Therefore, prices will remain firm and continue to rise beyond the $100 level.

For instance, sanctions on Russia by the EU are expected to cause an eventual shortage of around 2 million barrels per day of crude oil and refining capacity.

Libya, on the other hand, is only producing 100,000 bpd today, compared to its earlier production levels of 1.2 million bpd.

Many countries maintained and even increased their consumption of Russian fossil fuels, with India emerging among the top 10 importers and China replacing Germany as the biggest importer of Russian oil.

Meanwhile, Iraq’s Oil Ministry recently ordered companies operating under contracts with the Kurdistan Regional Government to terminate these contracts within three months as Baghdad is increasing efforts to bring the region’s oil sector under its control. This may further influence the continuous flow of supply into the market.

Global political “games” have re-shaped trade patterns, hiked commodities prices, and could potentially slow down the global economy.

As tensions between major countries are causing refining margins to skyrocket, the final products are becoming too expensive to end consumers.

One can also notice how the political backdrop created an environment where maximizing shareholders became the focal point for oil companies, driving investments away from research and development.

In summary, a geopolitically unstable world is the real driver behind continuous low crude oil inventories, causing high volatility in the markets as well as backwardation in the curve.

Today spare capacity is the only factor that can ensure market stability and reduce volatility, by providing a safety valve to the industry.

Looking for this relief, the US which initially turned to Venezuela and Iran seems to realize that the solution — if any — lies within the Arabian Gulf, especially Saudi Arabia.

All markets will be watching the historical visit of the US president to the Kingdom in July and prices are going to fluctuate accordingly.

Given the long experience of Saudi Arabia in the energy sector, we call for the US government to benefit from the perspective of its Saudi counterpart, who vividly understands the dynamics in the oil sector and proactively takes appropriate steps to ensure market stability.

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point of view